Mr. Jonathan Korol reports

AMERICAN HOTEL INCOME PROPERTIES REIT LP REPORTS Q2 2023 RESULTS WITH 7.7% REVPAR GROWTH

American Hotel Income Properties REIT LP has released its financial results for the three and six months ended June 30, 2023.

All amounts presented in this news release are in 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, chief executive officer. "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-per-cent 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 (funds from operations) per unit (1) and normalized diluted FFO per unit (1) were 19 cents and 14 cents, respectively, for the second quarter of 2023, compared with 18 cents and 15 cents for the same period of 2022.
• RevPAR increased 7.7 per cent to $98 for the second quarter of 2023, compared with $91 for the same period of 2022.
• ADR increased 6.4 per cent to $133 for the second quarter of 2023, compared with $125 for the same period of 2022.
• Occupancy was 73.8 per cent for the second quarter of 2023, an increase of 100 basis points (bps) compared with 72.8 per cent for the same period of 2022.
• NOI (net operating income) (1) and normalized NOI (1) were $25.3-million and $27.2-million, respectively, for the second quarter of 2023, decreases of 5.2 per cent and 0.7 per cent compared with $26.7-million and $27.4-million for the same period in 2022.
• Debt to gross book value (1) was 51.6 per cent as of June 30, 2023, decreases of 100 bps and 200 bps, respectively, compared with 52.6 per cent as of Dec. 31, 2022, and 53.6 per cent as of June 30, 2022.
• Weighted average interest rate for all term loans and credit facility was 4.55 per cent as of June 30, 2023, an increase of nine bps compared with 4.46 per cent as of Dec. 31, 2022.
• Distributions of 1.5 U.S. cents 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-per-cent 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 labour shortages. We are continuing to focus on hiring more in-house labour, 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 12 months of 200 bps on debt to gross book value and 0.2 times 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

American Hotel'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 per cent, increases of 6.4 per cent and 100 bps, respectively, compared with the same period in 2022. Collectively, strong ADR and increasing occupancy resulted in an increase of 7.7 per cent in revPAR compared with 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 American Hotel 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.

American Hotel's five Embassy Suites properties represent 16.6 per cent 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 per cent compared with $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 per cent and 0.7 per cent compared with $26.7-million and $27.4-million for the same period in 2022. NOI margin was 33.5 per cent in the current quarter, a decrease of 170 bps compared with 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 labour shortages. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labour market resulted in increased room labor expenses due to overtime, higher wages for employees and dependency on contract labour. 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 $700,000 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 19 cents and 14 cents for the second quarter of 2023, respectively, compared with 18 cents and 15 cents 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 $900,000 of other income that included a $700,000 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 Dec. 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 Dec. 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 writedown of these hotel properties is $9.0-million as of June 30, 2023. This comprises remediation costs of $3.0-million and rebuilding costs of $6.0-million. As of June 30, 2023, American Hotel had incurred $7.9-million in costs to remediate and rebuild the damaged hotel properties. American Hotel 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, American Hotel 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. American Hotel 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, American Hotel completed its property insurance renewal effective June 1, 2023, with a significant increase in premiums compared with 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 12-month period.

Leverage and liquidity

Debt to gross book value as of June 30, 2023, decreased by 100 bps to 51.6 per cent, compared with 52.6 per cent as of Dec. 31, 2022. American Hotel 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 to 50 per cent. 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 (earnings before interest, taxes, depreciation and amortization) has been stable over the last 12 months.

American Hotel has 91.4 per cent 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 Nov. 30, 2023.

As of June 30, 2023, American Hotel had $39.9-million in available liquidity, compared with $24.1-million as of Dec. 31, 2022. The available liquidity of $39.9-million comprises an unrestricted cash balance of $24.9-million and borrowing availability of $15.0-million under the revolving credit facility. In addition, American Hotel 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 per cent 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, American Hotel 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), American Hotel is aligned with two well-capitalized strategic partners that support the pursuit of attractive acquisition opportunities. American Hotel is also reviewing strategies for divesting assets to recycle proceeds into higher return assets in more attractive markets.

In 2022, American Hotel 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 American Hotel's debt to EBITDA by approximately 0.4 times; and (iii) allowed American Hotel to avoid future PIP investments that would not have achieved returns available elsewhere in the portfolio.

In June, 2023, American Hotel completed the disposition of a non-core hotel property for gross proceeds of $11.7-million. American Hotel 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 18 cents per unit (monthly rate of 1.5 cents per unit). Monthly distributions have been paid each month since March, 2022.

Same-property KPIs (key performance indicators)

The attached table summarizes KPIs for the portfolio for the five most recent quarters with a comparison with 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.

Same-property ADR increased by 5.6 per cent to $133 in the current quarter, compared with $126 in the same period of 2022. Same-property occupancy decreased by 70 bps to 73.8 per cent in the current quarter, compared with 74.5 per cent 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 per cent for the second quarter of 2023, compared with the same period of 2022. Although same-property RevPAR increased by 4.3 per cent, same-property NOI margin decreased due to higher operating expenses as a result of inflation and labour shortages. General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labour market resulted in increased room labour expenses due to overtime, higher wages for employees and contract labour.

Financial information

This news release should be read in conjunction with American Hotel's unaudited condensed consolidated interim financial statements, and management's discussion and analysis for the three and six months ended June 30, 2023, and June 30, 2022, which are available on American Hotel's website and under American Hotel's profile on SEDAR+.

Q2 2023 conference call

Management will host a webcast and conference call at 10 a.m. Pacific Time on Wednesday, Aug. 9, 2023, to discuss the financial and operational results for the three and six months ended June 30, 2023, and June 30, 2022.

To participate in the conference call, participants should register on-line via American Hotel's website. A dial-in and unique PIN (personal identification number) 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 and presentations page of American Hotel's website.

About American Hotel Income Properties REIT LP

American Hotel is a limited partnership formed to invest in hotel real estate properties across the United States. American Hotel's portfolio of premium-branded, select-service hotels are located in secondary metropolitan markets that benefit from diverse and stable demand. American Hotel hotels operate under brands affiliated with Marriott, Hilton, IHG and Choice Hotels through licence agreements. American Hotel's long-term objectives are to build on its proven 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.

We seek Safe Harbor.