Solid Growth, Steady RevPAR Gains in a Strong U.S. Dollar Environment
VANCOUVER, Aug. 12, 2015 /CNW/ – American Hotel Income Properties REIT LP (“AHIP“) (TSX: HOT.UN; OTCQX: AHOTF) announced today its financial results for the three and six months ended June 30, 2015. All amounts are expressed in U.S. Dollars unless otherwise noted.
SECOND QUARTER 2015 FINANCIAL HIGHLIGHTS
- Funds from operations (“FFO“) for the current quarter increased by 71% to $7.6 million compared to $4.4 million last year, and adjusted funds from operations (“AFFO“) for the current quarter was up 64% to $6.7 million compared to $4.1 million for the same period last year reflecting the addition of 27 hotels comprising approximately 2,300 guestrooms in both the Branded and Oak Tree Inn hotel segments.
- For the current quarter, Diluted FFO per Unit – As Reported was $0.27 (2014 – $0.28). Diluted Core FFO per Unit (which adjusted for the dilution from the April 2015 Offering that was not fully invested at quarter end and securities-based compensation expense) was $0.31 (2014 – $0.32).
- For the current quarter, Diluted AFFO per Unit – As Reported was $0.24 (2014 – $0.26). Diluted Core AFFO per Unit (which adjusted for the dilution from the April 2015 Offering) was $0.28 (2014 – $0.28).
- The portfolio generated RevPAR gains of 4.8% to $63.28 (2014 – $60.36) driven by higher average daily rates (“ADR“) for the quarter, which were up 11.1% to $79.00 (2014 – $71.10). This was offset by lower occupancy for the current quarter of 80.1% (2014 – 84.9%), reflecting the change in the portfolio mix between the two reporting periods, a decrease in non-rail revenues at certain hotels, and displacement in Pittsburgh and Virginia due to significant renovations undertaken during the quarter.
- Pro-forma RevPAR at certain Branded Hotels, which includes operating results for periods prior to their ownership by AHIP, continued to remain strong and in line with estimates by STR, Inc. (“STR“) of forecasted national RevPAR increases of 6.8%. Specifically, for the current quarter, the NC/FL Portfolio was up 11.1% and the Texas Portfolio was up 7.0%. For the six month period ended June 30, 2015, the NC/FL Portfolio was up 13.4%, the Midwestern Portfolio was up 8.7%, the Virginia Portfolio was up 7.8% and the Texas Portfolio was up 6.2%.
- EBITDA for the quarter was up 77% to $11.1 million (2014 – $6.3 million) and EBITDA margin for the quarter increased to 32.6% compared to 27.9% for the prior period.
- AHIP’s debt-to-gross book value at June 30, 2015 was 49.6% compared to 45.2% at June 30, 2014 and the interest coverage ratio for the current quarter was 4.0x compared to 3.7x last year.
- AHIP’s weighted average face interest rate improved during the quarter to 4.65% (2014 – 4.88%) and its weighted average loan term to maturity increased to 7.5 years (2014 – 6.6 years).
- AHIP continued to pay its regular monthly distribution of Cdn$0.075 and the payout ratio dropped to 83.7% as AHIP completed its seasonally strong second quarter and the strengthening U.S. dollar provided a tailwind to the Canadian dollar denominated distributions.
SECOND QUARTER 2015 TRANSACTIONS
- In April 2015, AHIP completed a Cdn$66.1 million bought deal Unit issuance (“April 2015 Offering“) to fund the acquisition of the Midwestern Portfolio in June 2015 and the Florida Portfolio in August 2015.
- In June 2015, AHIP completed the acquisition of a nine-hotel, branded, select-service hotel portfolio (“Midwestern Portfolio“) for $53.5 million. The hotels have 632 guestrooms and are located in five Midwestern states. The acquisition was partially funded with cash on hand from the April 2015 Offering and a new $32.0 million commercial mortgage backed securities (“CMBS“) mortgage with a 10 year term and a fixed interest rate of 4.24%. The loan is interest only for 7 years and has a 24 month FF&E reserve waiver.
- In June 2015, AHIP announced the acquisition of three Marriott-branded, select-service hotels located in Ocala, Florida (“Florida Portfolio“) for $30.8 million. The acquisition was partially funded with cash on hand from the April 2015 Offering and a new $19.0 million CMBS mortgage with a 10 year term and a fixed interest rate of 4.21%. The loan is interest only for 10 years and has a 24 month FF&E reserve waiver. The transaction was completed on August 6, 2015.
- In June 2015, AHIP announced the completion of a $3.3 million renovation of the Residence Inn Cranberry Township (Pittsburgh).
- In June 2015, AHIP announced a new rail contract at the Holiday Inn Oklahoma City Airport with a leading national U.S. freight railway company that guarantees 50-room nights for the next two years.
- In July 2015, AHIP announced that it had entered into a conditional purchase and sale agreement to acquire a strategic rail portfolio of five railway hotels (“Strategic Railway Portfolio“) with approximately 600 guestrooms for $45.0 million plus closing costs. The hotels are secured by railway contracts that guarantee approximately 80% of the available guestrooms and have an average contract term of nine years. The transaction is conditional on negotiation of formal legal documents and assignment of railway contracts.
- On August 11, 2015, AHIP completed a Cdn$38.6 million bought deal Unit issuance (“August 2015 Offering“) with the proceeds to be utilized primarily to fund the acquisition of the Strategic Railway Portfolio.
Rob O’Neill, CEO of AHIP, commented “The second quarter and the early part of the third quarter was a very productive time. We have raised over Cdn$100 million in two successful bought deal offerings and are poised to have fully deployed that cash by the end of the third quarter. These recent investments will further strengthen and diversify our two strong operating segments: the stable rail hotel portfolio and the branded hotel portfolio. AHIP continues to see exceptional year-over-year growth in its portfolio and earnings in an environment where the U.S. hotel industry just completed its 64th consecutive month of RevPAR growth in June 2015. The strong U.S. dollar, which has increased in value by 15% against the Canadian Dollar since the end of June 2014, continued to support our U.S. dollar denominated net asset values, income and our Canadian dollar denominated distributions. We continue to implement our strategy of creating value and building a solid and reliable income stream for investors by accretively acquiring properties below replacement cost with conservatively financed, long term, fixed rate mortgages”.
Mr. O’Neill continued, “We have also undertaken a significant capital renovation program at certain hotels which has resulted in some guest displacement. For those hotels currently under renovation, we have seen a year-over-year NOI variance, which translates to approximately one penny of FFO in the quarter and approximately two cents of FFO for the six months ended June 30, 2015.”
The U.S. hotel industry reported positive results for the second quarter of 2015. STR reported that occupancy was up 1.6% to 69.1%, ADR increased by 4.8% to $120.60 and RevPAR rose 6.5% to $83.87. In addition, demand was up 2.7% in the first quarter, while supply growth was limited to 1.1%. STR expects that positive lodging fundamentals will continue during 2015 with RevPAR growth of 6.8%. STR further expects 2016 RevPAR to grow by 6.0%, driven primarily by higher ADR.
For the Oak Tree Inn Hotels portfolio, the number of railway rooms currently guaranteed is approximately 72%.
Hotel transactions continue at a brisk pace in the U.S., fueled by demand for high quality products and availability of low cost debt for hotel transactions, particularly deals with modest leverage. AHIP continues to review its existing debt maturities in an effort to extend the term and reduce refinancing risk during the current low interest rate environment.
SECOND QUARTER 2015 FINANCIAL RESULTS CONFERENCE CALL
AHIP will host a conference call at 4:00 p.m. (Eastern), 1:00 p.m. (Pacific) on Thursday, August 13, 2015, to review the financial results and corporate developments for the three and six months ended June 30, 2015.
To participate in this conference call, please dial one of the following numbers approximately 10 minutes prior to the commencement of the call, and ask to join the AHIP conference call.
Dial in numbers
Toll free (Canada and U.S.)â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦..1-888-390-0546
International or Local Torontoâ¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦..1-416-764-8688
Conference Call Replay
If you cannot participate on Thursday, August 13, 2015, 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 two hours after the call end time, and the replay will be available until Thursday, August 20, 2015. An audio recording of this conference call will also be available at www.ahipreit.com under the “Presentations and Calls” tab.
Please enter the Replay ID 660621 followed by the # key.
Replay dial-in toll free (from Canada and U.S.)â¦â¦â¦â¦â¦..1-888-390-0541
International or Local Torontoâ¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦â¦….1-416-764-8677
Certain non-IFRS financial measures are included in this news release which include ADR, RevPAR, Pro-forma RevPAR, NOI, EBITDA, EBITDA margin, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit, payout ratio, weighted average face interest rate, weighted average loan term to maturity and debt-to-gross book value. These terms are not measures recognized under International Financial Reporting Standards (“IFRS“) and do not have standardized meanings prescribed by IFRS. Real estate investment trusts often refer to NOI, EBITDA, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit and payout ratio as supplemental measures of performance and debt-to-gross book value as a supplemental measure of financial condition.
Debt-to-gross book value, NOI, EBITDA, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit and payout ratio should not be construed as alternatives to measurements determined in accordance with IFRS as indicators of AHIP’s performance or financial condition. AHIP’s method of calculating NOI, EBITDA, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit, payout ratio, debt and gross book value may differ from other issuers’ methods and accordingly may not be comparable to measures used by other issuers. For further information, please refer to AHIP’s Management’s Discussion and Analysis (“MD&A“) dated August 12, 2015, which is available on SEDAR at www.sedar.com and on AHIP’s website at www.ahipreit.com.
Management believes that the computation of FFO per Unit – As Reported and Core AFFO per Unit – As Reported includes certain items that are not indicative of the results provided by AHIP’s operating portfolio and affect the comparability of AHIP’s period-over-period performance. These items include the dilutive impact of the April 2015 Offering. Therefore, in addition to FFO per Unit – As Reported and AFFO per Unit – As Reported, management uses Core FFO per Unit and Core AFFO per Unit to exclude such items. Management believes that Core FFO per Unit and Core AFFO per Unit are useful supplemental measures; however, this may not be comparable to the adjusted or modified FFOs and AFFOs per unit of other issuers.
This news release contains forward-looking information within the meaning of applicable securities laws (also known as forward-looking statements). Forward-looking statements 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-statements 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. Some specific forward-looking statements in this news release include, but are not limited to, statements with respect to: the use of the proceeds from AHIP’s April 2015 Offering and August 2015 Offering, including, without limitation, to partially fund the potential acquisition of a strategic railway portfolio, the other potential expansion opportunities for Oak Tree Inn railway lodging facilities; the expectations of STR with respect to key performance indicators in the U.S. hotel and lodging industry; AHIP management’s expectations and outlook with respect to RevPAR, ADR, occupancy rates, cash flows from hotel operations, real estate values and other key performance indicators over the next 24 months; expected impact of oil prices on the overall economy, the U.S. hotel and lodging industry; expected terms of future debt financings; AHIP’s review of other potential portfolio acquisition opportunities of branded hotels; AHIP’s intention to provide stable, sustainable and growing cash flows through operation of its properties and AHIP’s other stated objectives; the AHIP’s intention to make regular monthly cash distributions and the expected timing of the record and payment dates for monthly distributions.
Although AHIP believes that the expectations reflected in the forward-looking information contained in this news release are reasonable, AHIP can give no assurance that these expectations will prove to have been correct, and since forward-looking information inherently involves risks and uncertainties, undue reliance should not be placed on such information. The estimates and assumptions, which may prove to be incorrect, include, but are not limited to, the various assumptions set forth in this news release as well as the following: capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP; AHIP’s future level of indebtedness and AHIP’s future growth potential will remain consistent with AHIP’s current expectations; there will be no changes to tax laws adversely affecting AHIP’s financing capability, operations, activities, structure or distributions; AHIP will retain and continue to attract qualified and knowledgeable personnel as AHIP expands its portfolio and business; 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 government and environmental regulations adversely affecting AHIP’s operations; and conditions in the international and, in particular, the U.S. hotel and lodging industry, including competition for acquisitions, will be consistent with the economic climate.
Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such forward-looking statements. In addition, forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results. Those risks and uncertainties include, among other things, risks related to: general economic conditions and consumer confidence; the growth in the U.S. hotel and lodging industry; Unit prices; liquidity; tax risks; ability to access debt and capital markets; financing risks; changes in interest rates; real property risks including environmental risks; the degree and nature of competition; ability to acquire accretive hotel investments; ability to integrate new hotels; construction of new hotels; renewal of rail contracts; environmental matters; and changes in legislation. Additional information about risks and uncertainties is contained in AHIP’s MD&A and in AHIP’s annual information form (“AIF“) for the year ended December 31, 2014, a copy of which is available on SEDAR at www.sedar.com.
The forward-looking information contained in this news release is expressly qualified in its entirety by these cautionary statements. All forward-looking statements in this news release are made as of August 12, 2015. AHIP does not undertake any obligation to update any such forward looking information, whether as a result of new information, future events or otherwise, except as required by applicable law.
ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP
AHIP’s diversified and well-balanced property portfolio is comprised of 73 hotels located in 26 states, representing 6,212 available guestrooms. The Oak Tree Inn Hotel segment, serving the U.S. freight railway industry, consists of 38 hotels comprising 2,881 guestrooms and 26 Penny’s Diner restaurants. The Branded Hotel segment consists of 35 hotels comprising 3,331 guestrooms and is affiliated with leading hotel brands including Marriott, IHG and Hilton.
AHIP is a limited partnership formed under the Limited Partnerships Act (Ontario) to invest in hotel real estate properties located substantially in the United States and engaged primarily in the railway employee accommodation, transportation and branded, select service lodging sectors.
AHIP’s long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the U.S.; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.
Additional information relating to AHIP, including AHIP’s condensed consolidated interim financial statements for the three and six months ended June 30, 2015 and 2014, AHIP’s MD&A dated August 12, 2015, and other public filings are available on SEDAR at www.sedar.com.
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS NEWS RELEASE.
SOURCE American Hotel Income Properties REIT LP