American Hotel Income Properties REIT LP (“AHIP”, or the “Company”) (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB. V), today announced its financial results for the three and six months ended June 30, 2023.

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

“We are pleased with the ongoing revenue performance of our select service hotel portfolio in Q2." commented Jonathan Korol, CEO. "Occupancy (1) and room rate trends remain positive with broad demand from leisure, corporate and group guest segments. Continuing the trend since early last year, we achieved a 7.7% growth rate in revenue per available room (“RevPAR”) (1). Key operating metrics were positive with year over year growth in average daily rate (“ADR”) (1), occupancy, and RevPAR.” 

2023 SECOND QUARTER HIGHLIGHTS

  • Diluted FFO per unit (1) and normalized diluted FFO per unit (1) were $0.19 and $0.14, respectively, for the second quarter of 2023, compared to $0.18 and $0.15 for the same period of 2022.
  • RevPAR increased 7.7% to $98 for the second quarter of 2023, compared to $91 for the same period of 2022.
  • ADR increased 6.4% to $133 for the second quarter of 2023, compared to $125 for the same period of 2022.
  • Occupancy was 73.8% for the second quarter of 2023, an increase of 100 basis points (“bps”) compared to 72.8% for the same period of 2022.
  • NOI (1) and normalized NOI (1) were $25.3 million and $27.2 million, respectively, for the second quarter of 2023, decreases of 5.2% and 0.7%, compared to $26.7 million and $27.4 million for the same period in 2022.
  • Debt to gross book value (1) was 51.6% as of June 30, 2023, decreases of 100 bps and 200 bps, respectively, compared to 52.6% as of December 31, 2022, and 53.6% as of June 30, 2022.
  • Weighted average interest rate for all term loans and credit facility, was 4.55% as of June 30, 2023, an increase of 9 bps compared to 4.46% as of December 31, 2022.
  • Distributions of $0.015 U.S. dollar per unit paid in each month since March 2022.

“This quarter we achieved the highest ADR in the history of the company.” Mr. Korol added: “While the mix is evolving, the overall demand picture remains strong with sustained demand from our leisure guests as well as the gradual return of business and group travel, as demonstrated by the 8.8% growth in RevPAR in our Embassy Suites portfolio during the quarter,” said Mr. Korol.

Mr. Korol continued, "Consistent with recent quarters, operating results were negatively impacted by inflation and labor shortages. We are continuing to focus on hiring more in-house labor, reducing turnover and improving housekeeping productivity to address these issues. However, progress is slow and labor costs will remain elevated into 2024. We are making steady progress on our leverage reduction with improvements over the last twelve months of 200 bps on debt to gross book value and 0.2x on Debt to EBITDA (1). We remain confident in our ability to navigate a dynamic operating environment and to add long-term unitholder value."

2023 SECOND QUARTER REVIEW

HIGHEST QUARTERLY ADR IN HISTORY

AHIP’s portfolio of Premium Branded select service hotel properties continued to demonstrate strong demand metrics in the second quarter of 2023. For the three months ended June 30, 2023, ADR was $133, and occupancy was 73.8%, increases of 6.4% and 100 bps, respectively, compared to the same period in 2022. Collectively, strong ADR and increasing occupancy resulted in an increase of 7.7% in RevPAR compared to the same period in 2022. This result is attributable to steady improvements in the corporate traveler segment, sustained demand from leisure travelers, as well as the disposition of properties with lower than portfolio average ADR and occupancy. 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, partially mitigating the effects of rising labor costs and general inflationary pressures impacting the portfolio.

Improving demand levels resulted in enhanced pricing power and greater opportunity to manage revenue for various hotel segments. Despite the dispositions of six non-core hotel properties since the second quarter of 2022 (five in the fourth quarter of 2022, and one in the second quarter of 2023), and out of order rooms at two hotel properties as a result of weather-related damage in late December 2022, revenue for the second quarter of 2023 was $75.5 million, consistent with the $75.6 million revenue achieved in the same period of 2022.

AHIP’s five Embassy Suites properties represent 16.6% of the portfolio by room count. The performance of these properties is a key indicator of the recovery level in business and group travel. For the three months ended June 30, 2023, RevPAR for these properties was $111, an increase of 8.8% compared to $102 for the same period in 2022. These properties experienced continued recovery in business and group travel in the second quarter of 2023, supplemented by leisure‐oriented groups. All five Embassy Suites hotels were renovated in 2018 and 2019 and are well positioned to capture improving business and corporate group demand.

NOI (1), NOI MARGIN (1) AND FFO PER UNIT (1)

NOI and normalized NOI were $25.3 million and $27.2 million, respectively, for the second quarter of 2023, decreases of 5.2% and 0.7%, compared to $26.7 million and $27.4 million for the same period in 2022. NOI margin was 33.5% in the current quarter, a decrease of 170 bps compared to the same period in 2022. The decreases in NOI and NOI margin were due to higher operating expenses as a result of cost inflation and labor shortages. 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. For the three months ended June 30, 2023, normalized NOI included $1.9 million in business interruption proceeds related to the weather-related damage at several hotel properties in late December 2022. For the three months ended June 30, 2022, normalized NOI included a $0.7 million government grant for the loss of revenue as a result of the COVID-19 pandemic.

Diluted FFO per unit and normalized diluted FFO per unit were $0.19 and $0.14 for the second quarter of 2023, respectively, compared to $0.18 and $0.15 for the same period of 2022. The decrease in normalized diluted FFO per unit was primarily due to lower NOI in the current quarter. Normalized diluted FFO per unit in the current quarter excluded non-recurring insurance proceeds of $4.1 million for property damage related to the weather-related damage at several hotel properties in late December 2022. For the same period in 2022, normalized diluted FFO per unit excluded a $2.3 million gain on debt settlement as well as $0.9 million of other income that included a $0.7 million government grant for the loss of revenue as a result of the COVID-19 pandemic.

INSURANCE AND WEATHER-RELATED DAMAGE

During the final week of December 2022, cold weather caused weather related damage at several hotel properties. Of the hotel properties damaged, two had a significant number of rooms out of order. At the Residence Inn Neptune in New Jersey, all 105 rooms were out of order from December 25, 2022. Of the 105 rooms, 72 rooms returned to service in May 2023, and 19 rooms returned to service in June 2023. The remaining 14 rooms are expected to return to service in August 2023.

At the Courtyard Wall in New Jersey, all 113 rooms were out of order from December 25, 2022. Of the 113 rooms, 54 rooms returned to service in mid-January 2023, and 31 rooms returned to service in June 2023. The remaining 28 rooms are expected to return to service by the end of the third quarter of 2023.

As a result of the weather-related damage, the total write-down of these hotel properties is $9.0 million as of June 30, 2023. This is comprised of remediation costs of $3.0 million and rebuilding costs of $6.0 million. As of June 30, 2023, AHIP had incurred $7.9 million in costs to remediate and rebuild the damaged hotel properties. AHIP expects most of the total cost of remediation and rebuilding to be reimbursed in 2023, which is currently estimated to be $9.0 million.

For business interruption insurance, AHIP expects to recover most of the lost income from late December 2022, until the damaged hotel properties are fully operational, which is expected to be by the end of the third quarter of 2023. AHIP recorded $1.9 million for the business interruption claim in the current quarter, and $2.9 million for the six months ended June 30, 2023.

As a result of the claims noted above, higher replacement costs and generally higher premiums, AHIP completed its property insurance renewal effective June 1, 2023 with a significant increase in premiums compared to the expiring policy. On an annualized basis, the increase from the prior year is approximately $3.5 million, which will be recognized in earnings over a twelve-month period.

LEVERAGE AND LIQUIDITY

KPIs Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
Debt to gross book value 51.6% 52.0% 52.6% 52.6% 53.6%
Debt to EBITDA (trailing twelve months) 9.8x 9.6x 9.8x 10.2x 10.0x

Debt to gross book value as of June 30, 2023, decreased by 100 bps to 51.6% compared to 52.6% as of December 31, 2022. AHIP is making steady progress on this measure and intends to bring its leverage to a level closer to its peer group over time, which would be a debt to gross book value in the range of 40-50%. This is expected to be achieved through a combination of improving operating results, a sustainable distribution policy and selective equity issuance in support of growth transactions. Debt to EBITDA has been stable over the last twelve months.

AHIP has 91.4% of its debt at fixed interest rates or effectively fixed by interest rate swaps until November 2023. The debt maturities in the fourth quarter of 2023 are approximately $16.3 million for two hotels in Pennsylvania. The notional value of the interest rate swaps is $130.0 million, and they will mature on November 30, 2023.

As of June 30, 2023, AHIP had $39.9 million in available liquidity, compared to $24.1 million as of December 31, 2022. The available liquidity of $39.9 million was comprised of an unrestricted cash balance of $24.9 million and borrowing availability of $15.0 million under the revolving credit facility. In addition, AHIP has a restricted cash balance of $27.6 million as of June 30, 2023. The increase in unrestricted cash was primarily due to the transfer of $12.0 million from restricted to unrestricted cash, as a result of the improved operations in 2022 at the three Embassy Suites hotels located in Ohio and Kentucky.

Commencing in the first quarter of 2024, the borrowing base availability under the revolving credit facility includes a test based on 65% of the capitalized value of the underlying properties. This loan to value test may reduce the borrowing availability under the revolving credit facility and could result in a required repayment of a portion of amounts drawn at such time.

If a repayment is required, AHIP intends to address this potential outcome with some or all of the following: refinancing the credit facility or other term loans to generate proceeds in excess of amounts currently outstanding (including by adding additional properties to the borrowing base under the credit facility); amending the terms of the Fifth Amendment; and/or using cash on hand to satisfy all or a portion of any required repayment.

GROWTH AND STRATEGIC CAPITAL DEPLOYMENT

As a result of the 2021 investment by BentallGreenOak and Highgate (collectively, the “Investor”), AHIP is aligned with two well-capitalized strategic partners who support the pursuit of attractive acquisition opportunities. AHIP is also reviewing strategies for divesting assets to recycle proceeds into higher return assets in more attractive markets.

In 2022, AHIP completed the strategic dispositions of seven non-core hotel properties for total gross proceeds of $47.5 million. These dispositions: (i) increased portfolio RevPAR by approximately $3; (ii) improved AHIP’s Debt to EBITDA by approximately 0.4x; and (iii) allowed AHIP to avoid future PIP investments that would not have achieved returns available elsewhere in the portfolio.

In June 2023, AHIP completed the disposition of a non-core hotel property for gross proceeds of $11.7 million. AHIP used $6.5 million of the total proceeds to repay the term loan on the property and intends to use the remaining proceeds to further pay down debt or purchase assets with higher returns in more attractive markets.

U.S. DOLLAR DISTRIBUTION         

The current distribution policy provides for the payment of regular monthly U.S. dollar distributions at an annual rate of $0.18 per unit (monthly rate of $0.015 per unit). Monthly distributions have been paid each month since March 2022.

SAME PROPERTY KPIS

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. In Q1 and Q2 2023, same property ADR, occupancy and RevPAR calculation excluded the seven hotels sold in 2022, the one hotel sold in 2023, and 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. In Q2, Q3 and Q4 2022, same property ADR, occupancy and RevPAR calculation excluded the seven hotels sold in 2022 and the one hotel sold in 2023. Same property NOI margin calculation for the five most recent quarters excluded the seven hotels sold in 2022 and the one hotel sold in 2023.

KPIs Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
ADR $133 $132 $126 $129 $126
% Change compared to same period in prior year 5.6% 10.9% 9.6% 7.5% 13.5%
Occupancy 73.8% 65.5% 67.3% 73.7% 74.5%
Change compared to same period in prior year – bps increase/(decrease) (70) (20) 40 290 240
RevPAR $98 $86 $85 $95 $94
% Change compared to same period in prior year 4.3% 10.3% 10.4% 11.8% 17.5%
NOI Margin 33.3% 28.6% 30.8% 33.3% 35.4%
Change compared to same period in prior year – bps increase/(decrease) (210) (90) (410) (660) (680)

Same property ADR increased by 5.6% to $133 in the current quarter compared to $126 in the same period of 2022. Same property occupancy decreased by 70 bps to 73.8% in the current quarter compared to 74.5% in the same period of 2022 due to lower demand at the extended stay properties. Same property NOI margin decreased by 210 bps to 33.3% for the second quarter of 2023, compared to the same period of 2022. Although same property RevPAR increased by 4.3%, same property NOI margin decreased due to higher operating expenses as a result of inflation and labor shortages. 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 contract labor.

SELECTED INFORMATION

         
(thousands of dollars, except per unit amounts) Three months endedJune 30, 2023 Three months endedJune 30, 2022 Six months endedJune 30, 2023 Six months endedJune 30, 2022
         
Revenue 75,483 75,649 140,941 137,425
Income from operating activities 17,919 17,863 27,337 24,601
Income and comprehensive income 10,658 13,685 9,058 9,810
NOI (1) 25,287 26,655 44,025 44,155
NOI Margin (1) 33.5% 35.2% 31.2% 32.1%
         
Hotel EBITDA (1) 22,867 24,165 39,469 39,547
Hotel EBITDA Margin (1) 30.3% 31.9% 28.0% 28.8%
EBITDA (1) 20,233 22,243 34,277 35,050
EBITDA Margin (1) 26.8% 29.4% 24.3% 25.5%
         
Cashflow from operating activities 12,403 14,694 25,497 22,359
Distributions declared per unit - basic and diluted 0.045 0.045 0.09 0.075
Distributions declared to unitholders - basic 3,548 3,543 7,094 5,905
Distributions declared to unitholders - diluted 4,033 4,019 8,059 6,399
Dividends declared to Series C holders 1,011 1,011 2,011 2,011
         
FFO diluted (1) 16,653 16,304 26,454 20,937
FFO per unit - diluted (1) 0.19 0.18 0.30 0.23
FFO payout ratio - diluted, trailing twelve months (1) 33.9% 11.9% 33.9% 11.9%
Normalized FFO per unit - diluted (1) 0.14 0.15 0.21 0.18
         
AFFO diluted (1) 13,514 13,622 20,595 16,098
AFFO per unit - diluted (1) 0.15 0.15 0.23 0.18
AFFO payout ratio - diluted, trailing twelve months (1) 44.8% 14.1% 44.8% 14.1%
(1) See “Non-IFRS and Other Financial Measures”        
SELECTED INFORMATION
(thousands of dollars) June 30, 2023 December 31, 2022
     
Total assets 1,055,155 1,052,795
Total liabilities 732,959 730,689
Total non-current liabilities 641,657 667,807
Term loans and revolving credit facility 639,431 643,929
     
Debt to gross book value (1) 51.6% 52.6%
Debt to EBITDA (times) (1) 9.8 9.8
Interest coverage ratio (times) (1) 2.1 2.1
     
Term loans and revolving credit facility:    
Weighted average interest rate 4.55% 4.46%
Weighted average term to maturity (years) 2.5 3.0
     
Number of rooms 7,917 8,024
Number of properties 70 71
Number of restaurants 14 14

(1) See “Non-IFRS and Other Financial Measures”

2023 SECOND QUARTER OPERATING RESULTS

(thousands of dollars) Three months ended June 30, 2023 Three months ended June 30, 2022 Six months ended June 30, 2023 Six months ended June 30, 2022
         
ADR (1) 133 125 132 121
Occupancy (1) 73.8% 72.8% 69.7% 68.3%
RevPAR (1) 98 91 92 83
         
Revenue 75,483 75,649 140,941 137,425
         
Operating expenses 38,732 37,762 74,258 70,362
Energy 3,021 2,981 6,243 6,214
Property maintenance 3,768 3,496 7,292 6,868
Property taxes, insurance and ground lease before IFRIC 21 4,675 4,755 9,123 9,826
Total expenses 50,196 48,994 96,916 93,270
         
NOI 25,287 26,655 44,025 44,155
NOI Margin % 33.5% 35.2% 31.2% 32.1%
         
IFRIC 21 property taxes adjustment (1,279) (1,287) (580) (744)
Depreciation and amortization 8,647 10,079 17,268 20,298
Income from operating activities 17,919 17,863 27,337 24,601
         
Other expenses 6,761 3,364 19,188 14,825
Current income tax expense/ (recovery) 515 68 531 131
Deferred income tax (recovery)/ expense (15) 746 (1,440) (165)
         
Income and comprehensive income 10,658 13,685 9,058 9,810
(1) See “Non-IFRS and Other Financial Measures”. For the three and six months ended June 30, 2023, the ADR, occupancy and RevPAR calculations excluded 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, and included the one hotel property sold in June 2023.

FINANCIAL INFORMATION

This news release should be read in conjunction with AHIP’s unaudited condensed consolidated interim financial statements, and management’s discussion and analysis for the three and six months ended June 30, 2023 and 2022, that are available on AHIP’s website at www.ahipreit.com, and under AHIP’s profile on SEDAR+ at www.sedarplus.com.

Q2 2023 CONFERENCE CALL

Management will host a webcast and conference call at 10:00 a.m. pacific time on Wednesday, August 9, 2023, to discuss the financial and operational results for the three and six months ended June 30, 2023 and 2022.

To participate in the conference call, participants should register online via AHIP’s website. A dial-in and unique PIN will be provided to join the call. Participants are requested to register a minimum of 15 minutes before the start of the call. An audio webcast of the conference call is also available, both live and archived, on the Events & Presentations page of AHIP’s website: www.ahipreit.com.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.V), or AHIP, is a limited partnership formed to invest in hotel real estate properties across the United States. AHIP’s portfolio of 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 and Choice Hotels through license agreements. AHIP’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.

NON-IFRS AND OTHER FINANCIAL MEASURES

Management believes the following non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures are relevant measures to monitor and evaluate AHIP’s financial and operating performance. These measures and ratios do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures and ratios are included to provide investors and management additional information and alternative methods for assessing AHIP’s financial and operating results and should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS.

NON-IFRS FINANCIAL MEASURES:

FFO: FFO measures operating performance and is calculated in accordance with Real Property Association of Canada’s (“REALPAC”) definition. FFO – basic is calculated by adjusting income (loss) and comprehensive income (loss) for depreciation and amortization, gain or loss on disposal of property, IFRIC 21 property taxes, fair value gain or loss, impairment of property, deferred income tax, and other applicable items. FFO – diluted is calculated as FFO – basic plus the interest, accretion, and amortization on convertible debentures if convertible debentures are dilutive. The most comparable IFRS measure to FFO is net and comprehensive income (loss), for which a reconciliation is provided in this news release.

AFFO: AFFO is defined as a recurring economic earnings measure and calculated in accordance with REALPAC’s definition. AFFO – basic is calculated as FFO – basic less maintenance capital expenditures. AFFO – diluted is calculated as FFO – diluted less maintenance capital expenditures. The most comparable IFRS measure to AFFO is net and comprehensive income (loss), for which a reconciliation is provided in this news release.

Normalized FFO: calculated as FFO excluding non-recurring items. For the three months ended June 30, 2023, normalized FFO is calculated as FFO excluding the non-recurring insurance proceeds of $4.1 million for property damage related to the weather-related damage at several hotel properties in late December 2022. For the three months ended June 30, 2022, normalized FFO is calculated as FFO excluding the non-recurring $2.3 million gain on debt settlement as well as $0.9 million of other income that included a $0.7 million government grant for the loss of revenue as a result of the COVID-19 pandemic. The most comparable IFRS measure to normalized FFO is net and comprehensive income (loss), for which a reconciliation is provided in this news release.

Net Operating Income (“NOI”): calculated by adjusting income from operating activities for depreciation and amortization, and IFRIC 21 property taxes. The most comparable IFRS measure to NOI is income from operating activities, for which a reconciliation is provided in this news release.

Normalized NOI: calculated as NOI plus business interruption proceeds or government grant for the loss of revenue for the reporting periods. For the three months ended June 30, 2023, normalized NOI included $1.9 million in business interruption proceeds related to the weather-related damage at several hotel properties in late December 2022. For the three months ended June 30, 2022, normalized NOI included a $0.7 million government grant for the loss of revenue as a result of the COVID-19 pandemic. The most comparable IFRS measure to normalized NOI is income from operating activities, for which a reconciliation is provided in this news release.

Hotel EBITDA: calculated by adjusting income from operating activities for depreciation and amortization, IFRIC 21 property taxes and hotel management fees. The most comparable IFRS measure to hotel EBITDA is income from operating activities, for which a reconciliation is provided in this news release.

EBITDA: calculated by adjusting income from operating activities for depreciation and amortization, IFRIC 21 property taxes, hotel management fees and general administrative expenses. The sum of management fees for hotel and general administrative expenses is equal to corporate and administrative expenses in the Financial Statements. The most comparable IFRS measure to EBITDA is income from operating activities, for which a reconciliation is provided in this news release.

Debt: calculated as the sum of term loans and revolving credit facility, the face value of convertible debentures, unamortized portion of debt financing costs, government guaranteed loan, lease liabilities and unamortized portion of mark-to-market adjustments. The most comparable IFRS measure to debt is total liabilities, for which a reconciliation is included in this news release.

Gross book value: calculated as the sum of total assets, accumulated depreciation and impairment on property, buildings and equipment, and accumulated amortization on intangible assets. The most comparable IFRS measure to gross book value is total assets, for which a reconciliation is included in this news release.

Interest expense: calculated by adjusting finance costs for gain/loss on debt settlement, amortization of debt financing costs, accretion of debenture liability, amortization of debenture costs, dividends on series B preferred shares of US REIT and amortization of mark-to-market adjustments because interest expense excludes certain non-cash accounting items and dividends on preferred shares. The most comparable IFRS measure to interest expense is finance costs, for which a reconciliation is included in this news release.

NON-IFRS RATIOS:

FFO per unit – basic/diluted: calculated as FFO – basic/diluted divided by weighted average number of units outstanding - basic/diluted respectively for the reporting periods.

Normalized FFO per unit – basic/diluted: calculated as normalized FFO – basic/diluted divided by weighted average number of units outstanding - basic/diluted respectively for the reporting periods.

AFFO per unit – basic/diluted: calculated as AFFO – basic/diluted divided by weighted average number of units outstanding - basic/diluted respectively for the reporting periods.

FFO payout ratio – basic, trailing twelve months: calculated as total distributions declared to unitholders – basic, divided by total FFO – basic, for the twelve months ended June 30, 2023, and 2022.

FFO payout ratio – diluted, trailing twelve months: calculated as total distributions declared to unitholders – diluted, divided by total FFO – diluted, for the twelve months ended June 30, 2023, and 2022.

AFFO payout ratio – basic, trailing twelve months: calculated as total distributions declared to unitholders – basic, divided by total AFFO – basic, for the twelve months ended June 30, 2023, and 2022.

AFFO payout ratio – diluted, trailing twelve months: calculated as total distributions declared to unitholders – diluted, divided by total AFFO – diluted, for the twelve months ended June 30, 2023, and 2022.

NOI margin: calculated as NOI divided by total revenue.

Hotel EBITDA margin: calculated as hotel EBITDA divided by total revenue.

EBITDA margin: calculated as EBITDA divided by total revenue.

CAPITAL MANAGEMENT MEASURES:

Debt to gross book value: calculated as debt divided by gross book value. Debt to gross book value is a primary measure of capital management and leverage.

Debt to EBITDA: calculated as debt divided by the trailing twelve months of EBITDA. Debt to EBITDA measures the amount of income generated and available to pay down debt before covering interest, taxes, depreciation, and amortization expenses.

Interest coverage ratio: calculated as EBITDA for the trailing twelve months divided by interest expense for the trailing twelve months period. The interest coverage ratio measures AHIP’s ability to meet required interest payments related to its outstanding debt and dividends on the series B preferred shares of US REIT.

SUPPLEMENTARY FINANCIAL MEASURES:

Occupancy is a major driver of room revenue as well as food and beverage revenues. Fluctuations in occupancy are accompanied by fluctuations in most categories of variable hotel operating expenses, including housekeeping and other labor costs. ADR also helps to drive room revenue with limited impact on other revenues. Fluctuations in ADR are accompanied by fluctuations in limited categories of hotel operating expenses, such as franchise fees and credit card commissions, since variable hotel operating expenses, such as labor costs, generally do not increase or decrease correspondingly. Thus, increases in RevPAR attributable to increases in occupancy typically reduce EBITDA and EBITDA Margins, while increases in RevPAR attributable to increases in ADR typically result in increases in EBITDA and EBITDA Margins.

Occupancy: calculated as total number of hotel rooms sold divided by total number of rooms available for the reporting periods. Occupancy is a metric commonly used in the hotel industry to measure the utilization of hotels’ available capacity. In Q1 and Q2 2023, the occupancy calculation excluded 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.

Average daily rate (“ADR”): calculated as total room revenue divided by total number of rooms sold for the reporting periods. ADR is a metric commonly used in the hotel industry to indicate the average revenue earned per occupied room in a given time period. In Q1 and Q2 2023, the ADR calculation excluded 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.

Revenue per available room (“RevPAR”): calculated as occupancy multiplied by ADR for the reporting periods. In Q1 and Q2 2023, the RevPAR calculation excluded 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.

Same property ADR, occupancy, RevPAR, and NOI margin: measured for properties owned by AHIP for both the current reporting periods and the same periods in 2022. In Q1 and Q2 2023, same property ADR, occupancy and RevPAR calculation excluded the seven hotels sold in 2022, the one hotel sold in 2023, and 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. In Q4, Q3 and Q2 2022, same property ADR, occupancy and RevPAR calculation excluded the seven hotels sold in 2022 and the one hotel sold in 2023. Same property NOI margin calculation for the five most recent quarters excluded the seven hotels sold in 2022 and the one hotel sold in 2023.

NON-IFRS RECONCILIATION

The following table reconciles FFO to income (loss) and comprehensive income (loss), the most comparable IFRS measure as presented in the financial statements:

         
(thousands of dollars, except per unit amounts) Three months ended June 30, 2023 Three months ended June 30, 2022 Six months endedJune 30, 2023 Six months ended June 30, 2022
         
         
Income and comprehensive income 10,658 13,685 9,058 9,810
         
Income attributable to non-controlling interest (1,011) (1,011) (2,011) (2,011)
Depreciation and amortization 8,647 10,079 17,268 20,298
(Gain) loss on sale of property (2,401) 555 (2,401) (1,049)
Loss on property, building and equipment 276 - 4,168 -
IFRIC 21 property taxes adjustment (1,279) (1,287) (580) (744)
Change in fair value of interest rate swap contracts 834 (1,281) 1,925 (4,629)
Change in fair value of warrants (149) (6,195) (1,719) (2,850)
Impairment of cash-generating units - - - 257
Deferred income tax (recovery) expense (15) 746 (1,440) (165)
         
FFO basic (1) 15,560 15,291 24,268 18,917
Interest, accretion and amortization on convertible debentures 1,093 1,013 2,186 2,020
FFO diluted (1) 16,653 16,304 26,454 20,937
         
FFO per unit – basic (1) 0.20 0.19 0.31 0.24
FFO per unit – diluted (1) 0.19 0.18 0.30 0.23
FFO payout ratio – basic – trailing twelve months (1) 32.8% 11.5% 32.8% 11.5%
FFO payout ratio – diluted – trailing twelve months (1) 33.9% 11.9% 33.9% 11.9%
Non-recurring items:        
Gain on debt settlement - (2,344) - (2,344)
Other income (4,126) (898) (7,468) (2,192)
Measurements excluding non-recurring items:        
Normalized FFO diluted (1) 12,527 13,062 18,986 16,401
Normalized FFO per unit – diluted (1) 0.14 0.15 0.21 0.18
         
Weighted average number of units outstanding:        
Basic (000’s) 78,834 78,749 78,817 78,737
Diluted (000’s) (2) 89,622 89,308 89,484 89,124
  (1)   See “Non-IFRS and Other Financial Measures”  (2)   The calculation of weighted average number of units outstanding for FFO per unit - diluted and normalized FFO per unit - diluted included the convertible debentures for the three and six months ended June 30, 2023 and 2022 because they were dilutive.
RECONCILIATION OF FFO TO AFFO      
(thousands of dollars, except per unit amounts) Three months ended June 30, 2023 Three months ended June 30, 2022 Six months ended June 30, 2022
       
FFO basic (1) 15,560 15,291 18,917
FFO diluted (1) 16,653 16,304 20,937
Maintenance capital expenditures (3,139) (2,682) (4,839)
       
AFFO basic (1) 12,421 12,609 14,078
AFFO diluted (1) 13,514 13,622 16,098
AFFO per unit - basic (1) 0.16 0.16 0.18
AFFO per unit - diluted (1) 0.15 0.15 0.18
       
AFFO payout ratio – basic – trailing twelve months (1) 44.9% 13.7% 13.7%
AFFO payout ratio – diluted – trailing twelve months (1) 44.8% 14.1% 14.1%
       
Measurements excluding non-recurring items:      
AFFO diluted (1) 9,388 10,380 11,562
AFFO per unit - diluted (1) 0.10 0.12 0.13
       
(1) See “Non-IFRS and Other Financial Measures”
 
DEBT TO GROSS BOOK VALUE  
(thousands of dollars) June 30, 2023 December 31, 2022
     
     
Debt (1) 694,377 699,881
Gross Book Value (1) 1,346,663 1,329,865
Debt-to-Gross Book Value (1) 51.6% 52.6%
(1) See “Non-IFRS and Other Financial Measures”    
     
(thousands of dollars) June 30, 2023 December 31, 2022
     
     
Term loans and revolving credit facility 639,431 643,929
2026 Debentures (at face value) 50,000 50,000
Unamortized portion of debt financing costs 3,521 4,437
Lease liabilities 1,431 1,591
Unamortized portion of mark-to-market adjustments (6) (76)
Debt (1) 694,377 699,881
(1) See “Non-IFRS and Other Financial Measures”    
     
(thousands of dollars) June 30, 2023 December 31, 2022
     
     
Total Assets 1,055,155 1,052,795
Accumulated depreciation and impairment 286,626 272,540
on property, buildings and equipment    
Accumulated amortization on intangible assets 4,882 4,530
Gross Book Value (1) 1,346,663 1,329,865
(1) See “Non-IFRS and Other Financial Measures”

DEBT TO EBITDA

     
(thousands of dollars) June 30, 2023 December 31, 2022
     
     
Debt (1) 694,377 699,881
EBITDA (trailing twelve months) (1) 71,001 71,293
Debt-to-EBITDA (times) (1) 9.8x 9.8x

(1) See “Non-IFRS and Other Financial Measures”

The reconciliation of income from operating activities to NOI, hotel EBITDA and EBITDA is shown below:

       
(thousands of dollars) Three months endedJune 30, 2023 Three months endedJune 30, 2022 Six months ended June 30, 2023 Six months ended June 30, 2022
         
Income from operating activities 17,919 17,863 27,337 24,601
Depreciation and amortization 8,647 10,079 17,268 20,298
IFRIC 21 property taxes (1,279) (1,287) (580) (744)
NOI (1) 25,287 26,655 44,025 44,155
         
Management fees (2,420) (2,490) (4,556) (4,608)
Hotel EBITDA (1) 22,867 24,165 39,469 39,547
         
General administrative expenses (2,634) (1,922) (5,192) (4,497)
EBITDA (1) 20,233 22,243 34,277 35,050
       

(1) See “Non-IFRS and Other Financial Measures”

The reconciliation of finance costs to interest expense is shown below:

         
(thousands of dollars) Three months ended June 30, 2023 Three months ended June 30, 2022 Six months ended June 30, 2023 Six months ended June 30, 2022
         
         
Finance costs 9,233 6,799 17,925 16,241
Gain on debt settlement - 2,344 - 2,344
Amortization of debt financing costs (496) (593) (851) (1,085)
Accretion of Debenture liability (241) (183) (483) (365)
Amortization of Debenture costs (100) (72) (200) (146)
Dividends on Series B preferred shares 12 (4) (9) (8)
Debt defeasance and other costs (19) - (19) -
Interest expense (1) 8,389 8,291 16,363 16,981
(1) See “Non-IFRS and Other Financial Measures”      

For information on the most directly comparable IFRS measures, composition of the measures, a description of how AHIP uses these measures, and an explanation of how these measures provide useful information to investors, please refer to AHIP’s management discussion and analysis for the three and six months ended June 30, 2023 and 2022, available on AHIP’s website at www.ahipreit.com, and under AHIP’s profile on SEDAR+ at www.sedarplus.com.

FORWARD-LOOKING INFORMATION

Certain statements in this news release may constitute “forward-looking information” and “financial outlook” within the meaning of applicable securities laws. Forward-looking information and financial outlook 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 information and financial outlook 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. Forward-looking information and financial outlook in this news release includes, but is not limited to, statements with respect to: AHIP’s expectations with respect to its future performance, including specific expectations in respect to certain categories of its properties, including the Embassy Suites properties; AHIP’s leverage and liquidity strategies and goals, including its target debt to gross book value ratio; AHIP’s planned strategies to manage pressures imposed by inflation and labor shortages; AHIP’s expectation that most of the estimated amount of weather-related damage to buildings and equipment of four hotel properties will be covered by insurance, and AHIP’s expectation with respect to the recovery of most of the lost income from these properties through business interruption insurance; the expected timing for the return to operation for rooms currently out of service at the weather-damaged properties; AHIP’s evaluation and review of growth and divesture opportunities; AHIP’s expectations with respect to inflation, labor supply, labor costs, interest rates, consumer spending and other market financial and macroeconomic conditions in 2023 and beyond and the expected impacts thereof on AHIP’s financial position and performance;; AHIP’s outlook on the U.S. travel market; the expected timing for the declaration, record date and payment of monthly distributions, and any increase thereof; and AHIP’s stated long-term objectives.

Although the forward-looking information and financial outlook contained in this news release are 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 information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: inflation, labor shortages, and supply chain disruptions will negatively impact the U.S. economy, U.S. hotel industry and AHIP’s business; AHIP will continue to have sufficient funds to meet its financial obligations; AHIP’s strategies with respect to margin enhancement, completion of capital projects, liquidity and divestiture of non-core assets and acquisitions will be successful; capital projects will be completed on time and on budget; AHIP will receive insurance proceeds in an amount consistent with AHIP’s estimates in respect of its weather-damaged properties, and such properties will resume operations in accordance with currently contemplated schedules; AHIP will continue to have good relationships with its hotel brand partners; ADR and Occupancy will be stable or rise in 2023; AHIP’s distribution policy will be sustainable and AHIP will not be prohibited from paying distributions under the terms of its credit facility and investor rights agreement; capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP, including the ability to refinance maturing debt as it becomes due on terms acceptable to AHIP; AHIP will be able to renew or replace its interest rate swaps on reasonable terms; AHIP’s future level of indebtedness and its future growth potential will remain consistent with AHIP’s current expectations; and AHIP will achieve its long term objectives.

Forward-looking information and financial outlook 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 information and financial outlook, accordingly undue reliance should not be placed on such forward-looking information and financial outlook. Those risks and uncertainties include, among other things, risks related to: AHIP may not achieve its expected performance levels in 2023; inflation, labor shortages, supply chain disruptions; AHIP’s insurance claims with respect to its weather damaged properties may be denied in whole or in part; AHIP may not achieve its expected performance levels in 2023; AHIP’s weather-damaged properties may not resume service in accordance with currently contemplated schedules; AHIP’s brand partners may impose revised service standards and capital requirements which are adverse to AHIP; property improvement plan renovations may not commence or complete in accordance with currently expected timing and may suffer from increased material and labor costs; recent recovery trends at AHIP’s properties may not continue and may regress; AHIP’s strategies with respect to margin enhancement, completion of accretive capital projects, liquidity, divestiture of non-core assets and acquisitions may not be successful; AHIP may not be successful in reducing its leverage; monthly cash distributions are not guaranteed and remain subject to the approval of the Board of Directors, compliance with the terms of its credit facility and investor rights agreement and may be reduced or suspended at any time at the discretion of the Board; AHIP may not be able to refinance debt obligations as they become due or may due so on terms less favorable to AHIP than under AHIP’s existing loan agreements; AHIP may not be successful in renewing or replacing its interest rate swaps on reasonable terms or at all; general economic conditions and consumer confidence; the growth in the U.S. hotel and lodging industry; prices for AHIP’s units and its debentures; liquidity; tax risks; ability to access debt and capital markets; financing risks; changes in interest rates; the financial condition of, and AHIP’s relationships with, its external hotel manager and franchisors; real property risks, including environmental risks; the degree and nature of competition; ability to acquire accretive hotel investments; ability to integrate new hotels; environmental matters; increased geopolitical instability; and changes in legislation and AHIP may not achieve its long term objectives. Management believes that the expectations reflected in the forward-looking information and financial outlook are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with the forward-looking information and financial outlook contained herein. Additional information about risks and uncertainties is contained in AHIP’s management’s discussion and analysis for the three and six months ended June 30, 2023 and 2022, and AHIP’s annual information form for the year ended December 31, 2022, copies of which are available on SEDAR+ at www.sedarplus.com.

To the extent any forward-looking information constitutes a “financial outlook” within the meaning of applicable securities laws, such information is being provided to investors to assist in their understanding of AHIP’s expected costs of remediation and renovation and expected proceeds of insurance in respect of AHIP’s weather-damaged properties, and management’s expectations for certain aspects of AHIP’s financial performance for the remainder of 2023.

The forward-looking information and financial outlook contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information and financial outlook reflect management's current beliefs and are based on information currently available to AHIP. The forward-looking information and financial outlook are 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.

For additional information, please contact:

Investor Relationsir@ahipreit.com

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