Apple Hospitality REIT (NYSE: APLE), like most real estate investment trusts (REITs) that own and operate hotel properties, got crushed when the COVID-19 pandemic hit. At the worst point in March 2020, the stock lost nearly 80% of its pre-pandemic value.
However, a lot has happened since then. Vaccines are rolling out, restrictions are loosening, and people are traveling in greater numbers than at any point since the pandemic began. We're still quite a ways from a return to normalcy, but there is a lot more light at the end of the tunnel than there was just a few months ago.
Unfortunately for investors, the anticipated reopening is now largely reflected in Apple Hospitality REIT's stock price. In fact, shares have rebounded to the point where they are just 8% below where they started in 2020. So, is Apple Hospitality REIT a buy now? Here's a look at the company's latest results, and why you might want to take a look even though you aren't getting quite as much of a discount as you were earlier in the pandemic.
Apple Hospitality REIT's business hasn't come back -- yet
First, the good news. All of Apple Hospitality REIT's 235 hotels are open for business. And because of the lack of amenities such as restaurants, retail outlets, and conference space on the properties, most can operate profitably with very low levels of occupancy. The company also did a great job of cutting costs and achieved positive adjusted hotel EBITDA and modified FFO (funds from operations) for the year. And with more than $300 million in liquidity, Apple Hospitality REIT has the financial flexibility to make it to better times.
The bad news is that business is nowhere near pre-COVID-19 levels yet. The average daily rate at Apple Hospitality REIT's hotels in the fourth quarter was $97.87, down from $131.41 in the fourth quarter of 2019. Overall occupancy was 46.5%, which was certainly better than at many luxury hotel REITs but was sharply lower than 72.9% a year prior.
Why has Apple Hospitality REIT's stock price rebounded so strongly?
The short answer is that the stock market is forward-looking, and hotels are widely expected to rebound in the post-pandemic world. There's a ton of pent-up demand for travel, and Apple Hospitality REIT is in an excellent position to benefit.
Specifically, there are three major types of travel -- leisure, business, and group (think conventions or conferences). It will certainly take some time for group travel to return, as there aren't many major gatherings scheduled until well into the second half of the year. Business travel might be a bit slow, at least at first, as at least some employers will likely elect to keep things like Zoom (NYSE: ZM) meetings even after the pandemic is over in order to save money.
On the other hand, leisure travel should rebound the strongest of the three. Simply put, people want to get out and do things. And Apple Hospitality REIT's properties are an excellent fit for leisure travel, with comfortable and upscale rooms without the prices that come with high-end resorts. With trillions of dollars in stimulus being injected into the economy in recent months, and more likely on the way, combined with an improving job market and loosening restrictions, the recipe for success is certainly there.
Obviously, nobody can predict the future, especially when it comes to the COVID-19 pandemic. But if the economy and the leisure travel industry rebound sharply later this year, it could be a huge catalyst for Apple Hospitality REIT. You aren't getting in at a huge discount, but the stock could still turn out to be a bargain at these levels for long-term investors.