Q3 falls short due to renovations. Same old same old story. Hopefully 2019 will be the turnaround they predict.
American Hotel Income Properties REIT LP Reports Third Quarter 2018 Results 
CNW GroupNovember 7, 2018
- Renovation activity at three larger Premium Branded hotels temporarily impacting performance
- Same-Property NOI grew 1.2% from Q3 2017; Same-Property NOI margin increased to 35.3%
- Economy Lodging segment RevPAR increased 6.3%
(All numbers are in U.S. dollars unless otherwise indicated) VANCOUVER, Nov. 7, 2018 /CNW/ - American Hotel Income Properties REIT LP ("
AHIP", the "
company") (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), which has 113 select-service hotels located across the United States, announced today its financial results for the three months ended September 30, 2018.
"During the third quarter we saw improvement in our Economy Lodging segment, which was bolstered by both increased rail crew and commercial guest occupancy. Similarly, we saw same-property NOI growth primarily due to cost containment initiatives," said John O'Neill, CEO. "As announced in prior quarters, AHIP is proactively investing in upgrading several of our largest hotels in an effort to better these properties over the long-term. This includes three Embassy Suites properties we own, located in Dallas, Cincinnati and Columbus, where we have invested, or allocated, approximately $10.4 million in pre-funded capital in 2018. This significant renovation activity resulted in temporary guestroom displacement and lower room rates while construction was underway. We believe these renovations will drive better operating performance at these hotels during 2019 and reduce our AFFO dilution, as this undeployed capital has been on our balance sheet since 2017."
Mr. O'Neill continued: "Our priorities for the next several quarters are on efficiently deploying our reserve capital towards additional hotel upgrades to deliver better performance, evaluating our portfolio of properties to ensure we have the right assortment of hotels for continued long-term cash flow growth, and driving operating efficiencies through our new external hotel manager."
THREE MONTHS ENDED SEPTEMBER 30, 2018 FINANCIAL HIGHLIGHTS - Total revenues for the quarter decreased 2.5% to $88.0 million (Q3 2017 - $90.3 million) primarily due to significant displacement caused by renovations at the three Embassy Suites hotels, which negatively impacted revenue by approximately $2.2 million. Revenues in Florida declined by approximately $0.7 million as a result of the demand growth last year caused by Hurricane Irma.
- Net income for the third quarter was $4.2 million, compared to net income of $8.8 million in Q3 2017, as a result of lower hotel income. Diluted net income per Unit for the quarter was $0.05 compared to $0.11 in the same quarter of last year.
- Total portfolio revenue per available room ("RevPAR") declined 1.6% from the same quarter last year, as a result of a 1.9% decrease in average daily rate ("ADR") and a 0.3% increase in occupancy rate, reflecting the impact of lower room rates at hotels that were undergoing significant renovations during the quarter.
- Net operating income excluding IFRIC 21 adjustments ("NOI") decreased 4.3% to $30.8 million, with NOI from Premium Branded hotels declining 7.7% to $24.0 million and NOI from Economy Lodging hotels growing 9.7% to $6.9 million. The impacts from hotel renovations and hurricane related activity in Q3 last year resulted in lower NOI in the Premium Branded portfolio relative to last year. Stronger occupancy and lower property taxes and insurance premiums contributed to the growth in NOI in the Economy Lodging portfolio.
- Funds from operations ("FFO") decreased 15.3% to $16.4 million, and adjusted funds from operations ("AFFO") decreased 14.6% to $15.0 million primarily as a result of lower NOI from hotels under renovation, weaker comparative results from Florida and a non-recurring foreign exchange gain of approximately $0.5 million realized in Q3 2017. Q3 2018 Diluted FFO per Unit was $0.21, and Diluted AFFO per Unit was $0.19.
- The AFFO payout ratio for Q3 2018 was 84.6% (Q3 2017 - 72.3%) reflective of the lower income during the quarter. The hotel business is seasonal in nature, and this can cause quarterly fluctuations in revenues, expenses and cash flows. Renovation activity at several of AHIP's largest hotels has taken longer than originally anticipated, primarily due to permitting delays and a tight labour market. This longer renovation timeline has resulted in more displacement and discounted room rates during the third quarter than expected. AHIP currently expects its AFFO payout ratio for 2018 to be close to 100%, and expects the payout ratio will improve in 2019 primarily due to contributions from the company's recently renovated properties.
Same-Property Metrics: - Same-property metrics represent the performance of only 87 hotels (or 77.0%) of AHIP's total hotel portfolio during Q3 2018, meaning 26 hotel properties were excluded in total portfolio same-property metrics as they were not owned during both full comparable periods or were under renovation. Similarly, only 44 hotels (or 65.7%) of AHIP's Premium Branded Hotels were included in AHIP's Premium Branded same-property hotel metrics.
- As at September 30, 2018, AHIP's debt had a weighted average remaining term of 6.7 years (Q3 2017 - 7.8 years) and a weighted average interest rate of 4.64% (Q3 2017 - 4.61%). Approximately 97% of AHIP's term loans have fixed interest rates.
- As at September 30, 2018, AHIP had an unrestricted cash balance of $14.0 million and $39.6 million available through revolving credit facilities, of which $8.7 million was utilized. The company also had a restricted cash balance of $44.5 million, including $25.4 million for upcoming property improvement plans ("PIPs").
- AHIP's debt-to-gross book value as at September 30, 2018 was 53.4% (September 30, 2017 - 53.7%), which is within AHIP's target range of 50% to 55%.
NINE MONTHS ENDED SEPTEMBER 30, 2018 FINANCIAL HIGHLIGHTS - Total revenues for the first nine months of 2018 increased 16.9% to $259.0 million (2017 - $221.5 million) primarily due to the acquisition of new hotels in June 2017 that had higher occupancy and higher ADR.
- Net income for the first nine months of 2018 was $14.5 million, compared to net income of $5.7 million in the comparable period last year. Diluted net income per Unit was $0.18 compared to $0.09 in the same period last year.
- Total portfolio RevPAR grew 3.6% from the same period last year, led by ADR increases of 1.7% and occupancy increases of 1.9% from the new hotel acquisitions in 2017.
- FFO for the first nine months of 2018 increased 0.8% to $45.8 million (2017 - $45.4 million), while AFFO increased 2.4% to $41.7 million (2017 - $40.7 million).
- For the first nine months of 2018, Diluted FFO per Unit was $0.57 (2017 - $0.68) and Diluted AFFO per Unit was $0.52 (2017 - $0.61).
THIRD QUARTER DEVELOPMENTS - On July 31, 2018, AHIP announced it had completed approximately $1 million in renovations at its Hilton Garden Inn White Marsh hotel in Baltimore, Maryland.
- On August 9, 2018, AHIP announced that it had completed approximately $5.2 million of renovations at its Embassy Suites DFW South, near the Dallas/Fort Worth airport in Irving, Texas.
- On September 12, 2018, AHIP announced that John O'Neill was appointed CEO, beginning October 1, 2018. Since his appointment, John has purchased an additional 154,400 units in the market, increasing the total number of units he owns or shares control over to 971,465 units, representing 1.24% of the company's outstanding float. In addition, John has also requested to receive 100% of his compensation in units, to continue growing his ownership in AHIP and strongly align his interests with other unitholders.
SUBSEQUENT EVENTS - On November 1, 2018, AHIP announced that it had completed $2.3 million of guestroom and atrium lobby renovations at its Embassy Suites Cincinnati hotel, located across the river from downtown Cincinnati in Covington, Kentucky.
The information in this news release should be read in conjunction with AHIP's unaudited condensed interim consolidated financial statements and management's discussion and analysis ("MD&A") for the three and nine months ended September 30, 2018, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com. Q3 2018 FINANCIAL RESULTS CONFERENCE CALL Management will host a conference call at 5:30 p.m. (Eastern), 2:30 p.m. (Pacific) on Wednesday, November 7, 2018 to review the financial results for the three months ended September 30, 2018.
To participate in this conference call, please dial one of the following numbers at least five minutes prior to the commencement of the call and ask to join the American Hotel Income Properties' Q3 2018 Analyst Call.
| Dial in numbers: | North America Toll free: | 1-877-291-4570 |
| | International or local Toronto: | 1-647-788-4919 |
The conference call will also be webcast live (in listen-only mode). The link to the webcast can be found on the Events tab of the following webpage:
https://www.ahipreit.com/news-and-events/ CONFERENCE CALL REPLAY A replay of the conference call will be available by dialing one of the following replay numbers. You will be able to dial in and listen to the conference call replay two hours after the call end time, and the replay will be available until December 7, 2018. The webcast recording of this conference call will also be available at
www.ahipreit.com on the Events and Presentation page.