American Hotel Income Properties REIT LP (“
AHIP”,
or the “
Company”) (TSX: HOT.UN, TSX: HOT.U, TSX:
HOT.DB.V), today announced further progress on leverage reduction
through strategic dispositions.
All amounts presented in this news release are
in United States dollars (“U.S. dollars”) unless
otherwise indicated.
On September 2, 2024, the Board of Directors
(the “Board”) approved the dispositions of five
hotel properties with total gross proceeds of $45.9 million. These
properties include two hotels in Statesville, North Carolina, and
one hotel in each of Melbourne, Florida, Kingsland, Georgia and
Houston, Texas. Each disposition is subject to a binding agreement
which was entered into following the conclusion of AHIP’s
previously disclosed marketing process for the properties. AHIP has
received total non-refundable deposits of $4.7 million under such
agreements, and the dispositions are currently expected to close in
the fourth quarter of 2024.
The dispositions reflect a value per key
(1) of $103 thousand based on gross proceeds. AHIP’s current
enterprise value per key (1) is $95 thousand, based on the
U.S. dollar closing price of US$0.35 per unit on the TSX on August
30, 2024. After adjusting for an industry standard 4% furniture,
fixtures, and equipment (“FF&E”) reserve, the
combined sales price for these properties represents a blended Cap
Rate (1) of 6.9% on 2023 annual hotel EBITDA (1). AHIP’s current
enterprise value (1) reflects an implied Cap Rate of 8.4% on
2023 annual hotel EBITDA, based on the U.S. dollar closing price of
US$0.35 per unit on the TSX on August 30, 2024. After adjusting for
the expected future capital expenditure requirements, these sales
represent a blended Cap Rate of 5.5% on 2023 annual hotel
EBITDA.
The dispositions of the five hotel properties
bring the total gross proceeds of the hotel properties, that have
been disposed or are currently under agreements for dispositions in
2024 to $162.0 million. These sales are a key component of the
Company’s previously announced plan to address 2024 loan maturities
and reduce leverage. Specifically, AHIP intends to use proceeds
from the disposition of these five hotel properties to pay off the
CMBS mortgage debt secured against three of the properties and to
pay down the term loans which form part of AHIP’s senior credit
facility (the “Credit Facility”), as discussed
further below. Two of the five properties form part of the
borrowing base for the Credit Facility; accordingly, the proceeds
from the sale of such properties will be used solely to pay down
the outstanding term loans under such facility.
“We are pleased to announce further progress on
our 2024 plan to demonstrate hotel property value and address our
loan maturities.” said Jonathan Korol, CEO. “These
dispositions reflect strong demand in the hotel transaction market
at values accretive to our current unit price. The streamlined
portfolio is expected to generate both higher RevPAR and margins
after the dispositions are completed. Further, the completion of
the dispositions of the five hotel properties will allow the
Company to meet a key requirement to extend the maturity of our
senior credit facility.”
The balance of AHIP’s Credit Facility, which is
comprised of a revolving credit facility and term loans, was $182.5
million as of June 30, 2024, with a maturity date of December 3,
2024. The Credit Facility includes an option to extend the maturity
to June 2025, subject to three primary conditions: (i) reduction of
the aggregate maximum facility size to $148.2 million from and
after December 3, 2024; (ii) obtaining updated appraisals for the
remaining properties under the Credit Facility in order to
determine the value of such properties for purposes of setting the
maximum borrowing availability under the Credit Facility which is
set based on a maximum loan to value ratio of 67.5%; and (iii)
compliance with the terms of the agreement governing the Credit
Facility at the time of the extension which includes among other
things compliance with financial covenants including payout ratio
and fixed charge coverage ratio. Subject to the completion of the
dispositions of the five hotel properties, the aggregate Credit
Facility balance is expected to be reduced to approximately $135.0
million, which will allow the Company to meet one of the three
primary requirements to extend the maturity of the Credit Facility
to June 2025.
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 and supplementary financial measures are
relevant measures to monitor and evaluate AHIP’s financial and
operating performance. These measures 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 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.
Hotel EBITDA: is a non-IFRS
financial measure and calculated by adjusting net operating income
for hotel management fees.
Value per key: is a
supplementary financial measure and calculated as total gross
proceeds divided by total number of hotel keys/rooms of the five
hotel properties to be sold.
Blended Capitalization Rate (“Cap
Rate”): is a supplementary financial measure and
calculated as total 2023 annual hotel EBITDA after adjusting for
FF&E, divided by expected total gross proceeds of the five
hotel properties to be sold.
Blended Cap Rate after adjusting
CAPEX: is a supplementary financial measure and calculated
as total 2023 annual hotel EBITDA after adjusting for FF&E,
divided by the sum of total gross proceeds and the total expected
capital expenditure requirements of the five hotel properties to be
sold.
Enterprise value: is a
supplementary financial measure and is calculated as (i) the sum of
total debt obligations as reflected on the June 30, 2024 balance
sheet, AHIP’s market capitalization (which is calculated as the
U.S. dollar closing price of the units on the TSX as of August 30,
2024, multiplied by the total number of units issued and
outstanding), and face value of series C preferred shares, less
(ii) the amount of cash and cash equivalents reflected on the June
30, 2024 balance sheet.
Enterprise value per key: is a
supplementary financial measure and is calculated as enterprise
value divided by the total number of hotel keys/rooms in the
portfolio.
NON-IFRS RECONCILIATION
The following calculation is for the 5 hotel properties to be
sold: |
|
(thousands of dollars except the number of
keys) |
|
|
|
Total gross proceeds – (A) |
45,939 |
2023 annual hotel EBITDA after adjusting for FF&E – (B) |
3,180 |
Blended Cap Rate % = (B)/(A) |
6.9% |
|
|
Total number of keys – (C) |
447 |
Value per key = (A)/(C) |
103 |
|
|
Total expected capital expenditures (“CAPEX”) –
(D) |
11,670 |
Total gross proceeds after adjusting CAPEX – (E) = (A) + (D) |
57,609 |
Blended Cap Rate after adjusting CAPEX % =
(B)/(E) |
5.5% |
|
|
The 3 following calculation is for the AHIP portfolio of 68 hotel
properties: |
(thousands of dollars except unit price) |
June 30, 2024 |
|
|
Number of units outstanding – (a) |
79,234 |
Unit price at August 30, 2024 – (b) |
0.35 |
Market capitalization – (A) = (a) * (b) |
27,732 |
|
|
Term loans and revolving credit facility |
565,964 |
Liabilities related to assets held for sale |
52,464 |
Face value of convertible debenture |
49,730 |
Total debt – (B) |
668,158 |
|
|
Face value of Series C preferred shares – (C) |
50,000 |
|
|
Unrestricted cash – (D) |
15,922 |
Total Enterprise Value – (E) = (A) + (B) + (C) –
(D) |
729,968 |
|
|
Number of keys – (F) |
7,662 |
Enterprise value per key = (E)/(F) |
95 |
|
|
2023 annual hotel EBITDA after adjusting for FF&E – (G) |
61,000 |
Cap Rate % = (G)/(E) |
8.4% |
|
|
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 is 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 planned property dispositions,
including the expected terms and timing thereof and the financial
impact thereof on AHIP; AHIP’s intent to use the net proceeds from
its planned property dispositions to pay down debt; AHIP’s
expectation that the planned property dispositions will allow it to
meet one of the three primary requirements to extend the maturity
of the Credit Facility; and AHIP’s stated long-term objectives.
Although the forward-looking information and
financial outlook contained in this news release is based on what
AHIP’s management believes to be reasonable assumptions, AHIP
cannot assure investors that actual results will be consistent with
such information. Forward-looking information and financial outlook
is based on a number of key expectations and assumptions made by
AHIP, including, without limitation: AHIP will complete its planned
property dispositions in accordance with the terms and timing
currently contemplated; AHIP will satisfy the requirements to
extend the maturity of the Credit Facility; AHIP will continue to
have sufficient funds to meet its financial obligations; 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; 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 a guarantee 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
complete its currently planned property dispositions on the terms
currently contemplated or in accordance with the timing currently
contemplated, or at all; AHIP may not satisfy the requirements to
extend the maturity of the Credit Facility; the new appraisals
required under the Credit Facility may report lower than expected
values which may trigger paydown requirements under the Credit
Facility, and if such pay-downs are required, there is no guarantee
that AHIP will have sufficient cash on hand or be able to generate
sufficient net proceeds to meet those requirements, which, without
relief from the lender, would put AHIP in default under the Credit
Facility; AHIP may not achieve its expected performance levels in
2024 and beyond; 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
reduce debt may not be successful; AHIP may not be successful in
reducing its leverage; 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; 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, 2024 and 2023,
and AHIP’s annual information form for the year ended December 31,
2023, 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 estimated proceeds from the
planned disposition of certain hotel properties and the impact
thereof on AHIP’s financial position, leverage and compliance with
the terms of the Credit Facility.
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 is 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.
_________________(1) Non-IFRS and other
financial measures. See “NON-IFRS AND OTHER FINANCIAL MEASURES”
section of this news release.
For additional information, please
contact:
Investor Relationsir@ahipreit.com
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