{"id":42232,"date":"2023-07-30T08:06:27","date_gmt":"2023-07-30T12:06:27","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/apple-hospitality-a-solid-buy-in-hotel-reits-nyseaple\/"},"modified":"2023-07-30T08:06:30","modified_gmt":"2023-07-30T12:06:30","slug":"apple-hospitality-a-solid-buy-in-hotel-reits-nyseaple","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=42232","title":{"rendered":"Apple Hospitality: A Solid Buy In Hotel REITs (NYSE:APLE)"},"content":{"rendered":"
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Hotel REITs took a ferocious beating during the pandemic, but they are making a steady comeback. As of this writing, Hotel REITs are up 4.62% in 2023, good for a middle-of-the-pack 9th-place standing among REIT sectors, and just slightly off the 4.90% pace set by the average REIT. Meanwhile, REITs as a whole are lagging the NASDAQ and the S&P indexes, and left in the dust by the NASDAQ.<\/span><\/p>\n

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Hoya Capital Income Builder<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Airline travel, which is highly correlated to hotel demand, has returned to pre-pandemic levels.<\/p>\n

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Hoya Capital Income Builder<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Gasoline prices are down more than 20% from a year ago, providing another summer travel tailwind.<\/p>\n

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TradingView.com<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Hoya Capital’s latest sector report on Hotel REITs reads, in part:<\/p>\n

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Hotel REITs are pacing for a second-straight year of outperformance after punishing early-pandemic declines, buoyed by steady post-pandemic operating improvement and the long-awaited return of dividends.<\/span><\/p>\n<\/blockquote>\n

According to the International Air Transport Association (“IATA”),<\/p>\n

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International traffic<\/strong> climbed 68.9% versus March 2022 with all markets recording healthy growth, led once again by carriers in the Asia-Pacific region. International RPKs reached 81.6% of March 2019 levels while the load factor at 81.3% exceeded the March 2019 level by 10.1 percentage points.<\/p>\n<\/blockquote>\n

The final pandemic-era travel restrictions were lifted in May, so further recovery is likely over the coming months.<\/p>\n

Meanwhile, hotel operating performance is sturdy. RevPAR (Revenue Per Available Room), occupancy, and ADR (Average Daily Rate) all remain at or above 2019 levels, after reaching all-time highs in 2022.<\/p>\n

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Hoya Capital Income Builder<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

CBRE<\/strong> (CBRE) forecasts RevPAR growth of 5.8% in 2023, driven by a 4.2% increase in ADR and an improvement in occupancy of roughly 100 basis points.<\/p>\n

The forecast is best for Economy, Mid-Scale, and Upper-scale hotels, and markets in the southern half of the country.<\/p>\n

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CBRE Hotels Research<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

For investors who may want to increase exposure to Hotel REITs, this article examines growth, balance sheet, dividend, and valuation metrics for two companies well-positioned to take advantage of these tailwinds.<\/p>\n

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Apple Hospitality REIT<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Apple Hospitality REIT (NYSE:APLE<\/span>) is a 15-year-old company headquartered in Richmond, Virginia, with a market cap just below the sweet spot, at $3.47 billion. The company owns and operates a mostly upscale portfolio of 221 hotels, spread across 88 markets in 37 U.S. states. Nearly all these hotels (205 of the 221) are unencumbered as security for the company’s debts.<\/p>\n

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Apple Hospitality investor presentation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The average age of APLE’s buildings is just 5 years, which keeps capex to a minimum, and the hotels, which span 15 well-known brands, are popular with travelers, averaging satisfaction ratings of 4.3 out of 5 on TripAdvisor.<\/p>\n

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Apple Hospitality investor presentation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

In 2022, APLE was the top-performing U.S. Hotel REIT, according to both the MSCI and Nareit indexes. Through Q1 2023, APLE’s ADR was up 11.5%, and RevPAR was up 8.7%.<\/p>\n

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Hoya Capital Income Builder<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The company’s rooms-focused upscale strategy tends to result in higher margin than peers, as shown below.<\/p>\n

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Apple Hospitality investor presentation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

New construction starts of competing hotels have meaningfully decreased since the onset of the pandemic, with delays anticipated in completions. As a result, the proportion of APLE hotels exposed to new supply within a 5-mile radius has dropped sharply over the past 4 years. The 0.9% national supply growth anticipated over the next 4 quarters is 30% below the long-run average, according to the Hotel Horizons National Forecast Q1 2023 Edition from CBRE Hotels Research.<\/p>\n

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Apple Hospitality investor presentation<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The company keeps capex low by opportunistically disposing of older buildings and buying younger ones (average age, 2 years) in markets expected to outperform over the next cycle and has been a net acquirer of hotels since the onset of the pandemic.<\/p>\n

APLE Growth<\/h2>\n

Here are APLE’s 3-year growth figures for FFO (funds from operations) and TCFO (total cash from operations). Despite the body blow dealt by the pandemic, APLE’s FFO per share has fully recovered, and is expected to continue growing at a healthy pace, while TCFO and total FFO have recovered to 96% of pre-pandemic levels.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n
Metric<\/strong><\/td>\n2019<\/strong><\/td>\n2020<\/strong><\/td>\n2021<\/strong><\/td>\n2022<\/strong><\/td>\n3-year CAGR<\/strong><\/td>\n<\/tr>\n
FFO (millions)<\/td>\n$361<\/td>\n$13<\/td>\n$205<\/td>\n$348<\/td>\n—<\/td>\n<\/tr>\n
FFO Growth %<\/td>\n—<\/td>\n(-96.4)<\/td>\n1477.0<\/td>\n69.8<\/td>\n(-1.2)%<\/td>\n<\/tr>\n
FFO per share<\/td>\n$1.62<\/td>\n$0.09<\/td>\n$1.53<\/td>\n$1.63<\/td>\n—<\/td>\n<\/tr>\n
FFO per share growth %<\/td>\n—<\/td>\n(-94.4)<\/td>\n1600.0<\/td>\n6.5<\/td>\n0.20%<\/td>\n<\/tr>\n
TCFO (millions)<\/td>\n$382<\/td>\n$27<\/td>\n$218<\/td>\n$368<\/td>\n—<\/td>\n<\/tr>\n
TCFO Growth %<\/td>\n—<\/td>\n(-92.9)<\/td>\n707.4<\/td>\n68.8<\/td>\n(-1.2)%<\/td>\n<\/tr>\n<\/table>\n

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