Apple Hospitality REIT (NYSE: APLE) is a real estate investment trust, or REIT, focused on the hotel industry. The company is one of the largest hotel REITs that isn't focused on large-scale resort properties and prefers to take a "rooms first" approach to the portfolio.
In this article, we'll give an introduction to Apple Hospitality REIT and discuss some of the more recent developments as well as the company's performance over its history.
Apple Hospitality REIT company profile
Apple Hospitality REIT is a hotel REIT that went public in 2015. The company is focused on investing in so-called "select service" hotels that are operated under major hotel brands. This is a broad category that essentially refers to hotel properties that are focused on room revenue (as opposed to things like food and beverage sales) and that are in the mid range of the market in terms of price point.
Just to name a few examples, some of the brands you'll find in Apple Hospitality REIT's portfolio include Courtyard by Marriott (NYSE: MAR); Hilton Garden Inn by Hilton Hotels Corporation (NYSE: HIL); Homewood Suites; and Residence Inn. These are hotels that cater to both leisure and business travelers but aren't highly dependent on group-event travel. Extended-stay and suite-based hotels are two categories you'll see quite a bit of in Apple Hospitality REIT's portfolio.
As of February 2021, Apple Hospitality REIT owned 235 hotels with just over 30,000 guest rooms. Including the four already mentioned, there are 13 brands in the portfolio, most of which are associated with the Hilton and Marriott corporations. The properties are managed by third-party hotel management companies, and just to clarify the business structure: Apple Hospitality REIT owns the physical properties, hotel companies like Marriott and Hilton license their brands, and third-party managers oversee the day-to-day operations.
Apple Hospitality REIT's portfolio is spread across the United States, with a presence in 88 different markets from coast to coast.
As far as growth is concerned, it's important to note that Apple Hospitality REIT isn't a real estate developer. In other words, it doesn't build new hotels from the ground up. Rather, the REIT's primary mechanism for growth is through acquisition. Now, it might buy hotels shortly after they're built -- in fact, in February 2021 the company bought a newly developed hotel in Wisconsin. But its growth comes through acquisition, not development.
The company actively looks for ways to recycle capital -- that is, selling properties to reinvest the money into better investor return opportunities. In 2020, Apple Hospitality REIT acquired four hotels (all of which were newly developed) and sold three hotels, on which the company recognized a combined gain of $11 million.
Apple Hospitality REIT news
Like all hotel REITs, Apple Hospitality REIT was heavily impacted by the COVID-19 pandemic. While its hotels were generally open for business throughout the pandemic, travel had virtually ceased at the onset of the pandemic and remained at a fraction of pre-COVID levels for the rest of 2020 and into 2021.
Looking at the company's numbers from the second quarter, where the worst of the pandemic's effects can be seen, occupancy fell to 28.2% from 81.4% in the same quarter of 2019. FFO went from $0.49 in the second quarter of 2019 to negative $0.11.
For much of its nearly six-year history, Apple Hospitality REIT was an excellent dividend stock. It had been making $0.30 quarterly distributions prior to the pandemic, which translated to a dividend yield of about 8% at the start of 2020. However, the company decided to suspend dividends in March 2020 and has still not reinstated any payout. In the post-pandemic world, Apple Hospitality REIT will likely resume paying dividends, but there's no timetable for this yet.
The recent news has been a little more encouraging, however. In the fourth quarter of 2020, Apple Hospitality REIT's occupancy had risen to 46.5% -- still well below pre-pandemic levels but far better than earlier in the year. Plus, the company's FFO had rebounded to a near-breakeven level. In fact, Apple Hospitality REIT was the first publicly traded hotel REIT to return to positive cash flow during the pandemic.
Apple Hospitality REIT stock price
Like most hotel REITs, Apple Hospitality REIT's stock price was absolutely crushed when the COVID-19 pandemic started. And like most hotel REITs, the stock price has rebounded nicely as vaccines are being rolled out and it looks like the world will be able to get back to normal sooner than many had feared.
In fact, Apple Hospitality REIT's stock price is actually up by 3% over the past year, as it has two key advantages that should allow it to rebound quicker than many of its peers. First, the company's hotels get quite a bit of business from leisure travel and are at price points that appeal to budget-conscious consumers. And second, Apple Hospitality REIT doesn't depend on group events like conventions, nor does it depend on revenue from food and beverage outlets, which will take some time to ramp up to full capacity.
Let's wind the clock back a little further to see how Apple Hospitality REIT has performed for shareholders. The REIT went public in May 2015, and here's how it has performed over different time periods as of February 2021: