VANCOUVER, British Columbia, Feb. 27, 2024 (GLOBE NEWSWIRE) — American Hotel Income Properties REIT LP (“AHIP“, or the “Company“) (TSX:HOT, TSX:HOT, TSX:HOT), today announced its unaudited financial results for the three and twelve months ended December 31, 2023.
All amounts presented in this news release are in United States dollars (“U.S. dollars“) unless otherwise indicated and are unaudited.
2023 HIGHLIGHTS
Diluted FFO per unit (1) and normalized diluted FFO per unit (1) were $0.48 and $0.36, respectively, for the year ended December 31, 2023, compared to $0.47 and $0.38 for the year ended December 31, 2022.
ADR (1) increased 5.6% to $131 for the year ended December 31, 2023, compared to $124 for the year ended December 31, 2022.
Occupancy (1) was 68.7% for the year ended December 31, 2023, compared to 68.9% for the year ended December 31, 2022.
RevPAR (1) increased 5.9% to $90 for the year ended December 31, 2023, compared to $85 for the year ended December 31, 2022.
Revenue decreased 0.3% to $280.5 million for the year ended December 31, 2023, compared to $281.4 million for the year ended December 31, 2022, as a result of asset sales and weather-related demand disruption in 2023.
NOI (1) and normalized NOI (1) were $83.4 million and $86.9 million, respectively, for the year ended December 31, 2023, decreases of 6.5% and 2.6%, respectively, compared to $89.2 million and $89.2 million for the year ended December 31, 2022.
AHIP had $27.8 million in available liquidity as at December 31, 2023, compared to $24.1 million as at December 31, 2022. The available liquidity of $27.8 million was comprised of an unrestricted cash balance of $17.8 million and borrowing availability of $10.0 million under the revolving credit facility.
Amendment and extension of AHIP’s revolving credit facility and certain term loans.
Amendment of the master hotel management agreement with reduced and deferred fees.
Temporary suspension of cash distributions effective November 2023 to enhance liquidity.
“AHIP’s portfolio of premium branded select service hotel properties continued to demonstrate strong demand metrics in 2023.” said Jonathan Korol, CEO. “Portfolio RevPAR was up meaningfully for the year, finishing at $90, AHIP’s highest ever annual RevPAR. Despite disruptions resulting from weather-related events in Q1 and dispositions of non-core properties, revenue decreased only modestly for the year. Costs related to macroeconomic conditions remain elevated, with higher labor and operating costs resulting in substantial pressures to hotel operating margins.”
Mr. Korol added: “AHIP’s Board and management team have taken a number of decisive actions across the business to preserve cash, enhance financial stability and protect long term value for our unitholders. These actions include an amendment and extension of our revolving credit facility and certain term loans, a reduction and deferral of hotel management fees, and temporary suspension of the distribution. We are currently executing a plan to address near-term debt obligations. These steps will strengthen our liquidity and balance sheet to ensure we are positioned to benefit when 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.”
Q4 2023 HIGHLIGHTS
Diluted FFO per unit and normalized diluted FFO per unit were $0.004 and $0.03, respectively, for the fourth quarter of 2023, compared to $0.11 and $0.07 for the same period of 2022.
ADR increased 0.8% to $126 for the fourth quarter of 2023, compared to $125 for the same period of 2022.
Occupancy was 66.5% for the fourth quarter of 2023, an increase of 20 bps compared to 66.3% for the same period of 2022.
RevPAR increased 1.2% to $84 for the fourth quarter of 2023, compared to $83 for the same period of 2022.
Revenue decreased 2.9% to $65.8 million for the fourth quarter of 2023, compared to $67.8 million for the same period of 2022.
NOI was $16.8 million for the fourth quarter of 2023, a decrease of 17.5%, compared to $20.3 million for the same period of 2022.
2023 REVIEW
GROWTH IN ADR AND REVPAR, DECLINE IN OCCUPANCY
For the year ended December 31, 2023, ADR increased 5.6% to $131. The increase in ADR was partially offset by the decrease of 20 bps in occupancy, which is primarily attributable to lower demand at the extended stay and select service properties. Overall, improved ADR resulted in an increase of 5.9% in RevPAR, compared to the year ended December 31, 2022.
This result is attributable to improvements in the corporate and group traveler segments, sustained demand from leisure travelers, as well as the disposition of properties with lower than portfolio average RevPAR. The ability to control and manage daily rates is a key advantage of the lodging sector, which has enabled AHIP to achieve strong growth in ADR in 2023, partially mitigating the effects of escalated labor costs and general inflationary pressures impacting the portfolio.
NOI, NOI MARGIN (1) AND FFO PER UNIT (1)
NOI and normalized NOI (1) were $83.4 million and $86.9 million, respectively, for the year ended December 31, 2023, decreases of 6.5% and 2.6%, respectively, compared to NOI and normalized NOI of $89.2 million for the year ended December 31, 2022. For the year ended December 31, 2023, normalized NOI included $3.5 million in business interruption insurance proceeds as a result of the weather-related damage at several hotel properties in late December 2022. NOI margin was 29.7% in the current year, a decrease of 200 bps compared to 31.7% for the prior year. The decreases in NOI and NOI margin were due to the decline in revenue as a result of fewer properties in the portfolio, lower occupancy, and higher operating expenses as a result of cost inflation, escalated labor costs, and higher property insurance premiums. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labor market resulted in increased room labor expenses due to overtime, higher wages for employees and dependency on contract labor. The increase in the annual premium for property insurance effective June 1, 2023 was approximately $3.5 million. In 2023, AHIP incurred $12.5 million to remediate and rebuild the four damaged hotel properties after the weather-related damage in late December 2022, which resulted in significant improvements to these hotels. The majority of the costs have been funded by the insurance policies.
Diluted FFO per unit and normalized diluted FFO per unit for the year ended December 31, 2023, were $0.48 and $0.36, respectively, compared to diluted FFO per unit of $0.47 and $0.38 for the year ended December 31, 2022. Normalized diluted FFO per unit in the current year excluded non-recurring expected insurance proceeds of $11.2 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 primarily due to lower NOI in the current year.
LEVERAGE AND LIQUIDITY
KPIs (unaudited)
Q4 2023
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Debt-to-GBV (1)
51.9%
51.1%
51.6%
52.0%
52.6%
Debt-to-EBITDA (1)
10.6x
10.1x
9.8x
9.6x
9.8x
Debt to gross book value as at December 31, 2023 was 51.9%, a decrease of 70 bps compared to December 31, 2022. Debt to EBITDA as at December 31, 2023 was 10.6x, an increase of 0.8x compared to December 31, 2022. The increase in Debt to EBITDA was mainly due to the decrease in NOI.
As at December 31, 2023, AHIP had $27.8 million in available liquidity, compared to $24.1 million as at December 31, 2022. The available liquidity of $27.8 million was comprised of an unrestricted cash balance of $17.8 million and borrowing availability of $10.0 million under the revolving credit facility. AHIP has an additional restricted cash balance of $31.3 million as at December 31, 2023.
AHIP has 71.3% 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 secured overnight financing rate (“SOFR“) of 5.3%, the incremental annual interest expense is estimated to be approximately $5.2 million. The actual increase in interest expense will be dependent on future SOFR.
NON-CASH IMPAIRMENT CHARGES
During the fourth quarter of 2023, the Company recognized non-cash impairment charges of approximately $67.4 million related to twenty-three hotel properties. The impaired hotels are primarily located in Maryland, New Jersey, Pennsylvania, and Texas. AHIP completed the valuation process based on external appraisals, purchase and sales agreements, recent market transactions and internal valuations of properties. The impairment is primarily due to revised expectations on the timeframe for the properties to return to stabilized income level after the impact of the COVID-19 pandemic, higher operating expenses as a result of cost inflation, escalated labor costs, higher property insurance premiums, and local competition factors in select markets.
CAPITAL RECYCLING
In 2022, AHIP completed the strategic dispositions of seven non-core hotel properties for total gross proceeds of $47.5 million. These dispositions i) allowed AHIP to avoid future PIP investments that would not have met returns available elsewhere in the portfolio; ii) increase in estimated annualized portfolio RevPAR by approximately $3, and iii) decrease in estimated annualized Debt to EBITDA ratio by approximately 0.4x.
In June 2023, AHIP completed the disposition of a non-core hotel property for gross proceeds of $11.7 million. As a condition of the fifth amendment to the revolving credit facility and certain term loans, AHIP made a repayment of $1.8 million (50% of the net proceeds of this disposition) to the term loan. This repayment resulted in a permanent reduction of the term loan, which reduced the total borrowing availability from $200.0 million to $198.2 million.
In the fourth quarter of 2023, AHIP entered into agreements to dispose of a hotel property in Harrisonburg, Virginia for $8.55 million, and a hotel property in Cranberry Township, Pennsylvania for $8.25 million. The dispositions are expected to close in the first quarter of 2024. The combined sales price for these properties represents a blended cap rate of 8.6% on 2023 annual hotel EBITDA, after adjusting an industry standard 4% furniture, fixtures, and equipment (“FF&E“) reserve. Under the terms of the Sixth Amendment, 50% of the net proceeds from sales of these hotel properties (if any) are required to be used to pay down outstanding amounts under the term loan governed by the Sixth Amendment.
In 2024, AHIP will continue to execute its strategy to divest assets to recycle proceeds into higher return assets in more attractive markets and reduce debt. AHIP is currently marketing selected properties.
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 (unaudited)
Q4 2023
Q3 2023
Q2 2023
Q1 2023
Q4 2022
ADR
$126
$133
133
$132
$126
Change compared to same period in prior year – % increase/(decrease)
–
2.9%
6.0%
11.2%
9.5%
Occupancy
66.6%
71.4%
73.7%
65.7%
67.4%
Change compared to same period in prior year – bps increase/(decrease)
(80)
(230)
(60)
–
40
RevPAR
$84
$95
$98
$87
$85
Change compared to same period in prior year – % increase/(decrease)
(1.2%)
(0.2%)
5.2%
11.1%
10.3%
NOI Margin
26.1%
30.6%
33.5%
29.1%
30.9%
Change compared to same period in prior year – bps increase/(decrease)
(480)
(270)
(140)
(60)
(400)
In the fourth quarter of 2023, same property ADR was $126, consistent with the same period in the prior year. Same property occupancy decreased by 80 bps to 66.6%, compared to the same period of 2022. The decrease in occupancy is primarily attributable to lower demand at the extended stay and select service properties.
Same property NOI margin decreased by 480 bps to 26.1% in the fourth quarter of 2023, compared to the same period of 2022. The decrease in 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. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labor market resulted in increased room labor expenses due to overtime, higher wages for employees and dependency on contract labor.
In Q4 2023, Q3 2023 and Q4 2022, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded nine properties, which is comprised of seven hotels sold in 2022, one hotel sold in 2023, and one hotel in respect of which AHIP is in a managed foreclosure process for this property as of December 31, 2023.
In Q1 and Q2 2023, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded eleven properties, which is comprised of the nine properties mentioned in the immediately preceding paragraph, as well as 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.
SELECTED INFORMATION
(thousands of dollars, except per Unit amounts, unaudited)
2023
2022
2021
Revenue
280,521
281,367
241,307
Income from operating activities
48,424
51,202
45,830
Loss and comprehensive loss
(73,916)
(35,582)
(11,866)
NOI (1)
83,372
89,154
88,917
NOI Margin (1)
29.7%
31.7%
36.8%
Hotel EBITDA (1)
75,269
79,941
81,635
Hotel EBITDA Margin (1)
26.8%
28.4%
33.8%
EBITDA (1)
64,732
71,293
70,803
EBITDA Margin (1)
23.1%
25.3%
29.3%
Cashflow from operating activities
37,818
44,910
17,954
Distributions declared per unit – basic and diluted
0.150
0.165
–
Distributions declared to unitholders – basic
11,826
12,996
–
Distributions declared to unitholders – diluted
15,676
14,453
–
Dividends declared to Series C holders
4,055
4,055
3,744
FFO diluted (1)
43,415
42,020
42,313
FFO per unit – diluted (1)
0.48
0.47
0.48
FFO payout ratio – diluted, trailing twelve months (1)
37.0%
35.2%
–
Normalized FFO per unit – diluted (1)
0.36
0.38
0.32
AFFO diluted (1)
31,060
31,471
37,064
AFFO per unit – diluted (1)
0.35
0.35
0.42
AFFO payout ratio – diluted, trailing twelve months (1)
52.3%
47.4%
–
(1) See “Non-IFRS and Other Financial Measures”.
SELECTED INFORMATION
(thousands of dollars, unaudited)
December 31,
2023
December 31, 2022
December 31, 2021
Total assets
954,887
1,052,795
1,152,388
Total liabilities
721,937
730,689
777,784
Total non-current liabilities
529,178
667,807
674,339
Term loans and revolving credit facility
599,873
643,929
695,796
Debt to gross book value (1)
51.9%
52.6%
54.0%
Debt to EBITDA (times) (1)
10.6
9.8
10.7
Interest coverage ratio (times) (1)
1.9
2.1
1.9
Term loans and revolving credit facility:
Weighted average interest rate
4.95%
4.46%