American Hotel Income Properties REIT LP (TSX:HOT.UN) shocked investors with some awful news last week. The real estate investment trust (REIT) has announced a major shift in its financial strategy by temporarily suspending its distribution to unitholders. This decision is a direct response to the company's recent financial performance and the broader economic challenges facing the hospitality industry.
In the third quarter of 2023, AHIP reported a revenue decrease of 3.3%, falling to $73.7 million from $76.2 million in the same period of 2022. This decline, coupled with a slight decrease in occupancy rates to 71.5% and operational challenges marked by increased expenses, paints a picture of the pressures the company is facing. A rise in ADR and a 3.3% increase in RevPAR were not enough to offset these challenges, leading to a notable drop in net operating income.
The suspension of the distribution is a strategic move by AHIP's management to preserve cash and improve its financial flexibility at a time when economic conditions are challenging and interest rates remain high. This decision, while impactful for unitholders, is indicative of a cautious approach to financial management during uncertain economic times.
For investors, however, there may be little reason to own the stock now, which was previously attractive for its high yield. With no guarantee of the payout coming back anytime soon, the stock could continue to struggle. Year to date, shares of the REIT are down 70% and unfortunately the tailspin may not be over just yet. Investors are better off waiting to see how the REIT does in the months ahead before taking a chance on it.
