American Hotel Income Properties REIT LP Reports Q1 2024 Results

VANCOUVER, British Columbia, May 07, 2024 (GLOBE NEWSWIRE) -- American Hotel Income Properties REIT LP ("AHIP", or the "Company") (TSX:HOT, TSX:HOT, TSX:HOT), today announced its financial results for the three months ended March 31, 2024.

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

2024 FIRST QUARTER HIGHLIGHTS

• Diluted FFO per unit ⁽¹⁾ and normalized diluted FFO per unit ⁽¹⁾ were $0.03 and $0.02, respectively, for the first quarter of 2024, compared to $0.11 and $0.07 for the same period of 2023.
• Occupancy ⁽¹⁾ was 66.4% for the first quarter of 2024, an increase of 230 basis points ("bps") compared to 64.1% for the same period of 2023.
• ADR ⁽¹⁾ decreased 0.8% to $131 for the first quarter of 2024, compared to $132 for the same period of 2023.
• Revenue increased 1.6% to $66.5 million for the first quarter of 2024, compared to $65.5 million for the same period in 2023.
• NOI and normalized NOI ⁽¹⁾ were $17.2 million and $17.3 million, respectively, for the first quarter of 2024, decreases of 8.0% and 12.2%, respectively, compared to $18.7 million and $19.7 million for the same period in 2023.
• AHIP had $25.5 million in available liquidity as at March 31, 2024, compared to $27.8 million as at December 31, 2023. The available liquidity of $25.5 million was comprised of an unrestricted cash balance of $15.5 million and borrowing availability of $10.0 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 RevPAR and occupancy increased by 2.4% and 230 bps respectively compared to Q1 2023. Excluding hotels with disrupted operations in the first quarter of 2023, RevPAR decreased by 1.6% compared to the same period in the prior year. Preliminary results for April show an improvement with an increase in RevPAR of approximately 5% excluding hotels with disrupted operations in 2023. Costs related to macroeconomic conditions remain elevated, with higher insurance premiums and elevated labor and operating costs resulting in pressures to hotel operating margins."

Mr. Korol added: "AHIP's Board and management team are taking a number of actions across the business in recent quarters to preserve cash, enhance financial stability and protect long term value for our unitholders. As previously disclosed, these actions include the recently completed, amendment and extension of our revolving credit facility, reduction and deferral of hotel management fees, and temporary suspension of the distribution. In 2024, we are currently executing a plan to address 2024 debt obligations with asset sales and loan refinancings. These steps are expected to 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."

2024 FIRST QUARTER REVIEW

FINANCIAL AND OPERATIONAL HIGHLIGHTS

For the three months ended March 31, 2024, occupancy increased 230 bps to 66.4%, compared to the same period in the prior year. The increase in occupancy was partially offset by a slight decrease of 0.8% in ADR. Overall, improved occupancy resulted in an increase of 2.4% 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 primarily due to improved performance of properties disrupted in 2023 by the weather-related damage and renovation at three hotels, as well as the disposition of properties with lower-than-average portfolio RevPAR. Excluding the hotels disrupted in the first quarter of 2023 and properties sold since the first quarter of 2023, ADR and occupancy decreased by less than 1.0%, and RevPAR decreased by 1.6%, compared to the same period in the prior year.

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 ⁽¹⁾ AND DILUTED FFO PER UNIT ⁽¹⁾

NOI and normalized NOI ⁽¹⁾ were $17.2 million and $17.3 million, respectively, for the three months ended March 31, 2024, decreases of 8.0% and 12.2%, respectively, compared to NOI of $18.7 million and normalized NOI of $19.7 million for the same period in 2023. NOI margin was 25.9% in the current quarter, a decrease of 270 bps compared to the same period in 2023. The decreases in NOI and NOI margin were due to higher operating expenses as a result of general cost inflation and higher property insurance premiums. General inflation resulted in increased labor costs and higher costs of operating supplies. The increase in the annual premium for property insurance effective June 1, 2023 is approximately $3.5 million. 

Diluted FFO per unit and normalized diluted FFO per unit ⁽¹⁾ were $0.03 and $0.02 for the first quarter of 2024, respectively, compared to diluted FFO per unit of $0.11 and normalized diluted FFO per unit of $0.07 for the same period in 2023. Normalized diluted FFO per unit in the current quarter excluded non-recurring expected insurance proceeds of $1.1 million as a result of weather-related property damage at several hotel properties in late December 2022. The decrease in normalized diluted FFO per unit was due to lower NOI and higher finance costs in the current quarter, compared to the same period in 2023.

LEVERAGE AND LIQUIDITY

Debt to gross book value as at March 31, 2024 was 52.2%, an increase of 30 bps compared to December 31, 2023. Debt to TTM EBITDA as at March 31, 2024 was 10.5x, an increase of 0.9x compared to March 31, 2023. The increase in Debt to TTM EBITDA was mainly due to the decrease in NOI.

As at March 31, 2024, AHIP had $25.5 million in available liquidity, compared to $27.8 million as at December 31, 2023. The available liquidity of $25.5 million was comprised of an unrestricted cash balance of $15.5 million and borrowing availability of $10.0 million under the revolving credit facility. AHIP has an additional restricted cash balance of $33.5 million as at March 31, 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 which expired on November 30, 2023. 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. The actual increase in interest expense will be dependent on future SOFR.

CAPITAL RECYCLING

In March 2024, AHIP completed the strategic dispositions of non-core hotel properties in Harrisonburg, Virginia and Cranberry Township, Pennsylvania for gross proceeds of $8.55 million and $8.25 million respectively. The combined sales price for these properties represents a blended cap rate of 8.6% on 2023 annual hotel EBITDA, after adjusting for an industry standard 4% furniture, fixtures, and equipment reserve. Under the terms of the revolving credit facility, 50% of the net proceeds from the sale of these two hotel properties, which is approximately $0.8 million, will be used to pay down outstanding amounts under the term loans in the second quarter of 2024.

In March and April 2024, AHIP entered into agreements to dispose of two non-core hotel properties in Amarillo, Texas for $9.3 million and $8.3 million, respectively, subject to customary adjustments at closing. The dispositions are currently expected to close in the third quarter of 2024. AHIP intends to use the proceeds from these dispositions to pay down debt.

AHIP will 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.

Same property ADR in the current quarter is $132, largely consistent with the same period of 2023. Same property occupancy increased by 100 bps to 67.3% in the current quarter compared to 66.3% the same periods in 2023. The increase in occupancy is primarily attributable to higher demand for the extended stay and select service properties.

Same property NOI margin decreased by 250 bps to 26.9% for the first quarter of 2024, compared to the same period in 2023. The decrease in the same property NOI margin was mainly due to higher operating expenses as a result of cost inflation, escalated labor costs, and higher property insurance premiums. The labor environment is improving although labor is expected to remain a challenge in 2024 with increased turnover and hourly wage costs.

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