The recent sale of one of its hotels in Tampa continues an ongoing repositioning of American Hotel Income Properties (AHIP) REIT’s portfolio, but also provides another benefit during this time of COVID-19.
Proceeds of the sale of the Wingate by Wyndham Tampa on Sept. 1 will allow AHIP to pay down some debt, although the REIT’s managers believe it was already in better shape than many of its competitors.
The Vancouver-based real estate investment trust sold the 86-room Florida property for $7.5 million (all numbers in U.S. dollars). It also provided $2.65 million in financing for the purchaser, secured by a mortgage, which is repayable at the end of three years along with accrued interest.
“This transaction had commenced prior to the pandemic and COVID crisis hitting, with a local buyer,” AHIP chief investment officer Chris Cameron told RENX. “It obviously got delayed a fair amount as things needed to be assessed on their end, with lending and financing and all of that stuff that’s changed dramatically in the last six months.”
“It was the final Wyndham property we had in our portfolio, so it was a bit of an outlier strategically,” investor relations director Jamie Kokoska added.
AHIP sold its economy lodging portfolio of 45 Wyndham Hotel Group-branded properties for $215.5 million last year and had identified Wingate by Wyndham Tampa for its capital recycling program.
AHIP REIT repositioned its portfolio
“We did a major sale last year and went from 112 hotels down to 79,” said Cameron. “We sold 45 and bought 12 back with the proceeds.
“We really repositioned AHIP nicely into what we call our premium-branded portfolio. It’s much more streamlined and moving away from the economy sector. We’ve got a good basket of assets that’s proving resilient through this crisis we’re all in right now, in terms of how they’re performing.”
While opportunistic purchases of discounted hotel properties are a possibility, Cameron said AHIP isn’t actively looking for acquisitions at the moment.
AHIP owns 78 premium-branded, select-service hotel properties with 8,801 guestrooms in 22 states and 51 cities, primarily secondary markets. Its portfolio consists of 34 Marriotts, 28 Hiltons, 15 IHGs and one Choice-branded hotel.
AHIP weathering the COVID-19 storm
COVID-19 has done major damage to the hotel business, and AHIP has been among its victims. Second-quarter same-property revenues fell to $22.3 million from $71.7 million, while same-property net operating income dropped to $2.8 million from $26.6 million a year earlier. The same-property average daily room rate slid by 20.3 per cent to $92.47.
Revenue per available room decreased by 57.6 per cent to $33.01 in the second quarter, compared to a year earlier.
“That’s much better than the 88.6 per cent (decrease) for the 11 hotel REITs we consider our peers,” said Kokoska.
AHIP’s stock price is less than half of what it was at the beginning of March, before it plunged. It’s been trading in the $2.50 range on the Toronto Stock Exchange since mid-July.
“We strongly believe our stock is undervalued where it’s at,” said Kokoska. “I think a lot of people are just waiting and seeing to see occupancy continue to improve.”
Improving occupancy rates
Average occupancy at AHIP-owned properties during the second quarter was 34.7 per cent. That increased to 55.3 per cent in July, which produced positive cash flow for the first month since the arrival of the pandemic.
“We aren’t seeing a correlation between high COVID counts and occupancy,” said Kokoska. “It continues to improve despite the higher COVID cases.”
Twenty-four of AHIP’s properties are extended stay-oriented hotels, which have been its best performers during the COVID-19 crisis. They averaged 54.1 per cent occupancy during the second quarter and 64.6 per cent in July. Residence Inn by Marriott-branded properties performed particularly well relative to the American hotel industry.
Leisure travellers, government agencies and essential service groups are driving the occupancy recovery.
AHIP’s cost-cutting and safety measures
AHIP has embarked on a company-wide strategy to reduce costs, maximize liquidity and improve cash flows through the COVID-19 crisis. These measures have included:
* reducing hotel staffing levels by approximately 70 per cent at its peak, and bringing back staff as occupancies have improved;
* reducing senior management compensation by 15 per cent and chief executive officer compensation by 50 per cent;
* temporarily consolidating hotel operations at 16 properties to neighbouring AHIP-owned properties and temporarily closing six properties to improve hotel efficiencies, all of which have since resumed regular operations;
* deferring renovation projects from 2020 to 2021 in consultation with AHIP’s hotel brand partners;
* temporarily suspending its monthly cash distribution;
* applying for, and subsequently receiving, U.S. government-guaranteed loans intended to mitigate the impact of COVID-19 and support hotel operations;
* and amending credit agreements.
“Our asset management department’s been top-notch in working aggressively with our hotel manager Aimbridge to contain everything,” said Cameron.
To minimize contact between hotel employees and guests, housekeeping is generally now done only upon check-in and check-out, but will be carried out if requested by a guest. All food and beverage outlets at AHIP-owned properties have been closed, but to-go food and beverage options have been increased.
All guests and employees are required to wear masks at AHIP properties.