VANCOUVER, British Columbia, Aug. 06, 2024 (GLOBE NEWSWIRE) -- 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, 2024.
All amounts presented in this news release are in United States dollars (“U.S. dollars”) unless otherwise indicated.
2024 SECOND QUARTER HIGHLIGHTS
- Diluted FFO per unit (1) and normalized diluted FFO per unit (1) were $0.12 and $0.10, respectively, for the second quarter of 2024, compared to $0.19 and $0.14 for the same period of 2023.
- RevPAR (1) increased 5.1% to $103 for the second quarter of 2024, compared to $98 for the same period of 2023.
- ADR (1) increased 3.0% to $137 for the second quarter of 2024, compared to $133 for the same period of 2023.
- Occupancy (1) was 75.4% for the second quarter of 2024, an increase of 160 basis points (“bps”) compared to 73.8% for the same period of 2023.
- NOI and normalized NOI (1) were $24.2 million for the second quarter of 2024, decreases of 4.3% and 11.0%, respectively, compared to $25.3 million and $27.2 million for the same period in 2023.
- AHIP had $26.7 million in available liquidity as at June 30, 2024, compared to $27.8 million as at December 31, 2023. The available liquidity of $26.7 million was comprised of an unrestricted cash balance of $16.0 million and borrowing availability of $10.7 million under the revolving credit facility.
“AHIP’s portfolio of premium branded select service hotel properties continued to demonstrate strong demand metrics in 2024.” said Jonathan Korol, CEO. “Portfolio ADR, occupancy and RevPAR all achieved meaningful growth in the current quarter. RevPAR increased 5.1% to $103, the highest level in the history of the Company. While cost inflation is decelerating across many cost categories, costs remain elevated resulting in pressures to hotel operating margins.”
Mr. Korol added: “AHIP’s Board and management team continue to advance our plan to preserve cash, enhance financial stability and protect long term value for our unitholders. In late 2023, we completed an amendment and extension of our revolving credit facility, reduction and deferral of hotel management fees, and temporary suspension of our monthly distribution. We are currently executing a plan to address 2024 debt obligations with asset sales and loan refinancings. In the first quarter, AHIP completed two asset sales and refinanced mortgage debt for three hotels. We currently have 6 additional hotels under contract for sale. These steps will strengthen our liquidity and balance sheet to ensure we are positioned to benefit when the industry operating and macroeconomic environment improves. We will continue to monitor conditions and operating performance, while considering further strategic opportunities to deliver value over the long term.”
________________________
(1) Non-IFRS and other financial measures. See “NON-IFRS AND OTHER FINANCIAL MEASURES” section of this news release.
2024 SECOND QUARTER REVIEW
FINANCIAL AND OPERATIONAL HIGHLIGHTS
For the three months ended June 30, 2024, ADR was $137, and occupancy was 75.4%, increases of 3.0% and 160 bps, respectively, compared to the same period in 2023. Collectively, strong ADR and increasing occupancy resulted in an increase of 5.1% in RevPAR compared to the same period in 2023.
The improved RevPAR is attributable to higher demand for the extended stay and select service properties. This is partially due to improved performance of properties disrupted in 2023 by the weather-related damage and property renovations at three hotels, as well as the disposition of properties with lower-than-average portfolio RevPAR.
The ability to control and manage daily rates is a key advantage of the lodging sector, which has enabled AHIP to achieve growth in RevPAR, partially mitigating the effects of rising labor costs and general inflationary pressures across the portfolio.
NOI, NOI MARGIN AND DILUTED FFO PER UNIT
NOI and normalized NOI were $24.2 million for the three months ended June 30, 2024, decreases of 4.3% and 11.0%, respectively, compared to NOI of $25.3 million and normalized NOI of $27.2 million for the same period in 2023. The decrease in NOI was primarily due to the disposition of the two hotel properties completed in March 2024. The decrease in normalized NOI was due to the same factors, and $1.9 million in business interruption proceeds related to the weather-related damage at several hotel properties in late December 2022 was included in the normalized NOI in the same period of the prior year.
NOI margin was 32.9% in the current quarter, a decrease of 60 bps compared to the same period in 2023. The decrease in NOI margin was due to higher operating expenses as a result of general cost inflation, escalated labor costs, and higher property insurance premiums in April and May 2024. Although certain operating expenses are expected to remain a challenge in 2024, the decline of year-over year NOI margin has been reduced from 270 bps in the first quarter of 2024 to 60 bps in the current quarter.
AHIP completed its property insurance renewal effective June 1, 2024 with a decrease in premiums compared to the prior period ended May 31, 2024. On an annualized basis, the decrease from the prior period is approximately $1.6 million, which will be recognized in earnings over a twelve-month period.
Diluted FFO per unit and normalized diluted FFO per unit were $0.12 and $0.10 for the second quarter of 2024, respectively, compared to diluted FFO per unit of $0.19 and normalized diluted FFO per unit of $0.14 for the same period in 2023. Normalized diluted FFO per unit in the current quarter excluded non-recurring expected insurance proceeds of $1.6 million, mainly as a result of hail damage and a fire incident in the current quarter. The decrease in normalized diluted FFO per unit was due to: (i) $1.9 million in business interruption proceeds related to the weather-related damage at several hotel properties in late December 2022 that was included in the normalized diluted FFO per unit in the same period of the prior year; (ii) lower NOI, and (iii) higher financing costs in the current quarter.
LEVERAGE AND LIQUIDITY
| KPIs | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 |
| Debt-to-GBV (1) | 52.0% | 52.2% | 51.9% | 51.1% | 51.6% |
| Debt-to-TTM EBITDA (1) | 9.7x | 10.5x | 10.6x | 10.1x | 9.8x |
________________________
(1) Non-IFRS and other financial measures. See “NON-IFRS AND OTHER FINANCIAL MEASURES” section of this news release.
Debt to gross book value as at June 30, 2024 was 52.0%, an increase of 10 bps compared to December 31, 2023. Debt to TTM EBITDA as at June 30, 2024 was 9.7x, a decrease of 0.1x compared to June 30, 2023. The improvement in Debt to TTM EBITDA was mainly due to the five hotel properties that were in managed foreclosure as of June 30, 2024.
As at June 30, 2024, AHIP had $26.7 million in available liquidity, compared to $27.8 million as at December 31, 2023. The available liquidity of $26.7 million was comprised of an unrestricted cash balance of $16.0 million and borrowing availability of $10.7 million under the revolving credit facility. AHIP has an additional restricted cash balance of $40.3 million as at June 30, 2024.
AHIP has 70.6% of its debt at fixed interest rates following the expiry of the interest rate swaps on its senior credit facility on November 30, 2023. The notional value of the interest rate swaps was $130.0 million prior to their expiry. As a result of this expiry, at the current average secured overnight financing rate (“SOFR”) of 5.3%, the incremental annual interest expense is estimated to be approximately $5.2 million for the twelve months ended November 30, 2024.
Northeast Portfolio III CMBS Loan
During the first quarter of 2024, AHIP notified the master servicer for the AHIP Northeast Portfolio III CMBS Loan (“Loan Portfolio” or “CMBS Loan”) of an imminent change in circumstances which resulted in the master servicer issuing a notice of default as well as a notice of acceleration and demand for payment on April 19, 2024. This Loan Portfolio is secured by four hotels: a Fairfield Inn & Suites and a Hampton Inn located in White Marsh, MD, a Homewood Suites located in Egg Harbor Township, NJ and a SpringHill Suites located in Brookhaven, NY (collectively, the “Hotels” or “Assets”). On May 16, 2024, a receiver was duly appointed over the Hotels pursuant to an appointment order.
The principal amount of this non-recourse CMBS Loan as of June 30, 2024 was $51.0 million and the receiver is currently making principal and interest payments. AHIP ceased recognizing revenue and expenses, relating to the Hotels on the effective date of the appointment order. The CMBS Loan and Assets will remain on AHIP’s balance sheet until the Hotels have been transferred to or sold by the special servicer. Removal of this Loan Portfolio from Debt to TTM EBITDA contributed to the improvement in this measure in the second quarter of 2024.
CAPITAL RECYCLING
In March 2024, AHIP completed the strategic dispositions of hotel properties in Harrisonburg, Virginia and Cranberry Township, Pennsylvania for gross proceeds of $8.55 million and $8.25 million respectively. Under the terms of the credit agreement governing the revolving credit facility and certain terms loans (the “Sixth Amendment”), 50% of the net proceeds from the sale of these two hotel properties, which is 0.7 million, was used to pay down outstanding amounts under such term loans in the second quarter of 2024.
In May and June 2024, AHIP entered into agreements to dispose of three hotel properties in Ocala, Florida for gross proceeds of $33.7 million. The dispositions are currently expected to close in the third and fourth quarters of 2024.
In July and August 2024, AHIP entered into agreements to dispose of hotel properties in each of Dallas, Texas, Egg Harbor Township, New Jersey, and Corpus Christi, Texas for gross proceeds of $27.0 million, $11.1 million, and $10.3 million respectively. The dispositions are currently expected to close in the fourth quarter of 2024.
In August 2024, AHIP completed the strategic dispositions of two hotel properties in Amarillo, Texas for gross proceeds of $9.3 million and $8.3 million, respectively. Under the terms of the Sixth Amendment, 50% of the net proceeds from the sale of these two hotel properties will be used to pay down outstanding amounts under such term loans in the second half of 2024.
AHIP intends to use the net proceeds from these dispositions to pay down CMBS mortgage debt and the term loans governed by the Sixth Amendment. The combined sales price for these properties, which have been disposed or currently under agreements for dispositions in 2024, represents a blended Cap Rate of 7.4% on 2023 annual hotel EBITDA, after adjusting for an industry standard 4% furniture, fixtures, and equipment (“FF&E”) reserve. This also represents $87 thousand per key and a blended yield of 5.6% after adjusting for the expected capital expenditure requirements.
AHIP intends to continue to execute its strategy to divest assets to reduce debt and is currently marketing a selected number of additional properties which are expected to demonstrate value above the current Unit trading price.
SAME PROPERTY KPI
The following table summarizes key performance indicators (“KPIs”) for the portfolio for the five most recent quarters with a comparison to the same period in the prior year.
| KPIs | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 |
| ADR | $136 | $133 | $127 | $133 | $134 |
| Change compared to same period in prior year - % increase (decrease) | 1.5% | (0.7%) | 0.1% | 3.3% | 6.6% |
| Occupancy | 75.0% | 67.7% | 67.2% | 71.7% | 74.1% |
| Change compared to same period in prior year - bps increase (decrease) | 90 | 60 | (124) | (209) | (102) |
| RevPAR | $102 | $90 | $86 | $95 | $99 |
| Change compared to same period in prior year - % increase (decrease) | 3.0% | 0.2% | (1.7%) | 0.3% | 5.2% |
| NOI Margin | 32.3% | 28.5% | 26.0% | 30.3% | 33.8% |
| Change compared to same period in prior year - bps increase (decrease) | (150) | (214) | (584) | (298) | (124) |
Same property ADR in the current quarter is $136, an increase of 1.5% compared to the same period of 2023. Same property occupancy increased by 90 bps to 75.0% in the current quarter compared to the same period of 2023. The increase in ADR and occupancy is primarily attributable to higher demand for the extended stay and select service properties.
Same property NOI margin decreased by 150 bps to 32.3% for the second quarter of 2024, compared to the same period of 2023. The decrease in the same property NOI margin was due to higher operating expenses as a result of general cost inflation, escalated labor costs, and higher property insurance premiums in April and May 2024. The labor environment is improving although labor is expected to remain a challenge in 2024 with increased turnover, which impacts hotel management continuity, hiring and training expenses.
SELECTED INFORMATION
| Three months ended June 30 | Six months ended June 30 | ||||||||
| (thousands of dollars, except per Unit amounts) | 2024 | 2023 | 2024 | 2023 | |||||
| Revenue | 73,614 | 75,483 | 140,103 | 140,941 | |||||
| Income from operating activities | 19,619 | 17,919 | 27,188 | 27,337 | |||||
| Income (loss) and comprehensive income (loss) | (1,591 | ) | 10,658 | (9,700 | ) | 9,058 | |||
| NOI | 24,194 | 25,287 | 41,384 | 44,025 | |||||
| NOI Margin | 32.9 | % | 33.5 | % | 29.5 | % | 31.2 | % | |
| Hotel EBITDA (1) | 22,634 | 22,867 | 38,307 | 39,469 | |||||
| EBITDA (1) | 19,825 | 20,233 | 33,145 | 34,277 | |||||
| Cashflow from operating activities | 10,644 | 12,403 | 10,687 | 25,497 | |||||
| Distributions declared per unit - basic and diluted | - | 0.045 | - | 0.09 | |||||
| Distributions declared to unitholders - basic | - | 3,548 | - | 7,094 | |||||
| Distributions declared to unitholders - diluted | - | 4,033 | - | 8,059 | |||||
| Dividends declared to Series C holders | 1,138 | 1,011 | 2,237 | 2,011 | |||||
| FFO diluted (1) | 11,014 | 16,653 | 12,220 | 26,454 | |||||
| FFO per unit - diluted | 0.12 | 0.19 | 0.15 | 0.30 | |||||
| Normalized FFO per unit - diluted | 0.10 | 0.14 | 0.12 | 0.21 | |||||
| AFFO diluted (1) | 9,185 | 13,514 | 7,389 | 20,595 | |||||
| AFFO per unit - diluted (1) | 0.10 | 0.15 | 0.09 | 0.23 | |||||
| (1) See “Non-IFRS and Other Financial Measures” | |||||||||
SELECTED INFORMATION
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| Total assets | 918,960 | 954,887 | |||
| Total liabilities | 697,735 | 721,937 | |||
| Total non-current liabilities | 394,825 | 529,178 | |||
| Term loans and revolving credit facility | 565,964 | 599,873 | |||
| Debt to gross book value | 52.0 | % | 51.9 | % | |
| Debt to TTM EBITDA (times) | 9.7 | 10.6 | |||
| Interest coverage ratio (times) (1) | 1.7 | 1.9 | |||
| Term loans and revolving credit facility: | |||||
| Weighted average interest rate | 5.73 | % | 4.95 | % | |
| Weighted average term to maturity (years) | 1.8 | 2.2 | |||
| Number of rooms | 7,662 | 7,917 | |||
| Number of properties | 68 | 70 | |||
| Number of restaurants | 14 | 14 | |||
| (1) See “Non-IFRS and Other Financial Measures” | |||||
2024 SECOND QUARTER OPERATING RESULTS
| Three months ended June 30 | Six months ended June 30 | ||||||||
| (thousands of dollars) | 2024 | 2023 | 2024 | 2023 | |||||
| ADR | 137 | 133 | 134 | 132 | |||||
| Occupancy | 75.4 | % | 73.8 | % | 70.7 | % | 69.7 | % | |
| RevPAR | 103 | 98 | 95 | 92 | |||||
| Revenue | 73,614 | 75,483 | 140,103 | 140,941 | |||||
| Operating expenses | 37,882 | 38,732 | 74,271 | 74,258 | |||||
| Energy | 2,705 | 3,021 | 5,695 | 6,243 | |||||
| Property maintenance | 3,978 | 3,768 | 8,197 | 7,292 | |||||
| Property taxes, insurance and ground lease before IFRIC 21 | 4,855 | 4,675 | 10,556 | 9,123 | |||||
| Total expenses | 49,420 | 50,196 | 98,719 | 96,916 | |||||
| NOI | 24,194 | 25,287 | 41,384 | 44,025 | |||||
| NOI Margin | 32.9 | % | 33.5 | % | 29.5 | % | 31.2 | % | |
| IFRIC 21 property taxes adjustment | (1,388 | ) | (1,279 | ) | (496 | ) | (580 | ) | |
| Depreciation and amortization | 5,963 | 8,647 | 14,692 | 17,268 | |||||
| Income from operating activities | 19,619 | 17,919 | 27,188 | 27,337 | |||||
| Other expenses | 20,248 | 6,761 | 37,659 | 19,188 | |||||
| Current income tax expense (recovery) | (51 | ) | 515 | 36 | 531 | ||||
| Deferred income tax expense (recovery) | 1,013 | (15 | ) | (807 | ) | (1,440 | ) | ||
| Income (loss) and comprehensive income (loss) | (1,591 | ) | 10,658 | (9,700 | ) | 9,058 | |||
INITIATIVES TO STRENGTHEN FINANCIAL POSITION AND PRESERVE UNITHOLDER VALUE
The Board of Directors (the “Board”), together with management, have implemented a plan to strengthen AHIP’s financial position and to preserve unitholder value. Initiatives, both planned and underway, are outlined below.
PLAN TO ADDRESS NEAR TERM LOAN MATURITIES
AHIP is in the process of executing its plan to address the Company’s debt maturities in 2024. These efforts are expected to result in modest improvements in ADR, RevPAR and leverage metrics.
The commercial mortgage-backed securities (“CMBS”) loan maturities were $22.3 million in the second quarter of 2024 and are $58.7 million in the fourth quarter of 2024.
To address the Q2 2024 CMBS loan maturity of $22.3 million, AHIP completed the disposition of one hotel property and refinanced the balance of the loan in March 2024, specifically:
- AHIP completed the strategic disposition of a hotel property in Harrisonburg, Virginia for $8.55 million. The net proceeds were used to partially satisfy the non-recourse mortgage debt; and
- AHIP completed the CMBS refinancing for the remaining three assets secured against this loan with gross proceeds of $17.5 million prior to initial capital reserves contribution of approximately $5.0 million. The term of this new CMBS loan is five years at a fixed annual interest rate of 7.8%.
To address the Q4 2024 CMBS loan maturities of $58.7 million, AHIP intends to dispose of properties and refinance the balance of the loan, specifically:
- In July 2024, AHIP entered into an agreement to dispose of one hotel property in Dallas, Texas for gross proceeds of $27.0 million.
- In August 2024, AHIP completed the strategic dispositions of two hotel properties in Amarillo, Texas for gross proceeds of $9.3 million and $8.3 million, respectively. Under the terms of the Sixth Amendment, 50% of the net proceeds from the sale of these two hotel properties will be used to pay down outstanding amounts under such term loans in the second half of 2024.
- In addition, AHIP is currently in the process of refinancing and marketing hotel properties in Florida and North Carolina before the loan maturity dates in the fourth quarter of 2024.
AMENDMENT OF THE MASTER HOTEL MANAGEMENT AGREEMENT WITH REDUCED AND DEFERRED FEES
On September 30, 2023, with a retroactive effective date of July 1, 2023, AHIP entered into a third amendment to its master hotel management agreement with One Lodging Management LLC (an affiliate of Aimbridge Hospitality LLC) (the “Amendment”), with an estimated annual savings for the first three years following the amendment of approximately $3.7 million.
In accordance with the Amendment, the management fee on certain hotel properties has been reduced or deferred. The reduction of management fees is estimated to provide approximately $0.3 million of cash savings per annum, and the deferral of management fees is estimated to provide approximately $3.4 million of cash savings on average per annum from July 1, 2023 to June 30, 2026. The fees in the years 2027 through 2032 will be slightly higher to offset the fee deferral in the first three years. The cash savings in the second quarter of 2024 were $0.9 million, and the cumulative savings in the first year after the Amendment were $3.9 million.
TEMPORARY SUSPENSION OF U.S. DOLLAR DISTRIBUTION
From February 2022 to October 2023, AHIP’s distribution policy provided 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). On November 7, 2023, AHIP announced a temporary suspension of monthly distributions. The Board and management made this decision based on the considerations of recent and forecast operating results, industry and economic conditions, interest rates for debt refinancing, the general financing environment, and future compliance with the adjusted FFO payout ratio covenant in the Sixth Amendment.
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, 2024 and 2023, that are available on AHIP’s website at www.ahipreit.com, and under AHIP’s profile on SEDAR+ at www.sedarplus.com.
Q2 2024 CONFERENCE CALL
Management will host a webcast and conference call at 10:00 a.m. Pacific time on Wednesday, August 7, 2024, to discuss the financial and operational results for the three and six months ended June 30, 2024 and 2023.
To participate in the conference call, participants should register online via AHIP’s website. A dial-in and unique PIN will be provided to join the call. Participants are requested to register a minimum of 15 minutes before the start of the call. An audio webcast of the conference call may be accessed on AHIP’s website at www.ahipreit.com.
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 measures 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 loss and comprehensive income (loss) for depreciation and amortization, gain or loss on disposal of property, IFRIC 21 property taxes, fair value gain or loss, impairment of property, 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 income (loss) and comprehensive income (loss), for which a reconciliation is provided in this news release.
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 income (loss) and comprehensive income (loss), for which a reconciliation is provided in this news release.
Normalized FFO: calculated as FFO adjusting for non-recurring items. For the three months ended June 30, 2024, normalized FFO is calculated as FFO excluding the non-recurring insurance proceeds of $1.6 million for property damage incurred in the second quarter of 2024. For the six months ended June 30, 2024, normalized FFO is calculated as FFO excluding the non-recurring insurance proceeds of $1.6 million for property damage incurred in the second quarter of 2024, and $1.1 million for property damage related to the weather-related damage at several hotel properties in late December 2022. For the three and six months ended June 30, 2023, normalized FFO is calculated as FFO excluding the non-recurring insurance proceeds of $4.1 million and $7.5 million, respectively, for property damage related to the weather-related damage at several hotel properties in late December 2022. The most comparable IFRS measure to normalized FFO is income (loss) and comprehensive income (loss), for which a reconciliation is provided in this news release.
Normalized NOI: calculated as NOI adjusting for non-recurring items. For the three and six months ended June 30, 2024, normalized NOI included the non-recurring insurance proceeds of nil and $0.1 million, respectively, for business interruption claims related to the weather-related damage at several hotel properties in late December 2022. For the three and six months ended June 30, 2023, normalized NOI included the non-recurring insurance proceeds of $1.9 million and $2.9 million respectively, for business interruption claims related to the weather-related damage at several hotel properties in late December 2022. The most comparable IFRS measure to normalized NOI is NOI, for which a reconciliation is provided in this news release.
Hotel EBITDA: calculated by adjusting NOI for management fees for hotel. The most comparable IFRS measure to hotel EBITDA is NOI, for which a reconciliation is provided in this news release.
EBITDA: calculated by adjusting NOI for 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 NOI, for which a reconciliation is provided in this news release.
Debt: calculated as the sum of term loans and revolving credit facility, the face value of convertible debentures, unamortized portion of debt financing costs, lease liabilities and unamortized portion of mark-to-market adjustments. The most comparable IFRS measure to debt is total liabilities, for which a reconciliation is provided in this news release.
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, for which a reconciliation is provided in this news release.
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, accretion of management fee 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, for which a reconciliation is provided in this news release.
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.
Normalized FFO per unit – basic/diluted: calculated as normalized 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.
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.
Capitalization rate (“Cap Rate”): calculated as 2023 annual hotel EBITDA, after adjusting for an industry standard 4% FF&E reserve, divided by the actual and expected gross proceeds of the asset dispositions.
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 TTM EBITDA: calculated as debt divided by the trailing twelve months (“TTM”) 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. In Q2 2024, debt to TTM EBITDA calculation excluded five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024.
Interest coverage ratio: calculated as TTM EBITDA divided by interest expense for the trailing twelve months. The interest coverage ratio is a measure of AHIP’s ability to service the interest requirements of its outstanding debt. In Q2 2024, interest coverage ratio calculation excluded five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024.
SUPPLEMENTARY FINANCIAL MEASURES:
Occupancy is a major driver of room revenue as well as food and beverage revenues. Fluctuations in occupancy are normally accompanied by fluctuations in most categories of variable hotel operating expenses, including housekeeping and other labor costs. Higher ADR increases room revenue with limited impact on hotel operating expenses. Increase in RevPAR attributable to increase in occupancy may reduce EBITDA and EBITDA margins, while increase in RevPAR attributable to increase 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, revenue, expense, NOI and NOI margin: measured for properties owned by AHIP for both the current reporting periods and the same periods in 2023. In Q1 2024 and Q2 2024, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded seven hotel properties, which is comprised of five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024, as well as the Residence Inn Neptune and Courtyard Wall in New Jersey as these two hotels had limited availability due to remediation and rebuilding after the weather-related damage in late December 2022. In Q1 2023 and Q2 2023, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded the same seven hotel properties mentioned in the immediately preceding sentence for comparison purposes. In Q3 2023 and Q4 2023, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024.
NON-IFRS RECONCILIATION
INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) TO FFO
| Three months ended June 30 | Six months ended June 30 | |||||||
| (thousands of dollars, except per Unit amounts) | 2024 | 2023 | 2024 | 2023 | ||||
| Income (loss) and comprehensive income (loss) | (1,591 | ) | 10,658 | (9,700 | ) | 9,058 | ||
| Adjustments: | ||||||||
| Income attributable to non-controlling interest | (1,138 | ) | (1,011 | ) | (2,237 | ) | (2,011 | ) |
| Depreciation and amortization | 5,963 | 8,647 | 14,692 | 17,268 | ||||
| Impairment of cash-generating units | 5,070 | - | 9,173 | - | ||||
| Write-off of property, building and equipment | 2,220 | 276 | 2,220 | 4,168 | ||||
| Gain on sale of properties | - | (2,401 | ) | (242 | ) | (2,401 | ) | |
| IFRIC 21 property taxes adjustment | (1,388 | ) | (1,279 | ) | (496 | ) | (580 | ) |
| Change in fair value of warrants | (18 | ) | (149 | ) | (138 | ) | (1,719 | ) |
| Change in fair value of interest rate swap contracts | - | 834 | - | 1,925 | ||||
| Gain on convertible debenture conversion | (245 | ) | - | (245 | ) | - | ||
| Deferred income tax expense (recovery) | 1,013 | (15 | ) | (807 | ) | (1,440 | ) | |
| FFO basic (1) | 9,886 | 15,560 | 12,220 | 24,268 | ||||
| Interest, accretion and amortization on convertible debentures | 1,128 | 1,093 | - | 2,186 | ||||
| FFO diluted | 11,014 | 16,653 | 12,220 | 26,454 | ||||
| FFO per unit – basic (1) | 0.12 | 0.20 | 0.15 | 0.31 | ||||
| FFO per unit – diluted | 0.12 | 0.19 | 0.15 | 0.30 | ||||
| Non-recurring items: | ||||||||
| Other income | (1,587 | ) | (4,126 | ) | (2,689 | ) | (7,468 | ) |
| Measurements excluding non-recurring items: | ||||||||
| Normalized FFO diluted (1) | 9,427 | 12,527 | 9,531 | 18,986 | ||||
| Normalized FFO per unit – diluted | 0.10 | 0.14 | 0.12 | 0.21 | ||||
| Weighted average number of units outstanding: | ||||||||
| Basic (000’s) | 79,186 | 78,834 | 79,115 | 78,817 | ||||
| Diluted (000’s) (2) | 91,598 | 89,622 | 80,723 | 89,484 | ||||
| (1) See “Non-IFRS and Other Financial Measures” (2) The calculation of FFO diluted, FFO per unit – diluted, normalized FFO diluted, normalized FFO per unit – diluted, weighted average number of units outstanding – diluted for the six months ended June 30, 2024, excluded the convertible debentures because they were anti-dilutive. The calculation of FFO diluted, FFO per unit – diluted, normalized FFO diluted, normalized FFO per unit – diluted, weighted average number of units outstanding – diluted for the three months ended June 30, 2024, the three and six months ended June 30, 2023, included the convertible debentures because they were dilutive. | ||||||||
RECONCILIATION OF FFO TO AFFO
| Three months ended June 30 | Six months ended June 30 | |||||||
| (thousands of dollars, except per Unit amounts) | 2024 | 2023 | 2024 | 2023 | ||||
| FFO basic | 9,886 | 15,560 | 12,220 | 24,268 | ||||
| FFO diluted | 11,014 | 16,653 | 12,220 | 26,454 | ||||
| Maintenance capital expenditures | (1,829 | ) | (3,139 | ) | (4,831 | ) | (5,859 | ) |
| AFFO basic (1) | 8,057 | 12,421 | 7,389 | 18,409 | ||||
| AFFO diluted | 9,185 | 13,514 | 7,389 | 20,595 | ||||
| AFFO per unit - basic (1) | 0.10 | 0.16 | 0.09 | 0.23 | ||||
| AFFO per unit - diluted | 0.10 | 0.15 | 0.09 | 0.23 | ||||
| Measurements excluding non-recurring items: | ||||||||
| AFFO diluted | 7,598 | 9,388 | 4,700 | 13,127 | ||||
| AFFO per unit - diluted | 0.08 | 0.10 | 0.06 | 0.15 | ||||
| (1) See “Non-IFRS and Other Financial Measures” | ||||||||
DEBT TO GROSS BOOK VALUE
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| Debt | 672,171 | 688,585 | |||
| Gross book value | 1,292,692 | 1,326,070 | |||
| Debt-to-Gross Book Value | 52.0 | % | 51.9 | % | |
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| Term loans and revolving credit facility | 618,428 | 633,298 | |||
| 2026 debentures (at face value) | 49,730 | 50,000 | |||
| Unamortized portion of debt financing costs | 3,094 | 4,065 | |||
| Lease liabilities | 919 | 1,239 | |||
| Unamortized portion of mark-to-market adjustments | - | (17 | ) | ||
| Debt | 672,171 | 688,585 | |||
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| Total assets | 918,960 | 954,887 | |||
| Accumulated depreciation and impairment | 368,175 | 365,970 | |||
| on property, buildings and equipment | |||||
| Accumulated amortization on intangible assets | 5,557 | 5,213 | |||
| Gross Book Value | 1,292,692 | 1,326,070 | |||
DEBT TO TTM EBITDA
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| Debt (2) | 612,089 | 688,585 | |||
| EBITDA (trailing twelve months) (2) | 63,205 | 64,732 | |||
| Debt-to-TTM EBITDA (times) (2) | 9.7x | 10.6x | |||
| 2) The calculation of Debt to TTM EBIDTA for the trailing twelve months ended June 30, 2024 excluded the five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024. | |||||
INTEREST COVERAGE RATIO
| (thousands of dollars) | June 30, 2024 | December 31, 2023 | |||
| EBITDA (trailing twelve months) (2) | 63,205 | 64,732 | |||
| Interest expense (trailing twelve months) (2) | 36,551 | 33.752 | |||
| Interest Coverage Ratio (times) (2) | 1.7x | 1.9x | |||
| 2) The calculation of interest coverage ratio for the trailing twelve months ended June 30, 2024 excluded the five hotels in respect of which AHIP is in managed foreclosure as of June 30, 2024. | |||||
The reconciliation of NOI to hotel EBITDA and EBITDA is shown below:
| Three months ended June 30 | Six months ended June 30 | ||||||||
| (thousands of dollars) | 2024 | 2023 | 2024 | 2023 | |||||
| NOI | 24,194 | 25,287 | 41,384 | 44,025 | |||||
| Management fees | (1,560 | ) | (2,420 | ) | (3,077 | ) | (4,556 | ) | |
| Hotel EBITDA | 22,634 | 22,867 | 38,307 | 39,469 | |||||
| General administrative expenses | (2,809 | ) | (2,634 | ) | (5,162 | ) | (5,192 | ) | |
| EBITDA | 19,825 | 20,233 | 33,145 | 34,277 | |||||
The reconciliation of NOI to normalized NOI is shown below:
| Three months ended June 30 | Six months ended June 30 | ||||||||
| (thousands of dollars) | 2024 | 2023 | 2024 | 2023 | |||||
| NOI | 24,194 | 25,287 | 41,384 | 44,025 | |||||
| Business interruption insurance proceeds | - | 1,930 | 92 | 2,930 | |||||
| Normalized NOI | 24,194 | 27,217 | 41,476 | 46,955 | |||||
The reconciliation of finance costs to interest expense is shown below:
| Three months ended June 30 | Six months ended June 30 | ||||||||
| (thousands of dollars) | 2024 | 2023 | 2024 | 2023 | |||||
| Finance costs | 10,514 | 9,233 | 21,562 | 17,925 | |||||
| Amortization of debt financing costs | (660 | ) | (496 | ) | (1,325 | ) | (851 | ) | |
| Accretion of Debenture liability | (260 | ) | (241 | ) | (523 | ) | (483 | ) | |
| Amortization of Debenture costs | (120 | ) | (100 | ) | (233 | ) | (200 | ) | |
| Gain on debt settlement | - | - | (11 | ) | - | ||||
| Dividends on Series B preferred shares | - | 12 | - | (9 | ) | ||||
| Debt defeasance and other costs | - | (19 | ) | - | (19 | ) | |||
| Interest Expense | 9,474 | 8,389 | 19,470 | 16,363 | |||||
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, 2024 and 2023, available on AHIP’s website at www.ahipreit.com, and under AHIP’s profile on SEDAR+ at www.sedarplus.com.
FORWARD-LOOKING INFORMATION
Certain statements in this news release may constitute “forward-looking information” and “financial outlook” within the meaning of applicable securities laws. Forward-looking information and financial outlook 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 and financial outlook include, but are 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 and financial outlook in this news release includes, but is not limited to, statements with respect to: AHIP management’s expectation as to the impacts on AHIP’s business of the seasonal nature of the lodging industry, inflation (including on labor and materials costs), competition, overall economic cycles, weather conditions; AHIP’s expectations with respect to the timing and amount of insurance proceeds for weather and fire-related damage and lost income in respect of certain hotel properties; AHIP’s expectations with respect to the amount and timing of the receipt of such insurance proceeds; AHIP’s leverage and liquidity strategies and goals; AHIP’s expectations with respect to the performance of its hotel portfolio, including specific segments thereof; AHIP’s expectations with respect to inflation, labor supply, labor costs, interest rates, consumer spending, supply chain, new hotel construction and other market financial and macroeconomic conditions in 2024 and beyond and the expected impacts thereof on AHIP’s financial position and performance, including on ADR, occupancy, RevPAR, NOI, NOI margins and cash flows; AHIP’s expectation that labor and certain other operating costs will remain a challenge in 2024 resulting in pressures to hotel operating margins; AHIP’s strategic initiatives and the intended outcomes thereof, including improved liquidity, addressing near-term debt maturities and providing AHIP with financial stability and protecting long-term value for unitholders; AHIP’s expectations with respect to the macroeconomic and operating environment, including certain specific expectations for the 2024 fiscal year; AHIP continuing to execute its strategy to divest assets and reduce debt; AHIP’s planned property dispositions, including the expected terms and timing thereof and the financial impact thereof on AHIP and AHIP’s expectation that the sale of such properties will demonstrate value above the current unit trading price; the hotels secured by the CMBS Loan remaining on AHIP’s balance sheet until transferred to or sold by the special servicer; AHIP’s intended strategies for near-term debt maturities, including planned sales of assets and loan refinancing and the expected impacts thereof on AHIP’s financial performance and position; AHIP’s expectations as to the financial impact of the expired of interest rate swaps for certain term loans, which will be dependent on SOFR; the expectation that insurance premiums may reduce expenses and increase earnings; the estimated savings as a result of reductions and deferrals of management fees under the master hotel management agreement as well as increased fees in certain future years when deferred fees become payable; and AHIP’s stated long-term objectives.
Although the forward-looking information and financial outlook contained in this news release are 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; AHIP will continue to have sufficient funds to meet its financial obligations; AHIP will be able generate sufficient funds to meet any paydown obligations under the new LTV covenants set forth in the Sixth Amendment; AHIP’s strategies with respect to completion of capital projects, liquidity, addressing near-term debt maturities, and divestiture of assets will be successful and achieve their intended effects; estimated savings from the amendment to the master hotel management agreement are based on assumptions about future hotel revenues and certain expenses; capital projects will be completed on time and on budget; AHIP will complete its currently planned divestitures and loan refinancings on the terms currently contemplated and in accordance with the timing currently contemplated; AHIP will receive insurance proceeds in an amount consistent with AHIP’s estimates in respect of its weather and fire-damaged properties; AHIP will continue to have good relationships with its hotel brand partners; AHIP will be successful in opposing the Claim and will resolve the matters set out in the Default Notice in a manner that is acceptable to AHIP; 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 on terms acceptable to AHIP; AHIP’s future level of indebtedness and its future growth potential will remain consistent with AHIP’s current expectations; the useful lives and replacement cost of AHIP’s assets being consistent with management’s estimates thereof; AHIP will be able to successfully integrate properties acquired into its portfolio, if any; the U.S. REIT will continue to qualify as a real estate investment trust for U.S. federal income tax purposes; the impact of the current economic climate and the current global financial conditions on AHIP’s operations, including AHIP’s financing capability and asset value, will remain consistent with AHIP’s current expectations; there will be no material changes to tax laws, government and environmental regulations adversely affecting AHIP’s operations, financing capability, structure or distributions; conditions in the international and, in particular, the U.S. hotel and lodging industry, including competition for acquisitions, will be consistent with the current economic climate; and AHIP will achieve its long term objectives.
Forward-looking information and financial outlook involve significant risks and uncertainties and should not be read as guarantees of future performance or results as actual results may differ materially from those expressed or implied in such forward-looking information and financial outlook, accordingly undue reliance should not be placed on such forward-looking information or financial outlook. Those risks and uncertainties include, among other things, risks related to: AHIP may not achieve its expected performance levels in 2024 and beyond; inflation, labor shortages, supply chain disruptions may continue to negatively impact AHIP’s financial performance and position; AHIP’s insurance claims with respect to its weather and fire-damaged properties may be denied in whole or in part; AHIP’s brand partners may impose revised service standards and capital requirements which are adverse to AHIP; PIP renovations may not commence or complete in accordance with currently expected timing and may suffer from increased material costs; AHIP’s strategic initiatives with respect to liquidity, addressing near-term debt maturities and providing AHIP with financial stability may not be successful and may not achieve their intended outcomes; AHIP’s strategies for divesting assets to reduce debt may not be successful; AHIP may not complete its currently planned divestures and loan refinancings on the terms currently contemplated or in accordance with the timing currently contemplated, or at all; AHIP’s planned dispositions, once completed, may not demonstrate value above the current unit trading price; savings from the amendments to the master hotel management agreement may be less than expected; AHIP may not be successful in reducing its leverage; there is no guarantee that monthly distributions will be reinstated, and if reinstated, as to the timing thereof or what the amount of the monthly distribution will be; AHIP may not be able to refinance debt obligations as they become due or may do so on terms less favorable to AHIP than under AHIP’s existing loan agreements; AHIP has not replaced its interest rate swaps, which is expected to create continued increased interest expense; refinanced loans are expected to be refinanced at significantly higher interest rates; general economic conditions and consumer confidence; the growth in the U.S. hotel and lodging industry; prices for the Units and 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; and changes in legislation. Additional information about risks and uncertainties is contained in this new release and in AHIP’s most recently filed AIF, a copy of which is available on SEDAR+ at www.sedarplus.com.
To the extent any forward-looking information constitutes a “financial outlook” within the meaning of applicable securities laws, such information is being provided to investors to assist in their understanding of: expected proceeds of insurance in respect of AHIP’s weather and fire-damaged properties; estimated potential cash savings from the amendment to the master hotel management agreement; the estimated financial impact on AHIP of increased insurance premiums; the estimated financial impact on AHIP of increased interest costs associated with the expiry of interest swaps for certain term loans and the refinancing of certain loans; estimated proceeds from the planned disposition of certain hotel properties; and management’s expectations for certain aspects of AHIP’s financial performance for the remainder of 2024.
The forward-looking information and financial outlook contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information and financial outlook reflect management's current beliefs and are based on information currently available to AHIP. The forward-looking information and financial outlook are 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.
For additional information, please contact:
Investor Relations
ir@ahipreit.com
