American Hotel Income Properties REIT LP (HOTUN) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Annual and Special Meeting of the Unitholders of American Hotel Income Properties REIT being held this year via conference call. [Operator Instructions] I would now like to turn the conference over to Mr. Charles van der Lee. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen, the Annual and Special Meeting of American Hotel Income Properties REIT LP will now come to order. I will refer to the LP as the REIT throughout this meeting. My name is Charles van der Lee, the Lead Independent Director of the REIT's General Partner, American Hotel Income Properties REIT, GP, Inc. I will act as Chairman of the meeting in accordance with the amended and restated limited partnership agreement of the REIT and the consent of the Board of Directors of the General Partner of the REIT who have resolved that I will act in this capacity given that Michael Murphy, Chairman of the General Partner, is not able to attend, given the current restrictions on nonessential travel into Canada. Before beginning, I would like to comment on the procedure we have adopted to hold this meeting in light of the COVID-19 pandemic and the need for all of us to comply with physical distancing requirements. The amended and restated limited partnership agreement of the REIT requires that we hold our annual meeting in person. However, 2 or more persons can be present by proxy as well. Our Chief Executive Officer, John O'Neill, and myself, hold the proxies for unitholders for the meeting and are also attending as registered unitholders. We are certain other representatives are attending today with appropriate physical distancing. Our attendance in person satisfies the requirements of the amended and restated limited partnership agreement of the REIT. We have made it possible for the unitholders and guests to participate in this meeting by teleconference. Although they will not be considered to be in attendance at the meeting itself, nor will they be entitled to vote, this is a hybrid solution to the manner in which annual meetings are being held at this time. We hope to return to the normal style of meeting -- holding meetings in person at our annual meeting next year. I will ask Mr. Brian Canfield to act as Secretary for this meeting. With the consent of the meeting, I will ask [ Larissa Bentama ] of Computershare Investor Services, Inc. to act as Scrutineer of the meeting. The secretary has tabled for inspection by any unitholder or proxy holder a confirmation that the notice calling this annual and special meeting was mailed to unitholders in accordance with the amended and restated limited partnership agreement by which the REIT is governed and -- applicable law. With the consent of the meeting, the reading of the notice of the meeting will be dispensed with and I will ask the secretary to append the confirmation of mailing to the minutes of this meeting as a schedule. Has the scrutineer submitted the report on attendance to the secretary?

Yes, Mr. Chair.

The secretary will now read the scrutineer's report.

Thank you, Mr. Chair. We've got 3 unitholders in person representing 9,766 shares or units, in this case. We have 812 unitholders representing an aggregate of 9,930,137 units. That's a total of 815 unitholders holding 9,939,903 shares, that represents 12.72%.

I adopt the Scrutineer's report and declare accordingly that a quorum is present. As there is a quorum present and as adequate notice of this meeting has been given, I now declare this annual and special meeting to be regularly called and properly constituted for the transaction of business. Before continuing with the formal part of the meeting, I would like to introduce you to the other representatives of the REIT with me today: John O'Neill, our Chief Executive Officer; Azim Lalani, our Chief Financial Officer; and you've already met Brian Canfield, our counsel, who is acting as Secretary for the meeting. We will first deal with the formal business to fulfill the legal requirements of this meeting, following which, our Chief Executive Officer, will present a report and answer any questions that you may have. As a matter of procedure, I ask that unitholders wishing to speak during this meeting please identify themselves by name and indicate that they are a unitholder, or if a proxy holder, their name and the name of the unitholder they represent by proxy. Only those registered unitholders and duly appointed proxy holders that are attending the meeting and have been already given a unique PIN from Computershare will be permitted to ask questions. Other persons attending the meeting as guests will not be permitted to ask questions. Questions will only be addressed during the question period at the end of the meeting, following the Chief Executive Officer's report on the business of the REIT. However, questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the formal part of the meeting, if necessary. I would like to confirm that the voting on all the resolutions today will be by a show of hands by registered holders and duly appointed proxy holders present in person at the meeting, unless a ballot is required or called for. As described in the information circular for this meeting, there will be no voting by those participating via the teleconference. I now ask the secretary to read a proposed motion to approve the minutes of the annual and special meeting of the REIT held on May 8, 2019.

Thank you, Mr. Chair. Be resolved in the minutes of the annual special meeting held on May 8, 2019, be approved without reading same.

Who will move this motion?

So moved.

Who will second the motion?

I second the motion.

Is there any discussion on this motion? All in favor of this motion, please signify by raising your right hand. [Voting]

I declare the resolution to be carried. The financial statements of the REIT for the year ended December 31, 2019 and the report of the auditors thereon were mailed to the unitholders prior to this meeting. If there are any questions which any unitholder would like to ask in respect of the financial statements and the report, I would be glad to answer them or call on others to do so during the question period at the end of the meeting. It is now in order to proceed with the nomination and election of directors of the general partner of the REIT. The Board has determined that the number of directors appropriate for the current size of the REIT is 6 and has resolved to fix the number of directors at 6 for the purposes of election of directors at this meeting. As has been explained in the information circular for this meeting, although the election of directors of the general partner would usually fall within the authority of the shareholders of the general partner to approve, a voting trust agreement was entered into with a third-party trustee at the time of the REIT's initial public offering. It effectively allows unitholders to vote for the election of directors by providing a direction to this trustee to ensure the election of the directors is carried out in accordance with the wishes of the unitholders. We have received no nominations for election as a director for the ensuing year from outside parties in accordance with the REIT's limited partnership agreement. I now ask the secretary to read the names of the persons nominated as directors as listed in the REIT's information circular.

Mr. Chair, the names of the persons nominated as directors of the REIT for the ensuing year are: Stephen Evans, Richard Frank, Tamara Lawson, Michael Murphy, Robert O'Neill, Charles van der Lee. And I confirm that each of these persons has previously provide a consent to act.

Since the number of nominees is the same as the number of vacancies to be filled, I now ask for someone to move a resolution that the third-party trustee I have already mentioned be directed to elect those persons nominated for election as directors of the general partner to hold office until the next annual meeting. Who will move this motion?

So moved.

Who will second the motion?

I second the motion.

Is there any discussion on this motion? All in favor of this motion, please signify by raising your right hand. [Voting]

I declare the resolution to be carried. The next item of business before the meeting relates to the appointment of auditors of the REIT. I now ask for someone to move a resolution that KPMG LLP Chartered Professional Accountants be appointed as auditors for the REIT for the ensuing year and that the directors of the general partner be authorized to fix the remuneration to be paid to the auditors. Who will move this motion?

So moved.

Who will second the motion?

I second the motion.

Is there any discussion on this motion? All those in favor of the motion, please signify by raising your right hand. [Voting]

Against? No. I declare the motion duly carried. The next item of business before the meeting is to consider and if thought fit, to approve with or without variation a special resolution for the amendments to the amended and restated limited partnership agreement of the REIT, all as more particularly described in and subject to the information circular accompanying the notice of this meeting. The text of the proposed special resolution approving amended and restated limited partnership agreement of the REIT is set forth in the information circular accompanying the notice of this meeting. Does any unitholder ask that the text of this special resolution be read? Hearing none, I declare that the text of the special resolution to appear in the minutes of the meeting be as set forth in the information circular. Who will move the motion?

So moved.

Who will second the question?

I second the motion.

This special resolution requires the affirmative votes of 2/3 of the holders represented at the meeting and who voted upon such resolution. Is there any discussion on this motion? In order to ensure we have an accurate record of the vote, I will order a ballot on this resolution. Registered unitholders and duly appointed proxy holders present in person should have been provided with a ballot on the resolution, if they have not already provided their proxy in advance of the deadline. Has everyone submitted their ballots?

Yes, Mr. Chair.

Okay. I now declare the ballot closed. And I will now ask the secretary to read the results of the ballot.

Thank you, Mr. Chair. With respect to the resolution to approve of additional amendments to the amended restated limited partnership agreement with the REIT dated February 20, 2013, as amended on June 9, 2015, all as more particularly described in the information circular company notice of this meeting, I'm advised that for the motion, we've got a total of 8,045,664 units, 93.71% for. Against the motion, we've got 539,876 units, 6.29%.

I declare that this resolution has been duly carried. Is there any further business to be brought before the meeting? If not, I would call for a motion to conclude the formal portion of the meeting. Who will move this motion?

So moved.

Who will second the motion?

I second the motion.

All those in favor of this motion, please signify by raising your right hand. I declare the -- this resolution duly carried and the formal portion of this meeting to be concluded. I would now like to call upon our Chief Executive Officer, John O'Neill, to review the business of the REIT.

Thank you, Chuck. And good morning, everyone, and thank you for joining us at our annual and special meeting of unitholders. These continue to be challenging times for us as individuals and for the entire hotel industry. In consideration of health and safety recommendations, we are hosting this year's meeting virtually by teleconference for many of our unitholders today. We hope that you and your families continue to stay safe and healthy. As with all of our investor discussions, I also need to point out that my remarks today will include forward-looking information as defined by applicable Canadian securities laws. Comments that are not a statement of fact, including projections of future performance, are considered forward-looking information and are based on various assumptions, which we believe are reasonable based on currently available information, but may not prove to be true and involve various risks and uncertainties, and should not be read as guarantees of future performance or results. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our MD&A and our other Canadian securities filings available on SEDAR and our website at ahipreit.com. The past 3 months have certainly created some unique challenges across our industry and for the global economy, and I will touch on our response to COVID-19 shortly. I would like to focus the beginning of my comments today on the strategies we've taken and the many milestones we achieved during 2019 to best position AHIP for long-term success. In late 2019, we sold the Economy Lodging portfolio of 45 hotels to streamline our business and strategy to focus entirely on higher-quality premium branded properties. In December, we reinvested the proceeds from that portfolio sale into acquiring 12 additional premium branded hotels that have further diversified our geographic reach and bolstered our presence in secondary markets across the U.S., Midwest and Texas. We renegotiated new contract terms with our third-party hotel manager that has reduced our hotel management and operating costs for the next several years. We also invested $25 million in renovating 12 hotels during 2019, which has modernized many of our properties and significantly improved our guest experience and competitive position. Collectively, these activities have streamlined our strategy and operations and enhanced the quality of our hotel portfolio and allowed AHIP to distribute USD 0.648 per unit to investors in 2019. When normalized economic conditions return, we believe they will continue to strengthen the quality of our cash flows. Today, our portfolio consists of 79 mid-scale to upper upscale premium branded hotels with locations in 51 cities across the United States. Our hotels span 15 hotel brands under Marriott, Hilton, IHG, Choice and Wyndham Flags, and approximately 30% of our guest rooms are now in extended stay properties, which has recently been the best performing segment of the hotel market. Our portfolio of hotels is also much younger with many properties recently renovated, further strengthening our market position. We were very pleased with how our portfolio was performing in the first 2 months of 2020 and how our efforts in the past year have culminated to position us well for future growth. In mid-March, however, the impacts of COVID-19 began, and we, like all hotel owners, were required to take some important measures to adjust our hotel operations to meet changing health and safety recommendations and to preserve our capital. To that end, we implemented several cost reduction and cash conservation strategies that have captured significant cash savings and enhanced our liquidity. These measures include significantly reducing hotel staffing levels, deferring capital expenditures to future years with agreement from AHIP's hotel brands, suspending the funding of certain FF&E reserves, reducing corporate staffing levels by 27%, reducing corporate salaries for the remainder of 2020, our Board of Directors agreeing to receive their remaining 2020 retainer fees in equity rather than cash, our third-party hotel manager agreeing to reduce some direct and third-party service costs, and finally, temporarily suspending the monthly cash distribution. We have also been very active in managing and enhancing our available liquidity. Our ongoing discussions with our credit facility syndicate have also resulted in an $11 million increase in the current available capacity under our credit facility and covenant waivers for the facility through the first quarter of 2021. We have also obtained approval from the majority of our CMBS loan servicers to apply certain of our restricted cash balances to fund debt service payments for the next 3 months. These initiatives, combined with others, and an overall uptick in business levels the past several weeks, have collectively provided us with sufficient liquidity to see us through this period of economic disruption. We are pleased to confirm that occupancy levels across our hotels have consistently continued to trend higher every week since the lows we experienced in mid-April with the recent resurgence of demand from leisure travel guests, supplementing bookings from the logistical, government, military, environmental services and medical sectors. More importantly, we are pleased to confirm that as of this week, all 79 of our hotels are now open and generating revenues. In the past week, our hotels have averaged approximately 48% occupancy. This past Saturday, Friday and Saturday, we ran 53% and 57% occupancy, respectively, with more than 25 properties recording occupancy levels higher than 70% and 10 of our hotels higher than 90%. Our 24 extended stay properties also continue to show resilience, with an average occupancy rate of more than 65% the past 2 weeks. Geographically, many of our properties in New Jersey, Texas, Tennessee and Virginia are now generating occupancies of between 70% and 100% on a regular basis. We're pleased to see the recovery is already well underway. Once occupancy improves to approximately 50%, we believe the company will achieve a breakeven cash flow level. Based on these recent occupancy recovery trends, we expect to achieve this in the next several weeks, and anticipate a return to positive cash flow by the end of September. COVID-19 has had an unprecedented impact across the U.S. hotel sector. However, we believe the worst is now behind us, and that we are heading soon towards a more normalized operating environment. I want to thank our executive team, all AHIP team members, our hotel manager and our Board of Directors for their exceptional work and commitment in adjusting to such unforeseen circumstances and positioning our business as well as possible to overcome these recent challenges. In particular, I would like to thank directors Beth Walters and Minaz Abji, who are retiring today from AHIP Sport. Their insights, support and deep industry knowledge have been incredibly valuable. I would also like to thank our investors and unitholders. We recognize that the suspension of the distribution and reduced unit price is difficult. We are not alone as the entire industry has faced similar issues and results. While 2020 has been an unusual year, we are confident that the strategies we took to refocus our portfolio on premium branded hotels will deliver stronger, higher quality cash flows and will ultimately improve our growth profile over the long term. Even with this COVID-19 impacted environment, we believe our 79 premium branded hotels are uniquely positioned to benefit from a shift towards vehicle transportation and domestic travel. Our properties are located outside the largest U.S. cities, in secondary markets, often near major interstate highways., Our mid-scale to upper upscale hotels focus -- appeals to a broad range of travelers who want high-quality properties at an affordable price, and our suites-focused and extended stay properties continue to outperform other segments of the hotel market. Just as important, we have sufficient liquidity to see this period of lower occupancy through. With the industry already seeing a recovery and occupancy levels continuing to improve every week, we are optimistic that we're well on our way to profitable hotel operations and long-term growth again. Our focus recently has been on ramping up our hotel operations to meet the increasing demand and occupancy in many of our markets. We look forward to better days ahead. And with that overview of our 2019 achievements and update on our recent activities, I'd like to open up the call to any questions from registered unitholders. Operator?

[Operator Instructions] There appears to be no questions registered at this time.

Okay. Thank you. Thank you, operator, and thank you all for your support of AHIP and your virtual attendance here today. We look forward to updating you on our second quarter conference call in August. Back to you, Chuck.

Thank you, Mr. O'Neill, and thank you, operator. That concludes the agenda for the meeting. I thank you for your attendance.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.