American Hotel Income Properties REIT LP Reports Third Quarter Results
Third quarter revenue more than doubles from same quarter last year – Third quarter FFO increases 93.0%; AFFO increases 87.6%
- Third quarter revenue more than doubles from same quarter last year
- Third quarter FFO increases 93.0%; AFFO increases 87.6%
- 33 more properties in hotel portfolio compared to same period last year has high-graded the composition of company assets
- New U.S. dollar ticker to trade alongside Canadian dollar ticker on TSX
(All numbers are in U.S. dollars unless otherwise indicated)
American Hotel Income Properties REIT LP (TSX: HOT.UN) (TSX: HOT.DB.U), which has 115 select-service hotels located across the United States, announced today its financial results for the three and nine months ended September 30, 2017.
During the third quarter, revenues more than doubled, to $90.3 million, EBITDA rose by 107.6% to $30.1 million, funds from operations (“FFO“) increased by 93.0% to $19.3 million, while adjusted funds from operations (“AFFO“) rose 87.6% to $16.7 million, in each case, as a result of the addition of new hotels.
“Our third quarter results reflect the impact of the 33 premium branded hotels we acquired in the last 12 months, which improved the geographic diversification of our properties and supported our overall RevPAR growth of 25.2%. Revenue and EBITDA more than doubled from the same quarter last year, while our payout ratio improved to 76%,” said Rob O’Neill, CEO, AHIP. “Our recently announced agreement with Wyndham to rebrand 46 of our Rail Hotels will further bolster our occupancy rates and complement our rail crew contract revenue by leveraging Wyndham’s strong reservations network, brand recognition and customer rewards program to increase the productive capacity of our unused Rail Hotel guestrooms. We believe the incremental revenue and earnings accretion from this strategy will enhance the margins of our Rail Hotel Portfolio and create additional value for our Unitholders.”
Ian McAuley, President of AHIP added, “During the third quarter our Hotel Manager and their dedicated hotel staff successfully navigated the surge of guests seeking accommodation in Florida during Hurricane Irma. We are grateful to confirm that our properties sustained only minor damage due to the storm and would like to thank our hotel guests for their confidence and business during that challenging time. The increased occupancy rates at several of our Florida hotels, provided a strong contribution to our third quarter performance.”
Mr. McAuley continued: “To better cater to our unitholders’ needs and provide more clarity in a changing currency environment, we are pleased to announce the addition of a new U.S. dollar ticker (HOT.U), that will trade alongside our existing Canadian dollar ticker (HOT.UN) on the TSX. This new investment option will provide our unitholders with the choice of investing in either currency, and will also provide our unitholders with a unit price benchmark resistant to Canadian and U.S. dollar foreign exchange impacts. The new ticker will begin trading on the TSX on November 10, 2017.”
THREE MONTHS ENDED SEPTEMBER 30, 2017 FINANCIAL HIGHLIGHTS
- Total revenues for the quarter increased by 102.9% to $90.3 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“) grew 25.2% from the same quarter last year, led by occupancy increases of 3.2% and average daily rate (“ADR“) increases of 21.3%, reflecting AHIP’s recent acquisitions of higher performing, premium branded, select-service properties located within larger secondary markets.
- RevPAR for Branded Hotels increased 17.4% from the same quarter of 2016. Pro-Forma RevPAR, which includes operating results for acquired hotels in periods prior to their ownership by AHIP, was particularly strong for Florida, Tennessee and Oklahoma with RevPAR growth rates of 17.5%, 11.7% and 11.0%, respectively. This was offset by pro-forma RevPAR declines in Pennsylvania (-8.2%), Texas (-6.4%) and Virginia (-4.4%) caused by new supply.
- Same property metrics: 33 additional hotel properties have been added to AHIP’s portfolio compared to the same period last year. As a result, same property metrics represent the performance of only 71% of AHIP’s total hotels, and approximately half of AHIP’s Branded hotels during the third quarter.
- Total portfolio same-property revenues for the quarter were $42.7 million (Q3 2016 – $43.4 million) with Rail Hotel revenues decreasing due to lower guaranteed revenues from rail crew contracts and Branded Hotel revenues impacted by the entrance of new supply in certain markets and displacement occurring at two Virginia properties undergoing mandatory PIP renovations.
- Same-property RevPAR for Branded Hotels declined 1.7% relative to Q3 2016 due to displacement from renovations that occurred at two properties and increased supply in certain markets, particularly Pittsburgh and Amarillo, leading to more aggressive pricing to maintain market share. This was offset by strong performance at the Florida hotels despite the impacts of Hurricane Irma. When excluding the two weaker markets of Amarillo and Pittsburgh, same-property RevPAR for the quarter would have increased by 2.6%.
- Same-property RevPAR for Rail Hotels declined 2.0% relative to Q3 2016, as a result of fewer guaranteed room nights from rail crew lodging contracts. AHIP believes the recently announced Wyndham branding agreement will drive improved RevPAR at its Rail Hotels in the future, through improved brand recognition and increased transient guest occupancy of rooms not used for rail crew lodging contracts.
- Total portfolio same-property NOI was $14.8 million (2016 – $16.3 million), which was lower as a result of lower revenues and higher operating costs. As 33 hotels were acquired in the last 12 months and are therefore excluded from same-property metrics, same-property NOI represented only 43.5% of AHIP’s total NOI.
- Net income for the third quarter was $8.8 million, a 125.6% increase compared to net income of $3.9 million in the prior period. Diluted net income per Unit increased by 22.2% to $0.11 compared to a diluted net income per Unit of $0.09 in the same quarter of last year.
- For the period, FFO was up 93.0% to $19.3 million (Q3 2016 – $10.0 million) and AFFO was up 87.6% to $16.7 million (Q3 2016 – $8.9 million) as a result of the net addition of 33 new hotels over the past three quarters.
- For the quarter, Diluted FFO per Unit was up 4.2% to $0.25 (Q3 2016 – $0.24) and Diluted AFFO per Unit was unchanged at $0.21 (Q3 2016 – $0.21).
- EBITDA for the quarter was up 107.6% to $30.1 million compared to $14.5 million in the same period last year and EBITDA margin increased by 80 basis points to 33.3% (2016 – 32.5%).
- The AFFO payout ratio improved during the quarter to 76.1% (2016 – 82.5%).
- AHIP’s interest coverage ratio for the third quarter was 3.6x (2016 – 4.0x).
- AHIP’s mortgages have an average term of 7.8 years (2016 – 7.5 years) and a fixed weighted average interest rate of 4.61% (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 $22.5 million and an unutilized revolving line of credit of $10.0 million. AHIP also had a restricted cash balance of $52.2 million, including $35.8 million on deposit for upcoming PIP renovations.
- AHIP’s debt-to-gross book value as at September 30, 2017 was 53.7% within AHIP’s target range of 50% to 55%.
NINE MONTHS ENDED SEPTEMBER 30, 2017 FINANCIAL HIGHLIGHTS
- Total revenues for the first nine months of 2017 increased by 71.4% to $221.5 million compared to $129.2 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 19.2% led by occupancy increases of 3.6% and ADR increases of 15.0%.
- Same-property RevPAR for Branded Hotels declined by 0.6%, from the first nine months of 2016. Same-property RevPAR was up in Florida and Oklahoma with same-property RevPAR gains of 11.4% and 2.8%, respectively compared to same-property RevPAR declines of 10.3% in Pittsburgh and 7.0% in Amarillo. When excluding the two weaker markets, same-property RevPAR for the period would have increased by 2.4%.
- Net income for the nine months ended Sept. 30, 2017 was $5.7 million, compared to net income of $5.9 million in the prior period. This decline was a result of higher business acquisition costs and an impairment charge incurred during Q2 2017. Diluted net income per Unit was $0.09 compared to a diluted net income per Unit of $0.16 in the same period of last year.
- For the period, FFO was up 63.9% to $45.4 million (2016 – $27.7 million) and AFFO was up 60.5% to $39.0 million (2016 – $24.3 million) as a result of a net addition of 33 hotels over the past three quarters.
- For the first nine months of 2017, Diluted FFO per Unit was $0.68 (2016 – $0.74) and Diluted AFFO per Unit was $0.58 (2016 – $0.65).
- EBITDA for the period was up 72.0% to $69.3 million compared to $40.3 million in the same period last year and EBITDA margin increased by 10 basis points to 31.3% (2016 – 31.2%).
- The AFFO payout ratio for the first nine months of 2017 was 84.0% (2016 – 77.1%).
- AHIP’s interest coverage ratio for the first nine months was 3.4x (2016 – 3.8x).
THIRD QUARTER DEVELOPMENTS
- On September 21, 2017, AHIP announced that three senior executives purchased an aggregate of 225,620 units through open market purchases increasing insider ownership to 2.8%.
- With the unprecedented impact of natural disasters that have occurred in the United States over the last several months, AHIP is grateful to confirm that none of its assets sustained major damage during the Florida or Texas hurricanes and floods, and the Company had no hotels directly or indirectly affected by the California wildfires.
- On November 1, 2017, AHIP announced a 15-year strategic branding agreement with Wyndham Hotel Group (“Wyndham“) to rebrand 46 Oak Tree Inn hotels under various Wyndham brands and to better market the excess room capacity available at its Rail hotels. While rail crew lodging contracts continue to be the major driver of the occupancy at these hotels, the available guestrooms were being underutilized. Through this agreement, AHIP will gain access to Wyndham’s world-class reservations network, brand recognition, and customer rewards program to drive incremental transient guests and revenue at these hotels.
- Under the terms of the agreement, AHIP will convert 14 hotels to the Baymont Inn and Suites brand, 29 hotels to the Travelodge brand, and two hotels to the Super 8 brand. The Fargo hotel will remain a Days Inn hotel. AHIP expects to spend approximately $4.0 million over the next 24 months to accommodate new signage, brand standards and property improvement plans.
- As a result of the significant number of hotels being converted to Wyndham brands, AHIP believes it negotiated favourable terms as part of this 15-year agreement, with carve outs related to rail crew lodging contracts.
- As a result of the significant Wyndham branding agreement, AHIP intends to rename its reporting segments, beginning Q1 2018, as “Premium Branded” hotels (currently Branded Hotels) and “Economy Lodging” hotels (currently Rail hotels).
- AHIP completed the acquisition of two Rail Hotels:
- Fargo, North Dakota: On October 13, 2017, AHIP acquired the 74-guestroom Days Inn Fargo, located in Fargo, North Dakota, for a total investment (inclusive of purchase price and expected renovations), before closing costs and post-acquisition adjustments, of approximately $3.8 million, or $50,700 per key. This hotel has a rail crew lodging agreement that currently guarantees 77% of the available guestrooms. The Days Inn Fargo was re-licensed with terms consistent with the new Wyndham license agreement.
- Whitefish, Montana: On November 7, 2017, AHIP acquired a 64-guestroom hotel in Whitefish, Montana, for a total investment (inclusive of purchase price and expected renovations), before closing costs and post-acquisition adjustments, of approximately $3.7 million, or $57,800 per key. The hotel will soon be rebranded under one of Wyndham’s brands. The hotel has a rail crew lodging agreement that presently guarantees 60% of the available guestrooms.
- On November 1, 2017, AHIP announced that it had entered into a new Master Agreement with one of its largest and most significant railway customers for all its future rail crew lodging contracts. This new Master Agreement will allow both parties to expedite future contracts and contract renewals, and underscores the long-term commitment this railway customer has to using AHIP’s hotels for future rail crew lodging needs.
- On November 10, 2017, AHIP’s units will launch an additional ticker on the Toronto Stock Exchange (“TSX“) that trades in U.S. dollars. The new ticker, HOT.U, will trade alongside AHIP’s existing Canadian denominated ticker, HOT.UN, and will provide investors with the option of purchasing the Company’s units in either currency. The addition of the U.S. ticker is well aligned with AHIP’s U.S. dollar distributions and U.S. dollar financial disclosures. It will also provide an investment alternative for unitholders that is shielded from unit price movement resulting solely from U.S. / Canadian dollar foreign exchange fluctuations.
ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP
American Hotel Income Properties REIT LP (TSX: HOT.UN) (TSX: HOT.DB.U), or AHIP, is a limited partnership formed to invest in hotel real estate properties located substantially in the United States. AHIP currently has 115 hotels, and is actively engaged in growing its portfolio of premium branded, select-service hotels in larger secondary markets that have diverse and stable demand. AHIP hotels operate under brands affiliated with Marriott, Hilton, IHG, Wyndham and Choice Hotels through license agreements. The company’s long-term objectives are to build on its proven track record of successful investment, deliver reliable and consistent U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.
|THIRD QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS|
|(US$000s unless noted and except per Unit amounts)||Three months ended September 30, 2017||Three months ended September 30, 2016||Nine months ended September 30, 2017||Nine months ended September 30, 2016|
|Number of rooms (1)||11,570||7,119||11,570||7,119|
|Number of properties (1)||113||80||113||80|
|Number of restaurants (1)||41||31||41||31|
|Average daily room rate||$||99.16||$||81.72||$||95.54||$||83.05|
|Revenue per available room||$||77.25||$||61.70||$||72.04||$||60.46|
|Net operating income||$||34,018||$||17,261||$||80,604||$||49,354|
|Net income and comprehensive income||$||8,816||$||3,880||$||5,702||$||5,882|
|EBITDA Margin %||33.3||%||32.5||%||31.3||%||31.2||%|
|Funds from operations (FFO)||$||19,306||$||10,023||$||45,429||$||27,686|
|Diluted FFO per Unit||$||0.25||$||0.24||$||0.68||$||0.74|
|Adjusted funds from operations (AFFO)||$||16,653||$||8,874||$||38,986||$||24,284|
|Diluted AFFO per Unit||$||0.21||$||0.21||$||0.58||$||0.65|
|AFFO Payout Ratio||76.1||%||82.5||%||84.0||%||77.1||%|
|Debt-to-Gross Book Value (1)||53.7||%||43.9||%||53.7||%||43.9||%|
|Interest Coverage Ratio||3.6x||4.0x||3.4x||3.8x|
|Weighted average loan face interest rate (1)||4.61||%||4.56||%||4.61||%||4.56||%|
|Weighted average loan term to maturity (1)||7.8 years||7.5 years||7.8 years||7.5 years|
|Number of Units outstanding (1)||78,033,606||45,086,159||78,033,606||45,086,159|
|Diluted weighted average number of Units outstanding||78,253,220||42,483,493||66,853,148||37,537,524|
|Same property Occupancy rate (3)||76.5||%||75.5||%||74.2||%||72.9||%|
|Same property Average daily room rate (3)||$||79.43||$||82.09||$||80.04||$||83.24|
|Same property RevPAR (3)||$||60.76||$||61.98||$||59.39||$||60.68|
|Same property Revenues (3)||$||42,709||$||43,416||$||123,484||$||125,896|
|Same property Net operating income (3)||$||14,827||$||16,291||$||42,452||$||46,812|
|Same property NOI Margin % (3)||34.7||%||37.5||%||34.4||%||37.2||%|
(1) At period end.
(2) Aggregate amount of debt at face value divided by annualized EBITDA.
(3) Same-property metrics only represent 71% of AHIP’s hotels for Q3 2017 (as at Sept. 30, 2017)