American Hotel Income Properties REIT LP Reports Fourth Quarter and Full Year 2019 Results

MANAGEMENT TAKES ACTION TO PRESERVE CAPITAL AND TO BETTER POSITION THE COMPANY TO ACHIEVE LONG-TERM FFO GROWTH OBJECTIVES INCLUDING CHANGING ITS MONTHLY DISTRIBUTION

• Q4 2019 revenue for Continuing Operations increased 5.4% compared to Q4 2018
• Q4 2019 net operating income for Continuing Operations increased by 2.5%
• Same-property revenues for the fourth quarter increased 1.3%
• For hotels not under renovation, Q4 2019 same-property NOI increased by 4.5%
• Q4 2019 diluted FFO per unit of $0.13 cents, in line with Q4 2018
• Beginning to see impact of slowing travel industry trends relating to coronavirus in some markets
• Reducing monthly U.S. dollar cash distribution by 29.6% to US$0.038, beginning with the March 2020 distribution (payable in April), representing US$0.456 per unit on an annualized basis
• Lowering pro-forma 2020 FFO payout ratio to approximately 64%, based on 2019 FFO

(All numbers are in U.S. dollars unless otherwise indicated)

VANCOUVER, March 11, 2020 /PRNewswire/ - American Hotel Income Properties REIT LP ("AHIP", or the "Company") (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) announced today its financial results for the three months and year ended December 31, 2019. 

"2019 was a year of transformational change for AHIP, as we high-graded our portfolio by selling our rail-dependent Economy Lodging portfolio and pivoted our strategy to focus entirely on a growing portfolio of Premium Branded hotels," said John O'Neill, CEO.  "Most recently, we acquired 12 additional Premium Branded properties to expand our presence in the U.S. Midwest and Texas. In the last twelve months we've also lowered our cost of debt considerably and obtained a new credit facility, renegotiated the terms of our hotel management agreement to capture additional cost savings, and recruited highly experienced finance and asset management executives to our team.  Together, these initiatives have further strengthened our portfolio of Premium Branded hotels, provided us with a more efficient operating model, and enhanced the long-term stability of our cash flows."

Mr. O'Neill added: "During the fourth quarter we were pleased to have redeployed the proceeds from our portfolio sale quickly into newer high-quality assets to minimize any impact on our cash flows.  Overall, fourth quarter FFO was slightly ahead of last year, even with the portfolio changes executed during the quarter.  We believe this demonstrates the strength of our growing platform of Premium Branded hotels and the markets our hotels are located in."

Commenting on the global coronavirus concerns, Mr. O'Neill said: "This situation is impacting the travel industry worldwide and the hotel industry specifically.  We believe our properties are better suited to withstand the impacts of this disruption than other hotel REITs, as our properties are located in secondary markets – not gateway cities, and have a rooms-only focus with limited meeting facilities.  As such, we have not seen any material impact from coronavirus on our operations thus far.  However, considering we are now starting to see a slowdown in future guestroom and meeting room reservations, and the effect of the coronavirus on the hotel industry and U.S. economy overall, the impact to our income levels is difficult to predict at this time.   As a result, AHIP's board of directors approved adjusting our distribution as a prudent measure to preserve capital in this changing environment by way of a 29.6% reduction of our monthly U.S. dollar cash distribution from US$0.054 per Unit ($0.648 per Unit annualized) to US$0.038 per Unit ($0.456 per Unit annualized). Accordingly, we will retain approximately $15 million annually through this adjustment, which may be used to achieve some or all of the following objectives:

• strengthen our balance sheet;
• reduce leverage;
• further invest in our hotel properties, to drive FFO growth; or
• provide AHIP with the ability to fund potential opportunistic accretive acquisitions."

Mr. O'Neill closed by noting: "These continue to be evolving circumstances, and we believe the actions we're implementing today will better situate our business to perform in this period of disruption and best position our platform of Premium Branded hotels for future long-term accretive growth."

THREE MONTHS ENDED DECEMBER 31, 2019 FINANCIAL HIGHLIGHTS

• Consolidated Results:  Includes the performance of the 67 Premium Branded hotels owned in both the current and comparative period, 12 Premium Branded hotels acquired in December 2019, and discontinued operations.
• Continuing Operations: Includes the performance of all 79 Premium Branded hotels (the 67 hotels owned in both the current and comparative period and the 12 hotels acquired in December 2019).
• Same-Property Results: Includes only the performance of the 67 Premium Branded hotels owned in both the current and comparative period.

These definitions are also applied in discussing our results for the year ended December 31, 2019.

Consolidated Results (Includes continuing and discontinued operations)

Results for the three months ended December 31, 2019 include a partial quarter contribution from discontinued operations (from the sale of the Economy Lodging portfolio), contributions from 12 additional Premium Branded hotels that were acquired in December 2019 (the "Acquisition"), and temporary dilution between completing these transactions when the portfolio consisted of only 67 Premium Branded hotels.  These capital recycling activities should be considered when evaluating total (continuing and discontinued operations) comparative performance relative to Q4 2018.

• Revenues for the quarter decreased 4.4% to $76.1 million (Q4 2018 – $79.6 million). 
• Net loss and comprehensive loss for the seasonally slow fourth quarter was $14.5 million, compared to the net loss and comprehensive loss of $6.1 million in Q4 2018, as a result of a $6.8 million loss on disposal of the Economy Lodging portfolio, a $1.7 million impairment charge, and $1.4 million of defeasance costs related to refinancing activities.
• Diluted net loss per Unit for the quarter was $0.19 compared to a diluted net loss per Unit of $0.08 in Q4 2018.
• Funds from operations ("FFO") increased 3.8% from Q4 2018 to $10.2 million and adjusted funds from operations ("AFFO") increased 0.2% to $9.2 million.
• Q4 2019 Diluted FFO per Unit was $0.13 (Q4 2018 – $0.13) and Diluted AFFO per Unit was $0.12 (Q4 2018 – $0.12).

Continuing Operations (79 Premium Branded Hotels)

• Revenue increased 5.4% to $65.1 million (Q4 2018 – $61.7 million).
• Average Daily Rate ("ADR") increased 0.6% compared to Q4 2018, to $112.00. 
• Revenue per Available Room ("RevPAR") increased 0.2% compared to the same quarter last year, to $80.98. 
• Net Operating Income ("NOI") increased by 2.5% to $19.1 million (Q4 2018 – $18.6 million).
• NOI Margins decreased by 80 basis points to 29.4% (Q4 2018 – 30.2%) from higher Food and Beverage revenues which moderated NOI margins.    
• Net loss during the seasonally weaker fourth quarter was $5.5 million (Q4 2018 – $3.8 million) due to $1.4 million of defeasance costs and $1.7 million of impairment charges on two hotels.

Same-Property Results

Same-property metrics represent the performance of the 67 Premium Branded hotels owned in both the current and comparative period, or 85% of AHIP's total current hotel portfolio based on number of hotels. 

• Same-property revenues for the fourth quarter increased 1.3% to $62.5 million (Q4 2018 – $61.7 million).
• Same-property RevPAR increased 0.8% from Q4 last year to $81.46, primarily due to ADR increasing 0.6% to $112.05. 
• Same-property NOI was $18.5 million (Q4 2018 – $18.6 million) and the NOI margin was 29.6% (Q4 2018 – 30.2%).  A higher proportion of Food and Beverage revenues contributed to these changes.
• Five properties were under renovation for portions of the fourth quarter: the Embassy Suites Cleveland (Ohio), the Holiday Inn Express Sarasota (Florida), the Holiday Inn Express Fort Myers (Florida), the TownePlace Suites Chattanooga (Tennessee), and the Homewood Suites Dover (New Jersey).  RevPAR at these properties saw an average decline of 15.5% due to lower occupancy as rooms were taken out of inventory for renovations. Renovations planned for the fourth quarter at these properties were completed on time and on budget.
• Same-property revenues for hotels not under renovation increased by 3.4% (or approximately $1.9 million) as a result of improved operating results from hotels that were previously under renovation. 
• Q4 2019 RevPAR for same-property hotels not under renovation increased by 2.3% to $82.97 (2018 – $81.10) led by an ADR increase of 0.6% to $112.08 (2018 – $111.43) and occupancy growth of 1.2 p.p. to 74.0% (2018 – 72.8%). 
• For Same-Property hotels not under renovation, same-property NOI increased by 4.5% to $18.0 million.

Discontinued Operations (Economy Lodging hotels)

• AHIP's Economy Lodging hotels were sold on November 27, 2019.  As a result, the contribution from these hotels between October 1, 2019 and November 27, 2019 has been reported as Discontinued Operations in the income statement. 

Capital Metrics (as at December 31, 2019)

• As at December 31, 2019, AHIP's debt had a weighted average remaining term of 5.5 years (2018 – 6.4 years) and a weighted average interest rate of 4.41% (2018 – 4.65%).  As at December 31, 2019, all of AHIP's term loans effectively had fixed interest rates.
• As at December 31, 2018, AHIP had an unrestricted cash balance of $17.8 million and a restricted cash balance of $28.8 million, including $8.8 million on deposit for upcoming property improvement plans ("PIPs").
• AHIP's debt-to-gross book value as at December 31, 2019 was 56.3% (December 31, 2018 – 53.6%).   
• AHIP paid U.S. dollar monthly distributions of $0.054 per Unit during the quarter, which is equivalent to $0.648 per Unit on an annualized basis.  AHIP's business is seasonal in nature and generates higher payout ratios in Q1 and Q4 and lower payout ratios in Q2 and Q3.  Therefore, AHIP recommends viewing its payout ratios on a trailing 12-months basis.  On a trailing 12-month basis, the FFO Payout Ratio at the end of Q4 2019 was 91.5% (Q4 2018 – 91.0%).  See "Distribution Adjustment" below, for information with respect to the change in AHIP's distribution policy effective for the March 2020 distribution.

YEAR ENDED DECEMBER 31, 2019 FINANCIAL HIGHLIGHTS
(Includes continuing and discontinued operations)

• 2019 revenues declined 1.0% to $335.2 million (2018 - $338.6 million) primarily due to hotel renovation activity and portfolio changes. 
• Net loss and comprehensive loss for 2019 was $7.0 million, compared to net income of $8.4 million in 2018 due primarily to the loss on disposal of the Economy Lodging portfolio.  Diluted net loss per Unit was $0.09 compared to diluted net income per Unit of $0.11 last year.
• FFO for 2019 decreased 0.6% to $55.3 million (2018 – $55.6 million), while AFFO decreased 0.3% to $49.9 million (2018 – $51.5 million).
• For 2019, Diluted FFO per Unit was $0.70, in line with FFO of $0.70 last year and Diluted AFFO per Unit was $0.63 (2018 – $0.65).
• Same-property revenues for 2019 were $267.0 million, a 0.4% increase from $266.0 million in 2018.
• Same-property RevPAR for 2019 declined 0.6% to $88.15 (2018 – $88.71) with ADR increasing 0.3% to $114.78 (2018 – $114.46) and occupancy declines of 0.7 p.p. to 76.8% (2018 – 77.5%).
• Same-property NOI for 2019 declined 1.2% from 2018 to $89.6 million (2018 – $90.8 million).
• Revenue for same-property hotels not under renovation increased by 2.6% (or $5.8 million) in 2019 compared to 2018.

FOURTH QUARTER DEVELOPMENTS

• During the fourth quarter, AHIP completed approximately $10.9 million of hotel renovations at five properties in Florida, Ohio and Tennessee.
• On December 3, 2019, AHIP completed the Acquisition of 12 Premium Branded hotels.  In addition, AHIP entered into an amended and restated $165 million credit facility ("Credit Facility") with a syndicate of lenders consisting of a $60 million revolving line of credit (previously $40 million), and a new $105 million term loan, which was used to partially finance the Acquisition.  AHIP also entered into two swap agreements to fix the interest rates on the $105 million term loan and $25 million of amounts drawn on the revolver to a maximum of 3.52% and 3.71%, respectively, for four years.  On December 6, 2019, AHIP refinanced a $5.7 million term loan using proceeds from the revolver. 
• On November 27, 2019, AHIP completed the sale of the Economy Lodging portfolio for gross proceeds of $215.5 million, excluding closing and post-closing adjustments.

SUBSEQUENT EVENTS

• On February 14, 2020, AHIP increased the size of its Credit Facility from $165 million to $225 million with $100 million allocated towards a revolving line of credit (previously $60 million) and $125 million allocated towards term loans (including the previously drawn $105 million term loan obtained in connection with the completion of the Acquisition). No amounts were drawn by AHIP under the Credit Facility in connection with this latest increase in borrowing capacity.

TAXATION OF DISTRIBUTIONS

• For 2019, 92.1% of AHIP's distributions were considered return of capital and 7.9% were considered taxable dividend income.  Unitholders should consult their own tax advisors for advice with respect to the tax consequences of their investment in Units based on their particular circumstances.

DISTRIBUTION ADJUSTMENT

• On March 10, 2020, AHIP's board of directors approved a 29.6% reduction of the Company's U.S. dollar monthly cash distribution.  As a result, unitholders will receive US$0.038 cents per month per Unit (or $0.456 per Unit annualized) beginning with the March 2020 distribution, which is payable on April 15, 2020.  AHIP will retain approximately $15 million annually from this change.  The revised annualized distribution of US$0.456 would equate to a pro-forma FFO payout ratio of approximately 64% using full year 2019 FFO metrics and assuming no change in the number of units outstanding as at December 31, 2019.

The information in this news release should be read in conjunction with AHIP's audited consolidated financial statements and management's discussion and analysis ("MD&A") for the three months and year ended December 31, 2019, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com.

Q4 2019 FINANCIAL RESULTS CONFERENCE CALL

Management will host a conference call at 8:30 a.m. Eastern time / 5:30 a.m. Pacific time on Wednesday, March 11, 2020 to review the financial results for the three months and year ended December 31, 2019.

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' Q4 2019 Analyst Call.

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. The replay will be available after 11:30 a.m. Eastern time / 8:30 a.m. Pacific time on March 11, 2020 until April 11, 2020. The webcast recording of this conference call will also be available at www.ahipreit.com on the Events and Presentation page.

Please enter replay PIN number 1778885 followed by the # key.

NON-IFRS MEASURES

Certain non-IFRS financial measures are included in this news release, which include NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, Pro-forma FFO Payout Ratio, 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 issuers often refer to NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio and Pro-forma FFO 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, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio and Pro-forma FFO 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, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, Pro-forma FFO Payout Ratio and debt-to-gross book value may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers. For further information, including reconciliations of certain of these non-IFRS financial measures to the closest comparable IFRS measure, please refer to AHIP's MD&A dated March 10, 2020, which is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

FORWARD-LOOKING INFORMATION

Certain statements in this news release may constitute "forward-looking information" within the meaning of applicable securities laws (also known as forward-looking statements). Forward looking information involves known and unknown risks, uncertainties and other factors, and it may cause actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information. Forward-looking information generally can be identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "feel", "intend", "may", "plan", "predict", "project", "subject to", "will", "would", and similar terms and phrases, including references to assumptions. Some of the specific forward-looking statements in this news release include, but are not limited to, statements with respect to: AHIP's belief that its properties are better suited to withstand the impacts of the disruption from the coronavirus outbreak than other hotel REIT's, and the reasons for that belief; AHIP starting to see slowdowns in future guestroom and meeting room reservations; the impact of the coronavirus on AHIP's income levels being difficult to predict; the adjustment to AHIP's distribution policy effective with the March 2020 distribution, payable in April 2020, the reasons for such adjustment and the expected strategic impacts of such adjustment, including the estimated cost savings and the objectives that AHIP intends to achieve through the deployment of such cost savings; AHIP's belief that the actions it is implementing will better situate its business to weather the impacts of the coronavirus outbreak and best position AHIP's platform of Premium Branded hotels for future long-term accretive growth; and AHIP's stated long-term objectives.

Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: the coronavirus outbreak will negatively impact the U.S. economy, U.S. hotel industry and AHIP's business, and the extent and duration of such impact; AHIP's properties will be better suited to withstand the impacts of the disruption from the coronavirus outbreak than other hotel REIT's; the cost savings from the adjustment to AHIP's distribution will be available to be deployed in pursuit of AHIP's stated objectives; and actions taken by AHIP in light of the coronavirus outbreak, including the reduction of its distribution, will achieve their intended strategic effects and better position AHIP for future long-term accretive growth. Although the forward-looking information contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

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. Forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results as actual results may differ materially from those expressed or implied in such forward-looking statements. Those risks and uncertainties include, among other things, risks related to: the impact of the coronavirus outbreak on the U.S. economy, the hotel industry, and AHIP's business is currently unknown, and may be significant and may materially adversely affect AHIP's investments, results of operations, financial condition and AHIP's ability to obtain additional equity or debt financing, or re-finance existing debt, or make distributions to Unitholders and interest and principal payments to its lenders and to holders of Debentures, and may cause AHIP to be in non-compliance with the financial covenants under its existing credit facilities and cause a default thereunder; the pace of recovery following the coronavirus outbreak cannot be accurately predicted and may be slow; AHIP's properties may not perform better than those of other hotel REIT's during the coronavirus outbreak or thereafter; the adjustment of AHIP's distribution policy may cause the price of AHIP's securities to decline and AHIP may not achieve the intended strategic objectives of such adjustment; AHIP may not realize the expected benefits of renovations completed in 2019 and to be completed 2020; renovations completed in 2020 may be more disruptive than expected; distributions are not guaranteed and may be reduced or suspended at any time at the discretion of AHIP's board of directors; general economic conditions; future growth potential; Unit prices; liquidity; tax risk; tax laws currently in effect remaining unchanged; ability to access capital markets; competition for real property investments; environmental matters; the value of the U.S. dollar; and changes in legislation or regulations. Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with these forward-looking statements. Additional information about risks and uncertainties is contained in AHIP's MD&A dated March 10, 2020 and annual information form for the year ended December 31, 2018, copies of which are available on SEDAR at www.sedar.com.

The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information reflects management's current beliefs and is based on information currently available to AHIP. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

ADDITIONAL INFORMATION

Additional information relating to AHIP, including AHIP's audited consolidated financial statements for the year ended December 31, 2019, AHIP's MD&A dated March 10, 2020, and other public filings are available on SEDAR at www.sedar.com.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), or AHIP, is a limited partnership formed to invest in hotel real estate properties across the United States. AHIP's 79 premium branded, select-service hotels are located in secondary metropolitan markets that benefit from 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 monthly U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.  More information is available at www.ahipreit.com.

FOURTH QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

 2019 ANNUAL HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

SOURCE American Hotel Income Properties REIT LP

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www.ahipreit.com

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