VANCOUVER—American Hotel Income Properties REIT LP (AHIP) reported that occupancy rates at its 79 hotels have continually improved each week since the middle of April, averaging approximately 48% in the past week. Hotel demand has increased from the leisure segment, and the company anticipates continued growth from this segment over the summer months. Peak occupancy is currently being seen on weekends, rather than midweek, which further demonstrates this shift in AHIP’s guest profile.
“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,” said John O’Neill, CEO. “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.”
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. All F&B outlets currently remain closed; however, an increased variety of grab-and-go items are available for hotel guests.
AHIP’s asset management department and hotel manager are working 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, 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, the company expects to achieve the cashflow break-even point in the next several weeks, and currently anticipates a return to positive cashflows by Sept. 30.
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 for the remainder of 2020. In addition, O’Neill, has taken a 50% salary reduction effective April 1 for the remainder of the year and continues to receive 100% of his compensation in equity.