HOT.U American Hotel Income Properties REIT LP

VANCOUVER, BC, Aug. 9, 2022 /PRNewswire/ - American Hotel Income Properties REIT LP ("AHIP", or the "Company") (TSX: HOT.UN) (TSX: HOT.U) (TSX: HOT.DB.V), today announced its financial results for the three and six months ended June 30, 2022.

All amounts presented in this news release are in United States dollars ("U.S. dollars") unless otherwise indicated.

"We are pleased with the performance of our premium branded select-service hotel portfolio this quarter." commented Jonathan Korol, CEO. "Our team's ability to optimize daily rates in an inflationary environment resulted in the achievement of our highest quarterly average daily rate ("ADR")⁽¹⁾ levels in the history of the Company, while our fixed rate debt structure allowed us to meet our internal expectations for cash flow generation."

2022 SECOND QUARTER HIGHLIGHTS

• Revenue increased 19.0% to $75.6 million, compared to $63.6 million in the same period of 2021.
• Diluted FFO per unit⁽¹⁾ increased 28.6% to $0.18, compared to $0.14 in the same period of 2021.
• ADR increased to $125, compared to $117 in the first quarter of 2022, and $109 in the same period of 2021.
• Occupancy⁽¹⁾ increased to 72.8%, compared to 63.7% in the first quarter of 2022, and 70.0% in the same period of 2021.
• Debt to gross book value⁽¹⁾ decreased to 53.6% as at June 30, 2022, compared to 54.1% as at December 31, 2021 and 55.4% as at June 30, 2021.
• Weighted average interest rate for term loans and credit facility was 4.24% as at June 30, 2022, a reduction of 28 bps compared to 4.52% as at December 31, 2021.
• Total available liquidity increased by $6.9 million to $51.1 million as at June 30, 2022, compared to $44.2 million as at December 31, 2021, plus an additional restricted cash balance of $38.4 million as at June 30, 2022.
• Declared and paid monthly U.S. dollar distributions of $0.015 per unit in each month since February 2022.
• Cash flow from operating activities was $14.7 million for the second quarter of 2022, an increase of $9.3 million compared to the same period of 2021.
• Net and comprehensive income was $13.7 million for the second quarter of 2022, an increase of $13.2 million compared to the same period of 2021.

"This quarter we achieved our highest quarterly ADR, occupancy and RevPAR⁽¹⁾ since the onset of the pandemic. Quarterly RevPAR resumed its upward trend, finishing at 94% of 2019 levels." Mr. Korol added: "This was not only driven by ADR, but also increasing demand from our leisure guests as well as the gradual return of business and group travellers, as demonstrated by the tremendous performance of our Embassy Suites portfolio during the quarter."

"AHIP is not immune to the challenging operating environment, which includes cost inflation, labor shortages and supply chain disruptions. We are continuing to focus on revenue management, hiring more in-house labor, reducing turnover and improving housekeeping productivity. We remain well positioned to navigate the current macroeconomy given the lean operating model of our select-service portfolio as well as the diversified demand profile of our guests." commented Mr. Korol. "This was on display throughout the pandemic, as we achieved positive hotel EBITDA⁽¹⁾ every month since May 2020. Our balance sheet is in good shape, with no debt maturities until late 2023 and 93% fixed rate debt. We remain confident in our ability to navigate a dynamic operating environment and to add long-term unitholder value."

2022 SECOND QUARTER REVIEW

28.6% Growth in Diluted FFO per Unit 
Diluted FFO per unit increased 28.6% to $0.18 for the second quarter of 2022, compared to $0.14 for the same period of 2021. Net Operating Income ("NOI") ⁽¹⁾ increased by $0.3 million to $26.7 million in the current quarter due to organic revenue growth despite the disposition of two hotel properties since the second quarter of 2021. Included in diluted FFO⁽¹⁾, AHIP realized a $2.3 million gain on debt settlement and $0.9 million of other income that included a $0.7 million government grant for the loss of revenue as a result of the COVID-19 pandemic.

19.0% Growth in Revenue 
Improving demand levels resulted in enhanced pricing power and greater opportunity to manage revenue for various hotel segments. As a result, AHIP's revenue continued to improve in the second quarter of 2022. Revenue increased by 19.0% to $75.6 million compared to $63.6 million for the same period in 2021. This improvement was due to both higher ADR and increased occupancy. Same property occupancy⁽¹⁾ increased by 280 bps to 73.1% in the current quarter from 70.3% in the same period of 2021, which is a 90% recovery compared to the pre-COVID occupancy level in the same period of 2019. Same property ADR⁽¹⁾ increased by 13.6% to $125 in the current quarter compared to $110 in the same period of 2021, which is 5% higher than the pre-COVID ADR in the same period of 2019. ADR has increased each month in the six months ended June 30, 2022.

AHIP's five Embassy Suites properties represent 15% of the portfolio by room count. For the three months ended June 30, 2022, RevPAR for these properties was $102, an increase of 44.0% compared to the same period in 2021 and achieved 92% recovery compared to pre-COVID pandemic RevPAR in the same period of 2019. The Embassy Suites experienced recovery in business and group travel in the current quarter, supplemented by leisure–oriented groups. AHIP's five Embassy Suites were renovated in 2018 and 2019 and are well positioned to capture improving business and corporate group demand in 2022.

High Inflation and Labor Shortages
Same property NOI margin⁽¹⁾ decreased by 630 bps to 35.2% in the second quarter of 2022, compared to the same period of 2021, and achieved 94.0% recovery compared to the pre-COVID NOI margin in the same period of 2019. The decrease in same property NOI margin was mainly due to higher operating expenses as a result of inflation and labor shortages. Inflation resulted in higher costs of operating supplies and higher utilities expenses. Labor shortages resulted in increased room labor expenses.

Reduction in Leverage by 50 bps
Debt to gross book value as at June 30, 2022 decreased by 50 bps to 53.6% compared to 54.1% as at December 31, 2021. The decrease was mainly due to the increase of $9.3 million in unrestricted cash as a result of improving operating results. Management intends to bring its leverage to a level closer to its peer group over time which would be in the range of 40-50% debt to gross book value. This is expected to be achieved through a combination of improving operating results, a sustainable distribution and selective equity issuance in support of growth transactions.

Liquidity Improvement of $6.9 Million 
Total available liquidity increased by $6.9 million to $51.1 million as at June 30, 2022, compared to $44.2 million as at December 31, 2021. Total available liquidity of $51.1 million was comprised of an unrestricted cash balance of $24.0 million and borrowing availability of $27.1 million under the revolving credit facility.

U.S. Dollar Distribution 
AHIP has adopted a distribution policy providing for the payment of regular monthly U.S. dollar distributions at an annual rate of $0.18 per unit (monthly rate of $0.015 per unit). Monthly distributions have been declared and paid each month since February 2022. The distribution reintroduced in February 2022 was at a level which would allow AHIP to increase it over time. Assuming stable or improving financial results, AHIP would be in a position to increase the distribution level in future periods.

2022 SECOND QUARTER RESULTS

The following table summarizes portfolio operating key performance indicators ("KPIs") for the five most recent quarters with a comparison represented as a multiple of the same period in 2019. January to December 2019 KPIs are based on prior ownership's financial information for the 12 premium branded hotels acquired in December 2019, and all data in the Same Property KPIs table below excludes the two hotels sold in 2022.

Same Property KPIs (76 hotels)

FINANCIAL INFORMATION

This news release should be read in conjunction with AHIP's unaudited condensed consolidated interim financial statements, and management's discussion and analysis for the three and six months ended June 30, 2022 and 2021, that are available on AHIP's website at www.ahipreit.com, and under AHIP's profile on SEDAR at www.sedar.com.

Q2 2022 CONFERENCE CALL

Management will host a webcast and conference call at 1:00 p.m. Eastern time / 10:00 a.m. Pacific time on Wednesday, August 10, 2022, to discuss the financial and operational results for the three and six months ended June 30, 2022 and 2021.

To participate in the conference call, please use 1-800-263-0877 (Toll-free North America) or 1-647-794-1825 (Toronto). Please ask to participate in American Hotel Income Properties' Q2 2022 Analyst Call. To avoid any delays in joining the call, please dial in at least five minutes prior to the call start time. If prompted, please provide entry code 7786722. 

An audio webcast of the conference call is also available, both live and archived, on the Events & Presentations page of AHIP's website: www.ahipreit.com. Alternatively, you may register for the webcast directly at the following link: https://produceredition.webcasts.com/starthere.jsp?ei=1554403&tp_key=8e3a06835b

A replay of the conference call can be accessed after 4:00 p.m. Eastern time / 1:00 p.m. Pacific time on Wednesday, August 10, 2022, at 1-888-203-1112 or 1-647-436-0148 (using entry code 7786722). The replay will be available until 4:00 p.m. Eastern time / 1:00 p.m. Pacific time on August 17, 2022.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.V), or AHIP, is a limited partnership formed to invest in hotel real estate properties across the United States. AHIP's portfolio of 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 and Choice Hotels through license agreements. AHIP'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

NON-IFRS AND OTHER FINANCIAL MEASURES

Management believes the following non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures are relevant measure to monitor and evaluate AHIP's financial and operating performance. These measures and ratios do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures and ratios are included to provide investors and management additional information and alternative methods for assessing AHIP's financial and operating results and should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS.

NON-IFRS FINANCIAL MEASURES:

FFO: FFO measures operating performance and is calculated in accordance with Real Property Association of Canada's ("REALPAC") definition. FFO – basic is calculated by adjusting net and comprehensive income (loss) for depreciation and amortization, gain or loss on disposal of property, International Financial Reporting Interpretations Committee ("IFRIC") 21 property taxes, fair value gain or loss, deferred income tax, and other applicable items. FFO – diluted is calculated as FFO – basic plus the interest, accretion, and amortization on convertible debentures if convertible debentures are dilutive. The most comparable IFRS measure to FFO is net and comprehensive income (loss).

AFFO: AFFO is defined as a recurring economic earnings measure and calculated in accordance with REALPAC's definition. AFFO – basic is calculated as FFO – basic less maintenance capital expenditures. AFFO – diluted is calculated as FFO – diluted less maintenance capital expenditures. The most comparable IFRS measure to AFFO is net and comprehensive income (loss).

NOI: calculated by adjusting income from operating activities for depreciation and amortization, and IFRIC 21 property taxes. The most comparable IFRS measure to NOI is income from operating activities.

Hotel EBITDA: calculated by adjusting income from operating activities for depreciation and amortization, IFRIC 21 property taxes and management fees for hotel. The most comparable IFRS measure to hotel EBITDA is income from operating activities.

EBITDA: calculated by adjusting income from operating activities for depreciation and amortization, IFRIC 21 property taxes, management fees for hotel and general administrative expenses. The sum of management fees for hotel and general administrative expenses is equal to corporate and administrative expenses in the Financial Statements. The most comparable IFRS measure to EBITDA is income from operating activities.

Debt: calculated as the sum of term loans and revolving credit facility, the face value of convertible debentures, unamortized portion of debt financing costs, government guaranteed loan, lease liabilities and unamortized portion of mark-to-market adjustments. The most comparable IFRS measure to debt is total liabilities.

Gross book value: calculated as the sum of total assets, accumulated depreciation and impairment on property, buildings and equipment, and accumulated amortization on intangible assets. The most comparable IFRS measure to gross book value is total assets.

Interest expense: calculated by adjusting finance costs for gain/loss on debt settlement, amortization of debt financing costs, accretion of debenture liability, amortization of debenture costs, dividends on series B preferred shares and amortization of mark-to-market adjustments because interest expense excludes certain non-cash accounting items and dividends on preferred shares.  The most comparable IFRS measure to interest expense is finance costs.

NON-IFRS RATIOS:

FFO per unit – basic/diluted: calculated as FFO – basic/diluted divided by weighted average number of units outstanding - basic/diluted respectively for the reporting periods. 

AFFO per unit – basic/diluted: calculated as AFFO – basic/diluted divided by weighted average number of units outstanding - basic/diluted respectively for the reporting periods. 

FFO payout ratio – basic, trailing twelve months: calculated as total distributions declared to unitholders – basic, divided by total basic FFO, for the twelve months ended June 30, 2022 and 2021.

FFO payout ratio – diluted, trailing twelve months: calculated as total distributions declared to unitholders – diluted, divided by total diluted FFO, for the twelve months ended June 30, 2022 and 2021.

AFFO payout ratio – basic, trailing twelve months: calculated as total distributions declared to unitholders – basic, divided by total basic AFFO, for the twelve months ended June 30, 2022 and 2021.

AFFO payout ratio – diluted, trailing twelve months: calculated as total distributions declared to unitholders – diluted, divided by total diluted AFFO, for the twelve months ended June 30, 2022 and 2021.

NOI margin: calculated as NOI divided by total revenue.

Hotel EBITDA margin: calculated as hotel EBITDA divided by total revenue.

EBITDA margin: calculated as EBITDA divided by total revenue.

CAPITAL MANAGEMENT MEASURES:

Debt to gross book value: calculated as debt divided by gross book value. Debt to gross book value is a primary measure of capital management and leverage.

Debt to EBITDA: calculated as debt divided by the trailing twelve months of EBITDA. Debt to EBITDA measures the amount of income generated and available to pay down debt before covering interest, taxes, depreciation, and amortization expenses.

Interest coverage ratio: calculated as EBITDA for the trailing twelve months divided by interest expense for the trailing twelve months period. The interest coverage ratio measures AHIP's ability to meet required interest payments related to its outstanding debt.

SUPPLEMENTARY FINANCIAL MEASURES:

Occupancy is a major driver of room revenue as well as food and beverage revenues. Fluctuations in occupancy are accompanied by fluctuations in most categories of variable hotel operating expenses, including housekeeping and other labor costs. ADR also helps to drive room revenue with limited impact on other revenues. Fluctuations in ADR are accompanied by fluctuations in limited categories of hotel operating expenses, such as franchise fees and credit card commissions, since variable hotel operating expenses, such as labor costs, generally do not increase or decrease correspondingly. Thus, increases in RevPAR attributable to increases in occupancy typically reduce EBITDA and EBITDA Margins, while increases in RevPAR attributable to increases in ADR typically result in increases in EBITDA and EBITDA Margins.

Occupancy: calculated as total number of hotel rooms sold divided by total number of rooms available for the reporting periods. Occupancy is a metric commonly used in the hotel industry to measure the utilization of hotels' available capacity.

Average daily rate ("ADR"): calculated as total room revenue divided by total number of rooms sold for the reporting periods. ADR is a metric commonly used in the hotel industry to indicate the average revenue earned per occupied room in a given time period.

Revenue per available room ("RevPAR"): calculated as occupancy multiplied by ADR for the reporting periods.

Same property occupancy, ADR, RevPAR, NOI and NOI margin: measured for properties owned by AHIP for both the current reporting periods and the same periods in 2021 and pre-COVID in 2019. For the three and six months ended June 30, 2022, same property occupancy, ADR, RevPAR, NOI include 76 hotels (excluding the two hotels sold in 2022).

NON-IFRS RECONCILIATION

The following table reconciles FFO and AFFO from net and comprehensive income (loss), the most comparable IFRS measure as presented in the financial statements:

The reconciliation of income from operating activities to NOI, hotel EBITDA and EBITDA is shown below:

The reconciliation of finance costs to interest expense is show below:

For information on the most directly comparable IFRS measures, composition of the measures, a description of how AHIP uses these measures, and an explanation of how these measures provide useful information to investors, please refer to AHIP's management discussion and analysis for the three and six months ended June 30, 2022 and 2021, available on AHIP's website at www.ahipreit.com, and under AHIP's profile on SEDAR at www.sedar.com, which is incorporated by reference into this news release.

FORWARD-LOOKING INFORMATION

Certain statements in this news release may constitute "forward-looking information" within the meaning of applicable securities laws (also known as forward-looking information). Forward-looking information generally can be identified by words such as "anticipate", "believe", "continue", "expect", "estimates", "intend", "may", "outlook", "objective", "plans", "should", "will" and similar expressions suggesting future outcomes or events. Forward-looking information includes, but is not limited to, statements made or implied relating to the objectives of AHIP, AHIP's strategies to achieve those objectives and AHIP's beliefs, plans, estimates, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Forward-looking information in this news release includes, but is not limited to, statements with respect to: AHIP's expectations with respect to its future performance, including specific expectations in respect to certain categories of its properties; AHIP's leverage and liquidity strategies and goals, including its target debt to gross book value ratio; AHIP's expectations with respect to the performance of its hotel portfolio for 2022, including revenue and expenses; AHIP's intention to repay maturing debt and its expected means of doing so; AHIP's outlook on the U.S. travel market; the expected timing for the declaration, record date and payment of monthly distributions, and any increase thereof; and AHIP's stated long-term objectives.

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 based on a number of key expectations and assumptions made by AHIP, including, without limitation: inflation, labor shortages, and supply chain disruptions will negatively impact the U.S. economy, U.S. hotel industry and AHIP's business; the COVID-19 pandemic will continue to negatively impact (although to a lesser extent than previously) the U.S. economy, U.S. hotel industry and AHIP's business; AHIP will continue to have sufficient funds to meet its financial obligations; AHIP's strategies with respect to margin enhancement, completion of capital projects, liquidity and divestiture of non-core assets and acquisitions will be successful; capital projects will be completed on time and on budget; AHIP's will continue to have good relationships with its hotel brand partners; ADR and Occupancy will be stable or rise in 2022; AHIP's distribution policy will be sustainable and AHIP will not be prohibited from paying distributions under the terms of its term loans, revolving credit facility and investor rights agreement; AHIP's ability to increase distribution level in future periods assuming stable or improving operating results; the portion  of the government-guaranteed loans to be forgiven will be consistent with AHIP's estimates; capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP, including the ability to refinance maturing debt as it becomes due; AHIP's future level of indebtedness and its future growth potential will remain consistent with AHIP's current expectations; and AHIP will achieve its long term objectives.

Forward-looking information involves significant risks and uncertainties and should not be read as a guarantee of future performance or results as actual results may differ materially from those expressed or implied in such forward-looking information, accordingly undue reliance should not be placed on such forward-looking information. Those risks and uncertainties include, among other things, risks related to: inflation, labor shortages, supply chain disruptions, the COVID-19 pandemic and related government measures and their impact on the U.S. economy, the U.S. hotel industry, and AHIP's business; AHIP may not achieve its expected performance levels in 2022; AHIP's brand partners may impose revised service standards and capital requirements which are adverse to AHIP; property improvement plan renovations may not commence or complete in accordance with currently expected timing and may suffer from increased material costs; recent recovery trends at AHIP's properties may not continue and may regress; AHIP's strategies with respect to margin enhancement, completion of accretive capital projects, liquidity, divestiture of non-core assets and acquisitions may not be successful; AHIP may not be successful in reducing its leverage; monthly cash distributions are not guaranteed and remain subject to the approval of Board of Directors, compliance with the terms of its credit facility and may be reduced or suspended at any time at the discretion of the Board; AHIP may not be able to refinance debt obligations as they become due; AHIP may not satisfy the criteria for forgiveness of certain government-guaranteed loans obtained by AHIP; general economic conditions and consumer confidence; the growth in the U.S. hotel and lodging industry; prices for AHIP's units and its debentures; liquidity; tax risks; ability to access debt and capital markets; financing risks; changes in interest rates; the financial condition of, and AHIP's relationships with, its external hotel manager and franchisors; real property risks, including environmental risks; the degree and nature of competition; ability to acquire accretive hotel investments; ability to integrate new hotels; environmental matters; increased geopolitical instability; and changes in legislation and AHIP may not achieve its long term objectives. Management believes that the expectations reflected in the forward-looking information are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with the forward-looking information contained herein. Additional information about risks and uncertainties is contained in AHIP's management's discussion and analysis and annual information form for the year ended December 31, 2021, 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.

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.

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SOURCE American Hotel Income Properties REIT LP