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Monthly Dividend Stock In Focus: Apple Hospitality REIT


Updated on February 21st, 2023 by Samuel Smith

Real Estate Investment Trusts, or REITs, are a core holding for many income investors due to their high dividend yields. The coronavirus pandemic was devastating for many REITs. It especially hit the hospitality industry hard, including REITs in that industry.

Apple Hospitality REIT Inc. (APLE) is a REIT that pays a monthly dividend. Monthly dividend stocks pay shareholders 12 dividends per year instead of the more typical quarterly payments.

We created a list of all monthly dividend stocks (along with important financial metrics such as dividend yields and payout ratios). You can download the spreadsheet by clicking on the link below:

 

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Apple Hospitality has a 5.8% dividend yield, which is lower than many other REITs. But extreme high-yielders should generally be avoided because such high-yielding stocks often have unsustainable dividends.

Business Overview

Apple Hospitality is a company that owns one of the largest and most diverse portfolios of upscale, rooms-focused hotels in the United States. Apple Hospitality’s portfolio consists of 219 hotels with more than 28,700 guest rooms located in 86 markets throughout 36 states. Concentrated with industry-leading brands, the company’s portfolio consists of 94 Marriott-branded hotels, 119 Hilton-branded hotels, 4 Hyatt-branded hotels, and two independent hotels.

Source: Investor Presentation

On February 21, 2023, the company reported fourth-quarter and full-year results for the Fiscal Year (FY)2022. In the fourth quarter and full year of 2022, the Company’s portfolio demonstrated an increase in RevPAR of around 7% and 3%, respectively, compared to the same periods in 2019. ADR growth for the same periods was approximately 12% and 9%, respectively. However, occupancy decreased by approximately 4% and 6% in the fourth quarter and full year of 2022 compared to 2019, respectively. Despite this, the Company’s portfolio exceeded industry averages for occupancy and RevPAR in the fourth quarter of 2022 and occupancy, ADR, and RevPAR for the full year of 2022, according to STR reports.

Preliminary results for the Company’s portfolio in January 2023 indicate an increase in occupancy of about 13% compared to January 2022, due in part to the impact of the Omicron variant in 2022. However, occupancy in January 2023 decreased by 4% compared to January 2019, with ADR growth of approximately 10% compared to January 2022 and 7% compared to January 2019.

The Company’s Comparable Hotels Adjusted Hotel EBITDA in the fourth quarter of 2022 was approximately $102 million, and for the full year, it was approximately $461 million. This represents an increase of around 18% and 42% compared to the fourth quarter and full year of 2021, respectively. In comparison to the fourth quarter and full year of 2019, there were increases of approximately 7% and 0.5%, respectively.

The Company’s Comparable Hotels Adjusted Hotel EBITDA Margin was approximately 34% for the fourth quarter of 2022 and 37% for the full year of 2022, which improved by 20 bps and 230 bps compared to the fourth quarter and full year of 2021, respectively. However, there were only slight declines of 10 bps and 80 bps compared to the fourth quarter and full year of 2019, respectively.

The Actual Adjusted Hotel EBITDA Margin was 34% for the fourth quarter of 2022 and 37% for the full year of 2022, which improved by 30 bps and 250 bps compared to the fourth quarter and full year of 2021, respectively. There were also improvements of 70 bps and 10 bps compared to the fourth quarter and full year of 2019, respectively.

Growth Prospects

Apple Hospitality’s growth prospects will mostly come from an increase in rents. They were also selling less-profitable properties to acquire more beneficial properties. For example, in 2021, the company sold 23 hotels for approximately $235 million and acquired eight hotels for roughly $361 million.

Other growth drivers will come from long-term cost savings. The company has an expense reduction ratio target of 0.80 – 0.90. This is accomplished by an ability to increase the cross-utilization of managers and associates. Also, scaling to renegotiate vendor contracts and optimize labor management software already in place can help reduce overall costs.

Source: Investor Presentation

If the company can concentrate on upscale, room-focused hotels, this will allow the company to increase it’s per night room rate. If this is done correctly, more location and market diversification should help the company continue to grow its FFO for years to come. This will also allow the company to start increasing its dividend.

Dividend Analysis

The company does not have a long dividend history as it became public in 2015. As mentioned above, the company pays its dividend monthly, which is attractive to many income-looking investors. In 2016, the company did increase its annualized dividend substantially by 50%, from a $0.80 rate to a $1.20 rate. However, in the following years, the dividend stayed at that same rate until 2020, when the COVID-19 pandemic forced the company to cut its dividend and freeze it to a $0.20 rate for the year.

In 2021, the company reinitiated the dividend by paying it every quarter instead of every month as it did before. However, starting March 2022, the company is now paying its dividend monthly at $0.05 per share. Today, it pays a $0.08 monthly dividend.

Final Thoughts

Apple Hospitality is one of the strongest players in the hotel sector due to its strong brand power, conservative balance sheet, and high-quality assets. The company has the potential to start increasing its dividend for years to come as the world is getting over the COVID-19 pandemic. The dividend payout ratios are low, and AFFO per share are expected to grow at a 5% CAGR over the next five years.

Right now, the stock is undervalued as it trades at just 85% of its net asset value. As a result, we think that it makes for an attractive buy right now.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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