HOT.UN American Hotel Income Properties REIT LP

American Hotel Income Properties REIT LP (“AHIP”, or the “Company”) (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB. V), today announced its unaudited financial results for the three and twelve months ended December 31, 2023.

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

2023 HIGHLIGHTS

• Diluted FFO per unit (1) and normalized diluted FFO per unit (1) were $0.48 and $0.36, respectively, for the year ended December 31, 2023, compared to $0.47 and $0.38 for the year ended December 31, 2022.
• ADR (1) increased 5.6% to $131 for the year ended December 31, 2023, compared to $124 for the year ended December 31, 2022.
• Occupancy (1) was 68.7% for the year ended December 31, 2023, compared to 68.9% for the year ended December 31, 2022.
• RevPAR (1) increased 5.9% to $90 for the year ended December 31, 2023, compared to $85 for the year ended December 31, 2022.
• Revenue decreased 0.3% to $280.5 million for the year ended December 31, 2023, compared to $281.4 million for the year ended December 31, 2022, as a result of asset sales and weather-related demand disruption in 2023.
• NOI (1) and normalized NOI (1) were $83.4 million and $86.9 million, respectively, for the year ended December 31, 2023, decreases of 6.5% and 2.6%, respectively, compared to $89.2 million and $89.2 million for the year ended December 31, 2022.
• AHIP had $27.8 million in available liquidity as at December 31, 2023, compared to $24.1 million as at December 31, 2022. The available liquidity of $27.8 million was comprised of an unrestricted cash balance of $17.8 million and borrowing availability of $10.0 million under the revolving credit facility.
• Amendment and extension of AHIP’s revolving credit facility and certain term loans.
• Amendment of the master hotel management agreement with reduced and deferred fees.
• Temporary suspension of cash distributions effective November 2023 to enhance liquidity.

“AHIP’s portfolio of premium branded select service hotel properties continued to demonstrate strong demand metrics in 2023.” said Jonathan Korol, CEO. “Portfolio RevPAR was up meaningfully for the year, finishing at $90, AHIP’s highest ever annual RevPAR. Despite disruptions resulting from weather-related events in Q1 and dispositions of non-core properties, revenue decreased only modestly for the year. Costs related to macroeconomic conditions remain elevated, with higher labor and operating costs resulting in substantial pressures to hotel operating margins.”

Mr. Korol added: “AHIP’s Board and management team have taken a number of decisive actions across the business to preserve cash, enhance financial stability and protect long term value for our unitholders. These actions include an amendment and extension of our revolving credit facility and certain term loans, a reduction and deferral of hotel management fees, and temporary suspension of the distribution. We are currently executing a plan to address near-term debt obligations. These steps will strengthen our liquidity and balance sheet to ensure we are positioned to benefit when industry operating and macroeconomic environment improves. We will continue to monitor conditions and operating performance, while considering further strategic opportunities to deliver value over the long term.”

Q4 2023 HIGHLIGHTS 

• Diluted FFO per unit and normalized diluted FFO per unit were $0.004 and $0.03, respectively, for the fourth quarter of 2023, compared to $0.11 and $0.07 for the same period of 2022.
• ADR increased 0.8% to $126 for the fourth quarter of 2023, compared to $125 for the same period of 2022.
• Occupancy was 66.5% for the fourth quarter of 2023, an increase of 20 bps compared to 66.3% for the same period of 2022.
• RevPAR increased 1.2% to $84 for the fourth quarter of 2023, compared to $83 for the same period of 2022.
• Revenue decreased 2.9% to $65.8 million for the fourth quarter of 2023, compared to $67.8 million for the same period of 2022.
• NOI was $16.8 million for the fourth quarter of 2023, a decrease of 17.5%, compared to $20.3 million for the same period of 2022.

2023 REVIEW

GROWTH IN ADR AND REVPAR, DECLINE IN OCCUPANCY

For the year ended December 31, 2023, ADR increased 5.6% to $131. The increase in ADR was partially offset by the decrease of 20 bps in occupancy, which is primarily attributable to lower demand at the extended stay and select service properties. Overall, improved ADR resulted in an increase of 5.9% in RevPAR, compared to the year ended December 31, 2022.

This result is attributable to improvements in the corporate and group traveler segments, sustained demand from leisure travelers, as well as the disposition of properties with lower than portfolio average RevPAR. The ability to control and manage daily rates is a key advantage of the lodging sector, which has enabled AHIP to achieve strong growth in ADR in 2023, partially mitigating the effects of escalated labor costs and general inflationary pressures impacting the portfolio.

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

NOI and normalized NOI (1) were $83.4 million and $86.9 million, respectively, for the year ended December 31, 2023, decreases of 6.5% and 2.6%, respectively, compared to NOI and normalized NOI of $89.2 million for the year ended December 31, 2022. For the year ended December 31, 2023, normalized NOI included $3.5 million in business interruption insurance proceeds as a result of the weather-related damage at several hotel properties in late December 2022. NOI margin was 29.7% in the current year, a decrease of 200 bps compared to 31.7% for the prior year. The decreases in NOI and NOI margin were due to the decline in revenue as a result of fewer properties in the portfolio, lower occupancy, and higher operating expenses as a result of cost inflation, escalated labor costs, and higher property insurance premiums. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labor market resulted in increased room labor expenses due to overtime, higher wages for employees and dependency on contract labor. The increase in the annual premium for property insurance effective June 1, 2023 was approximately $3.5 million.  In 2023, AHIP incurred $12.5 million to remediate and rebuild the four damaged hotel properties after the weather-related damage in late December 2022, which resulted in significant improvements to these hotels. The majority of the costs have been funded by the insurance policies.

Diluted FFO per unit and normalized diluted FFO per unit for the year ended December 31, 2023, were $0.48 and $0.36, respectively, compared to diluted FFO per unit of $0.47 and $0.38 for the year ended December 31, 2022. Normalized diluted FFO per unit in the current year excluded non-recurring expected insurance proceeds of $11.2 million as a result of weather-related property damage at several hotel properties in late December 2022. The decrease in normalized diluted FFO per unit was primarily due to lower NOI in the current year.

LEVERAGE AND LIQUIDITY

KPIs (unaudited)	Q4 2023	Q3 2023	Q2 2023	Q1 2023	Q4 2022
Debt-to-GBV (1)	51.9%	51.1%	51.6%	52.0%	52.6%
Debt-to-EBITDA (1)	10.6x	10.1x	9.8x	9.6x	9.8x

Debt to gross book value as at December 31, 2023 was 51.9%, a decrease of 70 bps compared to December 31, 2022. Debt to EBITDA as at December 31, 2023 was 10.6x, an increase of 0.8x compared to December 31, 2022. The increase in Debt to EBITDA was mainly due to the decrease in NOI.

As at December 31, 2023, AHIP had $27.8 million in available liquidity, compared to $24.1 million as at December 31, 2022. The available liquidity of $27.8 million was comprised of an unrestricted cash balance of $17.8 million and borrowing availability of $10.0 million under the revolving credit facility. AHIP has an additional restricted cash balance of $31.3 million as at December 31, 2023.

AHIP has 71.3% of its debt at fixed interest rates following the expiry of the interest rate swaps on its senior credit facility on November 30, 2023. The notional value of the interest rate swaps was $130.0 million which expired on November 30, 2023. As a result of this expiry, at the current secured overnight financing rate (“SOFR”) of 5.3%, the incremental annual interest expense is estimated to be approximately $5.2 million. The actual increase in interest expense will be dependent on future SOFR.

NON-CASH IMPAIRMENT CHARGES

During the fourth quarter of 2023, the Company recognized non-cash impairment charges of approximately $67.4 million related to twenty-three hotel properties. The impaired hotels are primarily located in Maryland, New Jersey, Pennsylvania, and Texas. AHIP completed the valuation process based on external appraisals, purchase and sales agreements, recent market transactions and internal valuations of properties. The impairment is primarily due to revised expectations on the timeframe for the properties to return to stabilized income level after the impact of the COVID-19 pandemic, higher operating expenses as a result of cost inflation, escalated labor costs, higher property insurance premiums, and local competition factors in select markets.

CAPITAL RECYCLING

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

In June 2023, AHIP completed the disposition of a non-core hotel property for gross proceeds of $11.7 million. As a condition of the fifth amendment to the revolving credit facility and certain term loans, AHIP made a repayment of $1.8 million (50% of the net proceeds of this disposition) to the term loan. This repayment resulted in a permanent reduction of the term loan, which reduced the total borrowing availability from $200.0 million to $198.2 million.

In the fourth quarter of 2023, AHIP entered into agreements to dispose of a hotel property in Harrisonburg, Virginia for $8.55 million, and a hotel property in Cranberry Township, Pennsylvania for $8.25 million. The dispositions are expected to close in the first quarter of 2024. The combined sales price for these properties represents a blended cap rate of 8.6% on 2023 annual hotel EBITDA, after adjusting an industry standard 4% furniture, fixtures, and equipment (“FF&E”) reserve. Under the terms of the Sixth Amendment, 50% of the net proceeds from sales of these hotel properties (if any) are required to be used to pay down outstanding amounts under the term loan governed by the Sixth Amendment.

In 2024, AHIP will continue to execute its strategy to divest assets to recycle proceeds into higher return assets in more attractive markets and reduce debt. AHIP is currently marketing selected properties.

SAME PROPERTY KPI

The following table summarizes key performance indicators (“KPIs”) for the portfolio for the five most recent quarters with a comparison to the same period in the prior year.

KPIs (unaudited)	Q4 2023	Q3 2023	Q2 2023	Q1 2023	Q4 2022
ADR	$126	$133	133	$132	$126
Change compared to same period in prior year - % increase/(decrease)	-	2.9%	6.0%	11.2%	9.5%
Occupancy	66.6%	71.4%	73.7%	65.7%	67.4%
Change compared to same period in prior year - bps increase/(decrease)	(80)	(230)	(60)	-	40
RevPAR	$84	$95	$98	$87	$85
Change compared to same period in prior year - % increase/(decrease)	(1.2%)	(0.2%)	5.2%	11.1%	10.3%
NOI Margin	26.1%	30.6%	33.5%	29.1%	30.9%
Change compared to same period in prior year - bps increase/(decrease)	(480)	(270)	(140)	(60)	(400)

In the fourth quarter of 2023, same property ADR was $126, consistent with the same period in the prior year. Same property occupancy decreased by 80 bps to 66.6%, compared to the same period of 2022. The decrease in occupancy is primarily attributable to lower demand at the extended stay and select service properties.

Same property NOI margin decreased by 480 bps to 26.1% in the fourth quarter of 2023, compared to the same period of 2022. The decrease in same property NOI margin was mainly due to higher operating expenses as a result of cost inflation, escalated labor costs, and higher property insurance premiums. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labor market resulted in increased room labor expenses due to overtime, higher wages for employees and dependency on contract labor.

In Q4 2023, Q3 2023 and Q4 2022, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded nine properties, which is comprised of seven hotels sold in 2022, one hotel sold in 2023, and one hotel in respect of which AHIP is in a managed foreclosure process for this property as of December 31, 2023.

In Q1 and Q2 2023, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded eleven properties, which is comprised of the nine properties mentioned in the immediately preceding paragraph, as well as Residence Inn Neptune and Courtyard Wall in New Jersey as these two hotels had limited availability due to remediation and rebuilding after the weather-related damage in late December 2022. SELECTED INFORMATION

(thousands of dollars, except per Unit amounts, unaudited)	2023	2022	2021
Revenue	280,521	281,367	241,307
Income from operating activities	48,424	51,202	45,830
Loss and comprehensive loss	(73,916)	(35,582)	(11,866)
NOI (1)	83,372	89,154	88,917
NOI Margin (1)	29.7%	31.7%	36.8%
Hotel EBITDA (1)	75,269	79,941	81,635
Hotel EBITDA Margin (1)	26.8%	28.4%	33.8%
EBITDA (1)	64,732	71,293	70,803
EBITDA Margin (1)	23.1%	25.3%	29.3%
Cashflow from operating activities	37,818	44,910	17,954
Distributions declared per unit – basic and diluted	0.150	0.165	-
Distributions declared to unitholders – basic	11,826	12,996	-
Distributions declared to unitholders – diluted	15,676	14,453	-
Dividends declared to Series C holders	4,055	4,055	3,744
FFO diluted (1)	43,415	42,020	42,313
FFO per unit – diluted (1)	0.48	0.47	0.48
FFO payout ratio – diluted, trailing twelve months (1)	37.0%	35.2%	-
Normalized FFO per unit – diluted (1)	0.36	0.38	0.32
AFFO diluted (1)	31,060	31,471	37,064
AFFO per unit – diluted (1)	0.35	0.35	0.42
AFFO payout ratio – diluted, trailing twelve months (1)	52.3%	47.4%	-
(1) See “Non-IFRS and Other Financial Measures”.

SELECTED INFORMATION

(thousands of dollars, unaudited)	December 31,2023	December 31, 2022	December 31, 2021
Total assets	954,887	1,052,795	1,152,388
Total liabilities	721,937	730,689	777,784
Total non-current liabilities	529,178	667,807	674,339
Term loans and revolving credit facility	599,873	643,929	695,796
Debt to gross book value (1)	51.9%	52.6%	54.0%
Debt to EBITDA (times) (1)	10.6	9.8	10.7
Interest coverage ratio (times) (1)	1.9	2.1	1.9
Term loans and revolving credit facility:
Weighted average interest rate	4.95%	4.46%	4.52%
Weighted average term to maturity (years)	2.2	3.0	3.9
Number of rooms	7,917	8,024	8,801
Number of properties	70	71	78
Number of restaurants	14	14	16
(1) See “Non-IFRS and Other Financial Measures”.

2023 OPERATING RESULTS

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, unaudited)	2023	2022	2023	2022
ADR (1)	126	125	131	124
Occupancy (1)	66.5%	66.3%	68.7%	68.9%
RevPAR (1)	84	83	90	85
Revenue	65,837	67,771	280,521	281,367
Operating expenses	37,536	36,862	150,774	146,720
Energy	2,923	2,878	12,438	12,634
Property maintenance	3,900	3,738	15,148	14,305
Property taxes, insurance and ground lease before IFRIC 21	4,709	3,969	18,789	18,554
Total expenses	49,068	47,447	197,149	192,213
NOI (1)	16,769	20,324	83,372	89,154
NOI Margin % (1)	25.5%	30.0%	29.7%	31.7%
IFRIC 21 property taxes adjustment	272	937	-	-
Depreciation and amortization	8,732	8,722	34,948	37,952
Income from operating activities	7,765	10,665	48,424	51,202
Other expenses	87,822	57,157	122,053	86,809
Current income tax (recovery) expense	(104)	(62)	459	83
Deferred income tax expense (recovery)	1,676	(1,192)	(172)	(577)
Loss on disposal of discontinued operations	-	469	-	469
Loss and comprehensive loss	(81,629)	(45,707)	(73,916)	(35,582)
(1) See “Non-IFRS and Other Financial Measures”.

INITIATIVES TO STRENGTHEN FINANCIAL POSITION AND PRESERVE UNITHOLDER VALUE

The Board of Directors (the “Board”) and management implemented a plan to strengthen AHIP’s financial position and to preserve unitholder value. Initiatives, both planned and underway, are outlined below.

Amendment and Extension of Revolving Credit Facility and Term Loans

On November 7, 2023, AHIP entered into an amendment to its revolving credit facility (the “RCF”) and certain term loans (the “Sixth Amendment”). The borrowing availability under the RCF was temporarily reduced to zero pending the outcome of new appraisals, which were subsequently received in later November 2023. Upon the receipt of such appraisals, the conditions to extend the maturity of the RCF from December 3, 2023, to December 3, 2024, were satisfied and the availability liquidity under the RCF was increased to $10.0 million with no paydown being required.

The total facility size under the Sixth Amendment is $198.2 million. The total appraised value of the 20 hotel properties (the "Borrowing Base Properties") is $286.2 million. This results in maximum borrowing availability under the RCF of $193.2 million in accordance with the Sixth Amendment, which is 67.5% of the total appraised value of the Borrowing Base Properties. The appraised value of $286.2 million for the 20 Borrowing Base Properties (2,070 keys) is equivalent to $138 thousand per key. The fixed charge coverage ratio has been reduced to 1.1x until the end of 2024.

The RCF availability in 2024 is primarily limited by revised calculations based on the lesser of an implied debt service coverage ratio and a loan to value (“LTV”) test. The borrowing availability is subject to a maximum of 67.5% LTV based on the appraised value of the Borrowing Base Properties. The covenants governing distribution payments have been revised and are now subject to the satisfaction of a more restrictive FFO payout ratio threshold, calculated on a trailing twelve-months basis on a sliding scale based on the fixed charge coverage ratio.

The Sixth Amendment includes an option to extend the maturity of the term loan and RCF to June 2025, subject to reduction of the aggregate maximum facility size to $148.2 million from and after December 3, 2024.

For further details, see a copy of the Sixth Amendment, which has been filed under AHIP’s profile on SEDAR+ at www.sedarplus.com.

PLAN TO ADDRESS NEAR TERM LOAN MATURITIES

AHIP intends to proceed with a number of transactions that will collectively address all of the Company’s near-term debt maturities, while also creating modest improvements in ADR, RevPAR and leverage metrics.

The commercial mortgage-backed securities (“CMBS”) debt maturities are $16.3 million in the fourth quarter of 2023, $22.3 million in the first half of 2024, and $58.7 million in the second half of 2024.

To address the Q4 2023 CMBS loan maturities of $16.3 million, AHIP is in the process of divesting of two non-core properties, specifically:

• AHIP entered into an agreement in the fourth quarter of 2023 to dispose of a hotel property in Cranberry Township, Pennsylvania for $8.25 million. The disposition is expected to close in the first quarter of 2024, and the proceeds will be used to repay the $7.0 million non-recourse mortgage debt; and
• AHIP initiated a managed foreclosure process for a hotel property in Pittsburgh, Pennsylvania which is expected to result in a discharge of $9.3 million non-recourse mortgage debt.

To address the Q2 2024 CMBS loan maturity of $22.3 million, AHIP intends to divest of one non-core property and refinance the balance of the loan, specifically:

• AHIP entered into an agreement in the fourth quarter of 2023 to dispose of a hotel property in Harrisonburg, Virginia for $8.55 million. The disposition is expected to close in the first quarter of 2024, and the proceeds will be used to partially satisfy the non-recourse mortgage debt; and
• AHIP expects to close the CMBS refinancing of the remaining 3 assets for this loan in the first quarter of 2024 for gross proceeds of approximately $17.0 million prior to capital reserves contribution of approximately $3.0 million.

To address the Q4 2024 CMBS loan maturity of $58.7 million, AHIP intends to address these maturities through a combination of asset sales and CMBS refinancings.

Amendment of the Master Hotel Management Agreement with Reduced and Deferred Fees

On September 30, 2023, with a retroactive effective date of July 1, 2023, AHIP entered into a third amendment to its master hotel management agreement with One Lodging Management LLC (an affiliate of Aimbridge Hospitality LLC) (the “Amendment”), with estimated annual savings for the first three years following the amendment of approximately $3.7 million.

In accordance with the Amendment, the management fee on certain hotel properties has been reduced or deferred. The reduction of management fees is estimated to provide approximately $0.3 million of cash savings per annum, and the deferral of management fees is estimated to provide approximately $3.4 million of cash savings on average per annum from July 1, 2023, to June 30, 2026. The fees in the years 2027 through 2032 will be slightly higher to offset the fee deferral in the first three years. The cash savings in 2023 were $2.2 million.

The amendment to the master hotel management agreement also includes waivers of all or a portion of termination fees for certain hotels, as well as a limited exception to the exclusivity of the master hotel manager in respect of the acquisition of owner operated hotels, subject to certain conditions. For further details, see a copy of the amendment to the master hotel management agreement, which has been filed under AHIP’s profile on SEDAR+ at www.sedarplus.com.

Reducing Cash Portion of Board Compensation

Effective October 1, 2023, the majority of the Board’s compensation is paid in AHIP RSUs which are priced and vest in the form of Units at the end of each fiscal quarter. Previously, Board compensation was paid entirely in cash.

Temporary Suspension of U.S. Dollar Distribution

From February 2022 to October 2023, AHIP’s distribution policy provided 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). On November 7, 2023, AHIP announced a temporary suspension of monthly distributions. The Board and management made this decision based on the considerations of recent and forecast operating results, industry and economic conditions, interest rates for debt refinancing, the general financing environment, and future compliance with the adjusted FFO payout ratio covenant in the Sixth Amendment.

The amendment of the distribution policy reduces cash payments by $14.2 million annually, which improves AHIP’s balance sheet and liquidity, supporting the long-term enhancement of unitholder value. The Board and management will continue to review AHIP’s distribution policy on a quarterly basis.

FINANCIAL INFORMATION

This news release should be read and used as preparation for reading AHIP’s the forthcoming audited consolidated financial statements, and management’s discussion and analysis for the years ended December 31, 2023 and 2022, which AHIP intends to file under AHIP’s profile on SEDAR+ at www.sedarplus.com and on AHIP’s website at www.ahipreit.com in the next week. The financial information contained in this news release remains subject to the completion of the year-end audit and is therefore subject to change. This news release and the financial information contained herein was approved by the Board on February 27, 2024.

Q4 2023 CONFERENCE CALL

Management will host a webcast and conference call at 10:00 a.m. Pacific time on Wednesday, February 28, 2024, to discuss the financial and operational results for the three and twelve months ended December 31, 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 MEASURESManagement 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 income (loss) 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 income (loss) 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 December 31, 2023, normalized FFO is calculated as FFO adding back the $1.7 million non-recurring insurance proceeds adjustment related to the weather-related damage at several hotel properties in late December 2022. For the twelve months ended December 31, 2023, normalized FFO is calculated as FFO excluding the non-recurring insurance proceeds of $11.2 million for property damage related to the weather-related damage at several hotel properties in late December 2022. For the three months ended December 31, 2022, normalized FFO is calculated as FFO excluding the non-recurring gain on debt settlement of $3.3 million. For the twelve months ended December 31, 2022, normalized FFO is calculated as FFO excluding the non-recurring gain on debt settlement of $5.6 million, and other income of $2.2 million that included a $1.7 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 income (loss) 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 and twelve months ended December 31, 2023, normalized NOI included $0.1 million and $3.5 million business interruption insurance proceeds, respectively, related to the weather-related damage at several hotel properties in late December 2022. 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, 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 provided 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 provided in this news release.

Interest expense: calculated by adjusting finance costs for gain or 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 provided in this news release.

NON-IFRS RATIOS:FFO per unit – basic/diluted: calculated as FFO – basic/diluted divided by the 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 the 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 the 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 divided by interest expense for the trailing twelve months. The interest coverage ratio is a measure of AHIP’s ability to service the interest requirements of its outstanding debt.

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 occupancy, ADR, RevPAR, NOI and NOI margin: measured for properties owned by AHIP for both the current reporting periods and the same periods in 2022. In Q4 2023, Q3 2023 and Q4 2022, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded nine properties, which is comprised of seven hotels sold in 2022, one hotel sold in 2023, and one hotel in respect of which AHIP is in a managed foreclosure process as of December 31, 2023. In Q1 and Q2 2023, the same property ADR, occupancy, RevPAR and NOI margin calculations excluded eleven properties, which is comprised of the nine properties mentioned in the immediately preceding sentence, as well as the 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.

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:

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, except per unit amounts, unaudited)	2023	2022	2023	2022
Loss and comprehensive loss	(81,629)	(45,707)	(73,916)	(35,582)
Adjustments:
Income attributable to non-controlling interest	(1,022)	(1,022)	(4,055)	(4,055)
Depreciation and amortization	8,732	8,722	34,948	37,952
Write-off of property, building and equipment	2,636	4,781	10,570	4,919
Loss (gain) on sale of properties	1,418	42	(1,523)	(1,154)
IFRIC 21 property taxes adjustment	272	937	-	-
Change in fair value of interest rate swap contracts	890	148	4,078	(5,730)
Change in fair value of warrants	(127)	1,897	(3,085)	(2,580)
Impairment of cash-generating units	67,433	39,407	72,170	44,081
Deferred income tax (recovery)/ expense	1,676	(1,192)	(172)	(577)
Loss on disposal of discontinued operations	-	469	-	469
Insurance loss on property and equipment	-	99	-	99
FFO basic (1)	279	8,581	39,015	37,842
Interest, accretion and amortization on convertible debentures (2)	-	1,075	4,400	4,178
FFO diluted (1) (2)	279	9,656	43,415	42,020
FFO per unit – basic (1)	0.004	0.11	0.49	0.48
FFO per unit – diluted (1) (2)	0.004	0.11	0.48	0.47
FFO payout ratio – basic – trailing twelve months (1)	30.3%	34.3%	30.3%	34.3%
FFO payout ratio – diluted – trailing twelve months (1)	37.0%	35.2%	37.0%	35.2%
Non-recurring items:
Gain on debt settlement	-	(3,281)	-	(5,625)
Other income	1,717	-	(11,172)	(2,192)
Measurements excluding non-recurring items:
Normalized FFO diluted (1) (2)	1,996	6,375	32,243	34,203
Normalized FFO per unit – diluted (1) (2)	0.03	0.07	0.36	0.38
Weighted average number of units outstanding:
Basic (000’s)	78,898	78,779	78,853	78,755
Diluted (000’s) (2)	79,776	89,487	89,673	89,299
(1)   See “Non-IFRS and Other Financial Measures”.   (2)   The calculation of FFO diluted, FFO per unit – diluted, normalized FFO diluted, normalized FFO per unit – diluted, weighted average number of units outstanding - diluted for the twelve months ended December 31, 2023, and for the three and twelve months ended December 31, 2022, included the convertible debentures because they were dilutive. The calculation of FFO diluted, FFO per unit – diluted, normalized FFO diluted, normalized FFO per unit – diluted, weighted average number of units outstanding - diluted for the three months ended December 31, 2023, excluded the convertible debentures because they were anti-dilutive.

RECONCILIATION OF FFO TO AFFO

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, except per unit amounts, unaudited)	2023	2022	2023	2022
FFO basic (1)	279	8,581	39,015	37,842
FFO diluted (1)	279	9,656	43,415	42,020
Maintenance capital expenditures	(3,694)	(2,720)	(12,355)	(10,549)
AFFO basic (1)	(3,415)	5,861	26,660	27,293
AFFO diluted (1)	(3,415)	6,936	31,060	31,471
AFFO per unit – basic (1)	(0.04)	0.07	0.34	0.35
AFFO per unit – diluted (1)	(0.04)	0.08	0.35	0.35
AFFO payout ratio – basic – trailing twelve months (1)	44.4%	47.6%	44.4%	47.6%
AFFO payout ratio – diluted – trailing twelve months (1)	52.3%	47.4%	52.3%	47.4%
Measurements excluding non-recurring items:
AFFO diluted (1)	(1,698)	3,655	19,888	23,654
AFFO per unit – diluted (1)	(0.02)	0.04	0.22	0.26
(1) See “Non-IFRS and Other Financial Measures”.

DEBT TO GROSS BOOK VALUE

(thousands of dollars, unaudited)	December 31, 2023	December 31, 2022
Debt	688,585	699,881
Gross Book Value	1,326,070	1,329,865
Debt-to-Gross Book Value	51.9%	52.6%
(thousands of dollars, unaudited)	December 31, 2023	December 31, 2022
Term loans and revolving credit facility	633,298	643,929
2026 Debentures (at face value)	50,000	50,000
Unamortized portion of debt financing costs	4,065	4,437
Lease liabilities	1,239	1,591
Unamortized portion of mark-to-market adjustments	(17)	(76)
Debt	688,585	699,881
(thousands of dollars, unaudited)	December 31, 2023	December 31, 2022
Total Assets	954,887	1,052,795
Accumulated depreciation and impairment	365,970	272,540
on property, buildings and equipment
Accumulated amortization on intangible assets	5,213	4,530
Gross Book Value	1,326,070	1,329,865

DEBT TO EBITDA

(thousands of dollars, unaudited)	December 31, 2023	December 31, 2022
Debt	688,585	699,881
EBITDA (trailing twelve months)	64,732	71,293
Debt-to-EBITDA (times)	10.6x	9.8x

INTEREST COVERAGE RATIO

(thousands of dollars, unaudited)	December 31, 2023	December 31, 2022
EBITDA (trailing twelve months)	64,732	71,293
Interest Expense (trailing twelve months)	33,752	33,695
Interest Coverage Ratio (times)	1.9x	2.1x

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

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, unaudited)	2023	2022	2023	2022
Income from operating activities	7,765	10,665	48,424	51,202
Depreciation and amortization	8,732	8,722	34,948	37,952
IFRIC 21 property taxes	272	937	-	-
NOI	16,769	20,324	83,372	89,154
Management fees	(1,328)	(2,124)	(8,103)	(9,213)
Hotel EBITDA	15,441	18,200	75,269	79,941
General administrative expenses	(2,810)	(2,496)	(10,537)	(8,648)
EBITDA	12,631	15,704	64,732	71,293

The reconciliation of NOI to normalized NOI is shown below:

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, unaudited)	2023	2022	2023	2022
NOI	16,769	20,324	83,372	89,154
Business interruption insurance proceeds	95	-	3,541	-
Normalized NOI	16,864	20,324	86,913	89,154

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

	Three months ended December 31		Twelve months ended December 31
(thousands of dollars, unaudited)	2023	2022	2023	2022
Finance costs	9,845	6,187	36,105	31,615
Gain on debt settlement	-	3,281	1,155	5,625
Amortization of debt financing costs	(650)	(783)	(2,067)	(2,382)
Accretion of Debenture liability	(250)	(232)	(987)	(828)
Amortization of Debenture costs	(109)	(94)	(414)	(335)
Dividends on Series B preferred shares	(4)	-	(16)	-
Amortization of mark-to-market adjustments	6	-	36	-
Debt defeasance and other costs	-	-	(14)	-
Accretion of management fee	(46)	-	(46)	-
Interest Expense	8,792	8,359	33,752	33,695

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 year ended December 31, 2023 and 2022, which will be available on AHIP’s website in the next week 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; AHIP’s strategic initiatives and the intended outcomes thereof, including improved liquidity, addressing near-term debt maturities and providing AHIP with financial stability and delivering value to unitholder over the long term; AHIP’s expectation that most of the estimated amount of weather-related damage to buildings and equipment of certain 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; AHIP’s expectations with respect to the timing of the receipt of such insurance proceeds; AHIP’s review of strategies for divesting assets to recycle proceeds into higher return assets in more attractive markets and reduce debt; AHIP’s plans to use net proceeds from asset sales to reduce debt; AHIP’s planned property dispositions, including the expected terms and timing thereof and the financial impact thereof on AHIP; AHIP’s planned refinancing of three hotels in Virginia and the expected terms thereof; AHIP’s expectation that the managed foreclosure process for a hotel in Pittsburgh, Pennsylvania will result in the discharge of non-recourse mortgage debt; AHIP’s intended strategies for near-term debt maturities, including planned sales of assets and loan refinancing; AHIP’s expectations as to the financial impact of the expiry of interest rate swaps for certain term loans; the estimated savings as a result of reductions and deferrals of management fees under the master hotel management agreement as well as increased fees in certain future years when deferred fees become payable; payment of the majority of the Board’s compensation in RSUs; the estimated savings from the temporary suspension of cash distributions and expectation that such amendment to the distribution policy will strengthen AHIP’s balance sheet and liquidity and support long-term enhancement of unitholder value; the statement that the Board and management will continue to review AHIP’s distribution policy on a quarterly basis; 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 will be able generate sufficient funds to meet any paydown obligations under the new LTV covenants set forth in the Sixth Amendment; AHIP’s strategies with respect to completion of capital projects, liquidity, addressing near-term debt maturities, divestiture of non-core assets and acquisitions will be successful and achieve their intended effects; estimated savings from the amendment to the master hotel management agreement are based on assumptions about future hotel revenues and certain expenses; capital projects will be completed on time and on budget; AHIP will complete its currently planned divestitures and loan refinancings on the terms currently contemplated and in accordance with the timing currently contemplated; AHIP will receive insurance proceeds in an amount consistent with AHIP’s estimates in respect of its weather-damaged properties; AHIP will continue to have good relationships with its hotel brand partners; 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’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 2024 and beyond; 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’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; AHIP’s strategic initiatives with respect to liquidity, addressing near-term debt maturities and providing AHIP with financial stability may not be successful and may not achieve their intended outcomes; AHIP’s strategies for divesting assets to recycle proceeds into higher return assets in more attractive markets and reduce debt may not be successful; savings from the amendments to the master hotel management agreement may be less than expected; AHIP may not be successful in reducing its leverage; AHIP may not complete its currently planned divestures and loan refinancings on the terms currently contemplated or in accordance with the timing currently contemplated, or at all; there is no guarantee that monthly distributions will be reinstated, and if reinstated, as to the timing thereof or what the amount of the monthly distribution will be; the suspension of monthly distributions is expected to negatively impact the market price of AHIP’s units and debentures; AHIP may not be able to refinance debt obligations as they become due or may do so on terms less favorable to AHIP than under AHIP’s existing loan agreements; AHIP has not replaced its interest rate swaps, which is expected to create continued increased interest expense; 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 years ended December 31, 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, potential cash savings from the amendment to the master hotel management agreement and temporary suspension of distributions; the financial impact on AHIP of increased insurance premiums and interest costs associated with the expiry of interest swaps for certain term loans and management’s expectations for certain aspects of AHIP’s financial performance for 2024.

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