- Occupancy rates continue to improve, with nine consecutive weeks of growth and total portfolio occupancy of approximately 48% in the past week
- Given the current pace of occupancy growth, AHIP is approaching breakeven cashflow and currently anticipates generating positive cashflow by the end of Q3 2020
- Successfully restructured payments on approximately 70% of its CMBS loans
- Achieved waiver of financial covenants through Q1 2021 on its credit facility
All financial figures are presented in US dollars, unless otherwise noted.
VANCOUVER, BC, June 15, 2020 – American Hotel Income Properties REIT LP (“AHIP” or “the Company”) (TSX: HOT.UN, HOT.U, and HOT.DB.U) is pleased to provide the following update regarding hotel operations and liquidity.
“We’re pleased to confirm that all of our hotels are now open and generating revenues as we are seeing continued steady occupancy growth – particularly from leisure-travel guests. Our best-performing segment continues to be our 24 extended stay hotel properties, which have outperformed our other hotels throughout the downturn, and have averaged occupancy of 65% over the past two weeks. We are seeing strong performance across our diversified portfolio as state ‘stay at home orders’ are relaxed, with certain properties in New Jersey, Texas, Tennessee and Virginia generating occupancies of between 70% and 100% on a regular basis. Our portfolio of road-trip and drive-to friendly hotels has recently seen a resurgence of demand from leisure travelers and we continue to see strong demand from government, logistics, healthcare/first responders and environmental care businesses.”
Mr. O’Neill continued, “Our ongoing discussions with our credit facility syndicate have resulted in an $11 million increase in the current available capacity under our credit facility and covenant waivers for the facility through Q1 2021. We have also obtained approval from most of our CMBS loan servicers to apply certain restricted cash balances to fund debt service payments for three months. We remain current on all of our loan payments and remain focused on maximizing our liquidity.”
Hotel Operations:
Occupancy rates at AHIP’s 79 hotels have continually improved each week since the middle of April and have averaged approximately 48% in the past week. Hotel demand has increased from the leisure segment, and AHIP anticipates continued growth from this segment over the summer months. Peak occupancy is currently being seen on weekends, rather than mid-week, which further demonstrates this shift in AHIP’s guest profile.
AHIP’s hotel manager and brand partners – primarily Marriott, Hilton, and IHG – have all introduced enhanced cleaning protocols and standards to provide further safety and comfort for hotel guests. These standards include the use of hospital-grade disinfectants to sanitize guestrooms, increased frequency of cleaning public areas, and rearranging lobbies and lounges to provide for increased physical distancing. As well, all food and beverage outlets currently remain closed; however, an increased variety of grab-and-go food and beverage items are available for hotel guests.
AHIP’s asset management department and hotel manager are working diligently to adjust to increasing occupancy levels and service expectations while efficiently balancing and maintaining strict cost controls. Since AHIP’s last business update on May 13, 2020, nearly 150 hotel positions have been filled. AHIP’s hotels currently employ approximately 900 employees, a decrease of 64% compared to staffing levels prior to the pandemic.
Capital and Liquidity:
Working with its credit facility syndicate, AHIP has increased the current available capacity under its credit facility by an additional $11 million (to a total of approximately $173 million), and obtained covenant waivers for the facility through Q1 2021. In addition, AHIP has received approval from most of its CMBS loan servicers to access some restricted cash balances to maintain its debt service payments for the next three months on approximately 70% of its CMBS loans (by dollar value), which restricted cash balances are required to be replenished after six to 12 months. AHIP remains in productive discussions with all remaining CMBS loan servicers for similar relief, and is current on all of its loan payments.
As occupancy levels continue to improve, AHIP believes that it will achieve a break-even cashflow level once occupancy levels return to approximately 50%. Based on recent occupancy recovery trends, AHIP expects to achieve the cashflow break-even point in the next several weeks, and currently anticipates a return to positive cashflows by September 30, 2020.
Since March, AHIP has initiated a comprehensive cost reduction and cash preservation strategy, to capture significant cash savings and enhance liquidity. Cost saving activities include, among other things, a significant reduction in hotel staffing levels, a 27% decrease in corporate staffing levels, and a 15% reduction to corporate staff salaries effective April 1, 2020 for the remainder of 2020. In addition, AHIP’s CEO, John O’Neill, has taken a 50% salary reduction effective April 1, 2020 for the remainder of 2020 and continues to receive 100% of his compensation in equity.
Corporate Office Update:
Like many British Columbia based businesses, AHIP’s corporate team has been working remotely since mid-March in accordance with regional COVID-19 health and safety guidelines. AHIP is pleased to confirm that its corporate office reopened with new physical distancing protocols in place, on June 15, 2020.
FORWARD-LOOKING INFORMATION
Certain statements in this news release may constitute “forward-looking information” or “financial outlook” within the meaning of applicable securities laws (also known as forward-looking statements). Forward looking information and financial outlook involve known and unknown risks, uncertainties and other factors, and may cause actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information and financial outlook. Forward-looking information and financial outlook generally can be identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “feel”, “intend”, “may”, “plan”, “predict”, “project”, “subject to”, “will”, “would”, and similar terms and phrases, including references to assumptions. Some of the specific forward-looking information and financial outlook in this news release includes, but are not limited to, statements with respect to: AHIP’s current occupancy trends and the reasons underlying such trends; AHIP anticipating continued growth from the leisure segment over the summer months; AHIP’s credit facility syndicate providing covenant waivers under the credit facility through Q1 2021; AHIP remaining in productive discussions with all remaining CMBS loan servicers for certain relief under its related CMBS loans; the requirement to replenish certain restricted cash balances which have been accessed to fund CMBS loan payments within six to 12 months; AHIP’s belief that as occupancy levels continue to improve it will achieve a break-even cashflow level once occupancy levels return to 50%; AHIP’s expectation, based on recent occupancy trends, that AHIP will achieve the cashflow break-even point in the next several weeks, and AHIP currently anticipating a return to positive cashflows by September 30, 2020; and AHIP’s stated long-term objectives.
Forward-looking information and “financial outlook” are based on a number of key expectations and assumptions made by AHIP, including, without limitation: the COVID-19 pandemic will continue to negatively impact the U.S. economy, U.S. hotel industry and AHIP’s business, and the extent and duration of such impact; current occupancy recovery trends at AHIP’s hotels will continue and AHIP will achieve its cashflow current targets; AHIP will be able to continue to operate its 79 hotels currently in operation during the COVID-19 pandemic; AHIP’s cost reduction, cash conservation and liquidity strategies will achieve their stated objectives and AHIP will continue to have sufficient funds to meet its financial obligations; AHIP will not require covenant waivers under its credit facility subsequent to Q1 2021, and if required, such waivers will be provided by its credit facility syndicate; AHIP will receive all necessary approvals from its remaining CMBS loan servicers to use certain reserves to fund upcoming debt service payments; and there will be a meaningful economic recovery in the U.S. and within the U.S. hotel industry along with a shift towards vehicle travel. 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 are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking 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. Those risks and uncertainties include, among other things, risks related to: the impacts of the COVID-19 pandemic on the U.S. economy, the hotel industry, the willingness of the general public to travel, the level of consumer confidence in the safety of travel and AHIP’s business, all of which have negatively impacted, and are expected to continue to negatively impact, AHIP and may materially adversely affect AHIP’s investments, results of operations, financial condition and AHIP’s ability to obtain additional equity or debt financing, or re-finance existing debt, or make interest and principal payments to its lenders and to holders of AHIP’s debentures, and otherwise satisfy its financial obligations and may cause AHIP to be in non-compliance with one or more of the financial covenants under its existing credit facilities and cause a default thereunder; the pace of recovery following the COVID-19 pandemic cannot be accurately predicated and may be slow; AHIP’s cost reduction, cash conservation and liquidity strategies may not achieve their stated objectives, and cash savings and liquidity generated may be less than anticipated; AHIP may not receive necessary approvals from its remaining CMBS loan servicers to use certain reserves to fund upcoming debt service payments, and such approvals if received may not be on terms acceptable to AHIP; AHIP may require additional debt or equity capital in order to replenish any reserve funds drawn in accordance with the timing required by its CMBS loan servicers, and such funds may not be available to AHIP on reasonable terms, or at all; AHIP may require covenant waivers under its credit facility subsequent to Q1 2021, and if required, such waivers may not be provided by its credit facility syndicate on terms acceptable to AHIP, or at all; current occupancy recovery trends at AHIP’s hotels may not continue or may decelerate; AHIP may not achieve break-even or positive cashflow levels in accordance with the timing currently expected, or at all; and AHIP may not achieve its stated long-term objectives. Management believes that the expectations reflected in forward-looking information and financial outlook contained herein are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with this forward-looking information and financial outlook. Additional information about risks and uncertainties is contained in AHIP’s MD&A dated May 12, 2020 and annual information form for the year ended December 31, 2019, copies of which are available on SEDAR at www.sedar.com.
To the extent any forward-looking information or statements in this news release constitute a “financial outlook” within the meaning of applicable securities laws, such information is being provided to assist investors in better understanding the potential financial impact on AHIP of current occupancy recovery trends at AHIP’s hotels and AHIP’s cost reduction, cash preservation and liquidity strategies.
The forward-looking information and financial outlook contained herein are expressly qualified in their 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.
