FOURTH QUARTER DEVELOPMENTS
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On October 27, 2016, AHIP completed the acquisition of the four-property, Marriott-branded hotel portfolio located in Florida and Tennessee (the "Florida/Tennessee Portfolio"). The properties included a 109-room Residence Inn, in Chattanooga, two 89-room Fairfield Inn & Suites in Jacksonville and Lake City and an 87-room TownePlace Suites in Chattanooga. The Florida/Tennessee Portfolio was acquired for an aggregate purchase price of approximately $47.0 million before customary closing and post-acquisition adjustments and excluding approximately $2.8 million in brand required property improvement plans ("PIPs"). The acquisition was funded using cash from AHIP's July 2016 Offering and a new $27.5 million CMBS (as defined below) loan secured by three of the four hotel properties. The loan has a 10 year term and has a fixed interest rate of 4.43%.
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On November 29, 2016, AHIP completed the acquisition of a six-property, branded hotel portfolio in Florida (the "Florida 6 Portfolio"). The properties included a 111-room Holiday Inn Express & Suites hotel in Fort Myers; a 101-room Holiday Inn Express & Suites hotel in Sarasota; a 100-room Staybridge Suites hotel in Tampa; an 86-room Wingate by Wyndham hotel in Tampa; an 81-room Courtyard by Marriott hotel in Tampa; and an 80-room Fairfield Inn & Suites hotel in Orlando. The Florida 6 Portfolio was acquired for an aggregate purchase price of approximately $61.0 million before customary closing and post-acquisition adjustments and excluding approximately $10.6 million in brand required PIPs. The acquisition was funded using a combination of cash from AHIP's July 2016 Offering and a new $37.0 million CMBS loan secured by five of the six hotel properties. The new mortgage has a 10 year term with a fixed interest rate of 4.99%.
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On December 1, 2016, AHIP completed the acquisition of a 104-room rail crew hotel located in Nashville, Tennessee for an aggregate purchase price of approximately $7.8 million excluding approximately $950,000 for planned capital expenditures, closing and post-acquisition adjustments. The hotel underwent renovations in December and January to convert the property into an Oak Tree Inn hotel and began accepting rail crew customers in February 2017. The property features a multi-year rail crew lodging contract with an existing railway customer with a guarantee of 58 guestrooms per night. The acquisition was funded by cash proceeds from AHIP's July 2016 Offering and a new five-year, $4.5 million variable rate mortgage (the "Nashville Term Loan"). AHIP also entered into an interest rate swap agreement at a fixed interest rate of 4.80% effective January 1, 2017.
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On December 5, 2016, AHIP announced the renewal of six rail crew lodging contracts (the "Contract Renewal") with one of its railway customers for a term of six years, effective December 1, 2016. The Contract Renewal encompassed three contracts maturing in 2016 and three contracts maturing in 2017, which covered six Oak Tree Inn hotels with a total of 432 guestrooms. The term of the renewed contracts commenced on December 1, 2016 and will expire on November 30, 2022. The Contract Renewal increased the weighted average remaining term of AHIP's rail crew lodging agreements by 18% from 3.9 years to 4.6 years. The renewed contracts provide for increased daily rates coupled with annual cost of living rate escalators and enhanced diner and transportation subsidies.
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On December 16, 2016, AHIP announced that it had agreed to acquire a strategic portfolio of three Embassy Suites by Hilton branded hotels totaling 782 guestrooms located in proximity to Columbus, Cleveland, and Cincinnati, Ohio (the "Midwestern 3 Embassy Suites Portfolio"). The Midwestern 3 Embassy Suites Portfolio included the 284-room Embassy Suites Columbus Dublin hotel located in Dublin, Ohio, the 271-room Embassy Suites Cleveland Rockside hotel located in Independence, Ohio, and the 227-room Embassy Suites Cincinnati Rivercenter hotel located in Covington, Kentucky. The acquisition was completed on January 19, 2017 as further described in the Subsequent Events section of the MD&A.
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On December 22, 2016, AHIP completed a public offering of 11,281,500 Units, on a bought deal basis, at a price of Cdn$10.20 per Unit, for total gross proceeds of Cdn$115.1 million (the "December 2016 Offering"). Included in the closing were 1,471,500 Units (Cdn$15.0 million) from the full exercise of the over-allotment option. As described in the short form prospectus dated December 16, 2016, AHIP intended to use the net proceeds of the December 2016 Offering to: (i) partially fund the acquisition of the Midwestern 3 Embassy Suites Portfolio; and (ii) the balance, if any, to fund working capital and for general corporate purposes.
Ian McAuley, President of AHIP, commented, "According to STR, Inc. the U.S. hotel industry remains healthy and reported positive quarterly year-over-year results in both occupancy and ADR resulting in national RevPAR growing by 3.2%, and is expected to grow by approximately 2.5% during 2017. Despite continued weakness in the Pittsburgh and Oklahoma markets and lower railroad carload volumes experienced during the quarter and the year, our external hotel manager has grown RevPAR and NOI which highlights, not only the unique balance and diversity of our Branded and Rail portfolios, but also the sustainability and security of the distributions to unitholders. As our railway customers remain optimistic that the current trend of positive rail carload volume growth will continue, combined with a growing U.S. hotel industry, we expect the continued solid operating results from our existing portfolio will be enhanced with the absorption of the recent additions to our growing high quality portfolio."
FULL YEAR 2016 FINANCIAL REVIEW
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Net income for the year increased by 62.9% to $9.3 million (2015 - $5.7 million) and diluted net income per Unit increased by 21.1% to $0.23 (2015 - $0.19) as a result of new hotels being added to the portfolio and same-store NOI growth.
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Total revenues for the year increased by 20.7% to $173.5 million compared to $143.8 million for the prior year as a result of changes within the hotel portfolio between reporting periods.
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Funds from operations ("FFO") was up 30.3% to $36.5 million (2015 - $28.0 million) and adjusted funds from operations ("AFFO") was up 31.2% to $31.9 million (2015 - $24.4 million) as a result of an increase in the number of hotels in AHIP's portfolio combined with same-property NOI growth.
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For the year, Diluted FFO per Unit was $0.92 (2015 - $0.93) and Diluted AFFO per Unit was $0.80 (2015 - $0.81) with results being affected by the temporary cash dilution from the July 2016 Offering, as the net proceeds were not immediately deployed, and the December 2016 Offering, the net proceeds of which were not fully invested by year end.
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Same-property revenue per available room ("RevPAR") for the Branded Hotels was up 4.5%, led by the North Carolina, Virginia, and Florida properties which had significant RevPAR gains of between 11% and 13%. This was offset by RevPAR declines in Pittsburgh and Oklahoma properties of between 4% and 5%. According to STR, Inc., full year 2016 RevPAR for the U.S. hotel industry increased by 3.2%.
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Total portfolio same-property revenues for the year were up by 2.3% to $131.3 million compared to last year, led by Branded Hotel same-property revenue growth of 5.0% to $71.9 million (2015 - $68.4 million).
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Total portfolio same-property net operating income ("NOI") increased by 5.3% to $47.2 million (2015 - $44.9 million) led by the Branded Hotels' NOI growth rate of 6.2% reflecting revenue growth and cost containment. The Rail Hotels' same-property NOI was up by 4.0% as a result of consistent contributions from the guaranteed revenue contracts with AHIP's railway customers.
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EBITDA for the year was up 27.2% to $52.4 million compared to $41.2 million in the same period last year and EBITDA margin improved by 160 basis points to 30.2% (2015 - 28.6%).
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The payout ratio for the year decreased to 83.4% (2015 - 89.2%) despite the dilution from the July 2016 and December 2016 Offerings.
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During the year, AHIP acquired 12 properties totaling 1,170 guestrooms including Rail Hotels in Lincoln, NE and Nashville, TN and Branded Hotels including the Florida/Tennessee Portfolio and the Florida 6 Portfolio.
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AHIP's debt-to-gross book value at December 31, 2016 decreased to 44.0% (December 31, 2015 - 49.6%) reflecting the undeployed net proceeds from the December 2016 Offering.
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AHIP's Debt-to-EBITDA ratio decreased to 7.2x (2015 - 7.4x).
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AHIP's weighted average stated interest rate at December 31, 2016 was 4.59% (December 31, 2015 - 4.59%) and the weighted average loan term to maturity at December 31, 2016 was 7.7 years (December 31, 2015 - 8.3 years).
SUBSEQUENT EVENTS
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On January 6, 2017, AHIP completed the acquisition of the 305-room Embassy Suites by Hilton Dallas DFW Airport South (the "Dallas Hotel") and the 224-room Embassy Suites by Hilton Phoenix-Tempe (the "Tempe Hotel"; and together with the Dallas Hotel, the "Sunstone Embassy Suites Portfolio"). The Sunstone Embassy Suites Portfolio was acquired for an aggregate purchase price of approximately $57.6 million before customary closing and post-acquisition adjustments and excluding $5.7 million in brand required PIPs. The acquisition was funded using a combination of cash from AHIP's July 2016 bought deal offering of 10,400,000 Units at a price of Cdn$10.35 per Unit (the "July 2016 Offering") and the December 2016 Offering, the assumption of an existing commercial mortgage backed securities ("CMBS") loan of $19.0 million on the Dallas Hotel, a new CMBS loan on the Tempe Hotel of $13.5 million, and the issuance of approximately $17.4 million in new Units from treasury. AHIP issued 2,242,761 Units at a price of Cdn$10.3099, which was the 10-day volume weighted average trading price of the Units on the TSX prior to the transaction closing date. In addition, the Units are subject to a four-month hold period. The Dallas loan is interest-only until November 2019, will then be amortized over a 30-year term, has a fixed interest rate of 5.25% and is scheduled to mature in October 2024. The Tempe loan has a 10-year term, matures in January 2027 and has a fixed interest rate of 5.14%. The Tempe loan is interest only for the first three years and will then be amortized over a 30-year term. In conjunction with the completion of this transaction, the vendor repaid the approximately $10.2 million bridge loan on the Tempe Hotel.
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On January 19, 2017, AHIP completed the acquisition of the 782-room Midwestern 3 Embassy Suites Portfolio for an aggregate purchase price of approximately $124.0 million including the expected cost of capital work on acquisition and brand required PIPs. The acquisition was funded by cash on hand from the December 2016 Offering and a new $65.0 million CMBS loan. The loan has a 10-year term and a fixed interest rate of 4.72%. The loan is interest-only for the first three years and will then be amortized over a 30-year term.
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On February 16, 2017 AHIP filed, and received receipt for, a final short form base shelf prospectus (the "Base Shelf Prospectus"). The Base Shelf Prospectus was filed with the securities regulatory authorities in each of the Provinces of Canada. The Base Shelf Prospectus was filed to provide AHIP with financial flexibility and efficient access to Canadian capital markets. The Base Shelf Prospectus is valid for a 25-month period during which time AHIP may, from time to time, issue limited partnership units, warrants, debt securities or subscription receipts (collectively, the "Securities"), or any combination thereof, having an aggregate offering price up to $500 million (or the equivalent in Canadian dollars or any other currencies). AHIP intends to use the net proceeds of any sales of Securities for, among other things, the direct or indirect financing of future growth opportunities, including acquisitions and capital expenditures and/or repayment of indebtedness.
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On March 3, 2017, AHIP entered into an agreement to sell a non-core branded hotel for gross proceeds of $4.5 million. The transaction is expected to be completed on or about March 15, 2017. No material gain or loss is expected upon the completion of this transaction.
Q4 2016 FINANCIAL RESULTS CONFERENCE CALL
Management will host a conference call at 4:00 p.m. (Eastern), 1:00 p.m. (Pacific) on Wednesday, March 8, 2017 to review the financial results and corporate results for the three months and year ended December 31, 2016.
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: | | North America Toll free: | | 1-877-291-4570 |
| | | International or local Toronto: | | 1-647-788-4919 |
CONFERENCE CALL REPLAY
If you cannot participate on Wednesday, March 8, 2017, 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 Wednesday, March 15, 2017. An audio recording of this conference call will also be available at www.ahipreit.com under the "Investor Info/Presentations & Calls" tab.
Please enter replay PIN number 48867869 followed by the # key.
| Replay dial in numbers: | | North America Toll free: | | 1-800-585-8367 |
| | | International or local Toronto: | | 1-416-621-4642 |
NON-IFRS MEASURES
Certain non-IFRS financial measures are included in this news release, which include NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio, debt-to-gross book value and debt-to-EBITDA. 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, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, and payout ratio as supplemental measures of performance and interest coverage ratio, debt-to-gross book value and debt-to-EBITDA as a supplemental measure of financial condition.
Debt-to-gross book value, NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio and debt-to-EBITDA 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, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio, debt-to-gross book value and debt-to-EBITDA 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 March 6, 2017, 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 that 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: the sustainability and nature of AHIP's distributions; the terms, including the maturity dates, of the loans obtained by AHIP in connection with its acquisitions of the Florida/Tennessee Portfolio, the Florida 6 Portfolio, the rail crew hotel located in Nashville Tennessee, the Sunstone Embassy Suites Portfolio and the Midwestern 3 Embassy Suites Portfolio; the intended use for the balance of the proceeds from the December 2016 Offering; the outlook of AHIP's railway customers on rail carload volume growth; management's expectation that continued solid operating results from AHIP's existing portfolio will be enhanced with the absorption of recent additions to AHIP's portfolio; the sale of Securities under the Base Shelf Prospectus; the expected use of proceeds from the sale of Securities under the Base Shelf Prospectus; the sale by AHIP of a non-core branded hotel, including the expected completion timing thereof; management's expectations with respect to AHIP's future performance; and AHIP's long-term objectives.
Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market; the continued strength of the U.S. lodging industry; AHIP will be able to successfully integrate properties acquired into its portfolio; capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP; U.S. rail carload volume growth being consistent with the expectations of AHIP's railway customers; the accuracy of third party reports with respect to lodging industry data; and the value of the U.S. dollar. 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. Those risks and uncertainties include, among other things, risks related to: 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 for the year ended December 31, 2016 and in its annual information form for the year ended December 31, 2015, 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.
ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP
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 transportation-oriented, branded, select service lodging and rail crew accommodation 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 asset 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
Additional information relating to AHIP, including AHIP's financial statements for the year ended December 31, 2016, AHIP's MD&A dated March 6, 2017, 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.
