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American Hotel Income Properties REIT LP reports Q3 2021 results
American Hotel Income Properties REIT LP (AHIP) has announced its financial results for the three and nine months ended September 30, 2021.
"During the third quarter our portfolio continued to post impressive results, with both top and bottom-line measures nearing pre-COVID levels." said Jonathan Korol, CEO. Mr. Korol continued, "Persistent demand from the domestic leisure traveller and signs of improvement from business customers resulted in Q3 average daily rate matching Q3 2019 numbers. In addition, steady Occupancy together with persistent margin improvements resulted in portfolio net operating income finishing within three percentage points of 2019 levels. These results demonstrate signs of continued improvement despite the ongoing COVID-19 pandemic."
"We are pleased to announce that the Board has approved the re-instatement of monthly distributions on our units with payment commencing in March 2022 at an annual rate of USD$0.18 per unit. In addition, the Board also approved the payment of our deferred March 2020 distribution on December 31, 2021." Mr. Korol added: "The return of our monthly distribution is appropriate and possible due to the financial resiliency of our portfolio. Throughout the pandemic, AHIP's portfolio has demonstrated one of the primary benefits of the premium-branded select service hotel operating model – the ability to generate cash flow at fluctuating levels of demand."
"We believe this distribution policy is sustainable and will help us manage our liquidity and maintain discipline with our balance sheet, which in turn will improve AHIP's access to capital markets to fund new acquisitions." Mr. Korol continued: "As one of the first North American public lodging REITs to announce the re-instatement of regular distributions, I am extremely proud of the measures adopted by our team during the pandemic and the ongoing dedication of our hotel associates, absent which we would not have reached this milestone so soon."
THREE MONTHS ENDED SEPTEMBER 30, 2021 FINANCIAL HIGHLIGHTS
- Revenues for the quarter increased by $22.1 million (or 47.7%) to $68.4 million (2020 – $46.3 million) compared to the prior year, reflecting the ongoing recovery from significantly lower demand in the prior year due to COVID-19.
- Revenue per Available Room ("RevPAR") increased 47.9 per cent to $81.50 (2020 – $55.12) caused by Average Daily Rate ("ADR") increases of 22.7 per cent to $118.49 (2020 – $96.53) and Occupancy increase by 1,170 basis points to 68.8 per cent (2020 – 57.1%).
- Net income and comprehensive income for the quarter was $15.7 million (2020 – loss of $12.7 million) primarily as a result of the recognition of $14.7 million of other income from the estimated forgiveness of government-guaranteed loans and changes in the fair value of the interest rate swaps and warrants in the period. A strong recovery in leisure travel and decrease in finance costs further strengthened AHIP's financial performance.
- Net operating income ("NOI") for Q3 2021 increased to $26.4 million (2020 – $14.6 million). The increase in NOI is due to overall improvements in ADR.
- Funds from operations ("FFO") for Q3 2021 increased to $26.4 million (2020 – $0.1 million) and adjusted funds from operations ("AFFO") increased to $26.1 million (2020 – $0.2 million). The increase in FFO and AFFO is due to higher NOI from an improvement in operations and two non-recurring items: $14.7 million of other income from the estimated forgiveness of government-guaranteed loans offset by a $1.0 million expense for an inventory adjustment. Excluding these two non-recurring items FFO and AFFO were $12.7 million and $12.4 million respectively.
- Q3 2021 Diluted FFO per Unit was $0.32 (2020 – $0.00) and Diluted AFFO per Unit was $0.32 (2020 – $0.00). Excluding the two above noted non-recurring items, these amounts were $0.16 and $0.15 per Unit, respectively.
- Strong performance continued through October 2021, with Occupancy of 70.2%, ADR of $117.88 and RevPAR of $82.70, each at 0.89x, 0.98x and 0.87x of October 2019 levels, respectively.
- During the three months ended September 30, 2021, AHIP estimated that approximately $14.7 million of its total $15.1 million government-guaranteed loans will meet the specific criteria for forgiveness. Accordingly, for the three and nine months ended September 30, 2021, AHIP recorded $14.7 million as other income and reduced the carrying value of these loans to the estimated settlement amount.
NINE MONTHS ENDED SEPTEMBER 30, 2021 FINANCIAL HIGHLIGHTS
- For AHIP's current portfolio of premium branded hotels only and using prior ownership's financial information for the 12 premium branded hotels acquired in December 2019, AHIP's existing portfolio has meaningfully narrowed the previously sizeable gap between 2021 and 2019 demand levels, while exceeding 2019 net operating income margin levels: AHIP's five Embassy Suites properties, which represent 1,311 rooms or 15 per cent of our portfolio, remained 26 per cent below 2019 RevPAR largely driven by an 1,887 basis points decrease in Occupancy levels. This is a significant improvement from the second quarter where RevPAR was 36 per cent below 2019 levels and 2,130 basis points below 2019 Occupancy rates.
- RevPAR increased by 35.5 per cent to $71.76 (2020 – $52.95) with Occupancy increasing by 1,510 basis points to 66.4 per cent (2020 – 51.3%). ADR increased by 4.8 per cent to $108.15 (2020 – $103.21), partially offset by two months of higher pre-COVID ADR in January and February 2020.
- AHIP's 24 extended stay properties were the strongest performing segment with recovery of RevPAR to 0.85x of 2019 RevPAR.
- FFO increased to $35.9 million (2020 – ($4.3) million). AFFO increased to $35.5 million (2020 – ($4.8) million). Excluding the two above noted non-recurring items, these amounts are $22.2 million and $21.8 million, respectively.
- Diluted FFO per Unit was $0.46 (2020 – ($0.06)) and Diluted AFFO per Unit was $0.44 (2020 – ($0.06)). Excluding the two above noted non-recurring items, these amounts are $0.28 and $0.28 per Unit, respectively.
- The STR RevPAR index, which compares the performance of AHIP-owned hotels to their competitive set in each region, indicated AHIP's 78 Premium Branded hotels have, in aggregate, outperformed their identified direct competition with an average index rating of 109.5 during the quarter (Q3 2020 – 122.4), with 100.0 representing a fair share of the market.
- NOI increased to $67.8 million (2020 – $36.6 million) due to higher revenues and expense reduction initiatives. NOI Margins increased to 37.9 per cent (2020 – 27.2%) attributable to extensive cost saving measures and relaxed brand standards which reduced operating expenses during this period compared to the prior period.
- Net income and comprehensive income was $2.2 million (2020 – loss of $45.5 million), as a result of a $14.7 million gain recognized from loan forgiveness. A higher NOI, lack of impairment charges, partially offset by higher deferred tax expense, further contributed to AHIP's positive performance.
- As part of effective asset management of the portfolio, AHIP deferred a number of capital projects in 2020 to preserve cash during the height of the pandemic. With approval from the hotel franchisors, all 2020 capital projects have been deferred to late 2021 and beyond in order to maximize cash balances. Franchisors have also provided temporary waivers of AHIP's obligations to fund ongoing Furniture, Fixtures and Equipment ("FF&E") reserves.
LEVERAGE AND LIQUIDITY
- As at September 30, 2021, AHIP had a total available liquidity of $43.6 million (2020 - $35.8 million) including an unrestricted cash balance of $14.8 million (2020 - $20.1 million) and available revolver capacity of approximately $28.8 million (2020 - $15.7 million). AHIP also has a restricted cash balance of $36.6 million which will be used to fund future Property Improvement Plans ("PIPs") and FF&E expenditures.
- Improvement in liquidity to $43.6 million at September 30, 2021 compared to the $35.8 million in the prior year is linked to both improvement in operations and net cash generated from financing for the nine months ended September 30, 2021.
- Cash generated from operations increased to $7.5 million (2020 - $ 5.1 million) as a result of higher operating income from the relative improvement of operations between comparative periods.
- AHIP's debt-to-gross book value as at September 30, 2021 was 54.0 per cent (2020 – 58.2%). This improvement is attributable to the decrease in the revolving credit facility, and government-guaranteed loans that are expected to be forgiven.
- As at September 30, 2021, AHIP's debt had a weighted average remaining term of 3.8 years (2020 – 4.8 years) and a weighted average interest rate of 4.56 per cent (2020 – 4.55 per cent) including continuing and discontinued operations.
AHIP is pleased to announce that its Board of Directors has approved (i) the payment of the deferred March 2020 distribution, with such payment to be made on December 31, 2021 to the unitholders of record as of March 31, 2020, and (ii) the adoption of a distribution policy providing for the payment of regular monthly distributions commencing in March 2022 at an annual rate of USD$0.18 per unit (monthly rate of USD$0.015 per unit). The first regular monthly distribution is currently expected to be declared in mid-February 2022, with a record date at the end of February 2022 and payable in March 2022. The declaration and payment of each monthly distribution under AHIP's distribution policy will remain subject to Board approval, and compliance by AHIP with the terms of its Credit Facility and investor rights agreement.
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 nine months ended September 30, 2021, which are available on AHIP's website at www.ahipreit.com and on SEDAR.