Yahoo Finance: Apple Hospitality REIT positive on lodging cycle

Yahoo Finance: Apple Hospitality REIT positive on lodging cycle

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2016-02-01

[from Yahoo! Finance]

The travel and tourism business is well over $1.5 trillion in the U.S., and hoping to get a piece of that through real estate is Apple Hospitality REIT (APLE), the largest public owner of upscale, select-service hotels.

The real estate investment trust, which owns 180 Marriott (MAR) and Hilton (HLT) hotels, is diversified across 30 states.

The company focuses on hotel ownership, like the largest name in the space Host Hotels (HST), which allows it to work with Marriott and Hilton. External managers run the majority of the properties.

CEO Justin Knight said despite higher supply levels in certain markets, he's optimistic about demand growth and the supply-demand balance. This counters analyst calls for caution on the sector, including Daniel Donlan at Ladenburg Thalmann, who downgraded the hotel REIT space earlier this month, saying we're nearing the end of the lodging cycle.

Apple Hospitality -- which has been viewed by investors as a relatively less-risky, defensive play on the hotel group because of its exposure outside of urban centers -- sees stability ahead.

A couple of company-specific catalysts are also on the horizon for Apple Hospitality. For one, the company stands to benefit from the proposed merger between Marriott and Starwood (HOT). "We anticipate that there will be a larger group of consumers who will have access to product that we're heavily invested in," Knight said.

Second, the company continues to develop its shareholder base.  Before APLE shares were listed on the NYSE, it was a non-traded REIT with three portfolios that merged before its public listing in May 2015. Since going public it has continued to see institutional ownership rise. Also, there was another public, non-listed REIT in the same family (Apple REIT Ten) which is now externally managed by the company. If the company decides to add this portfolio to the company would be accretive to the bottom line.

As shared economy names like Airbnb have grown in popularity, Knight said he's seen limited impact. One reason is that APLE's hotels are not primarily located in urban centers.

The company has a 6.6% dividend yield. It's been pressured along with the REIT sector -- which is required by the IRS to pay out at least 90% of their incomes to unitholders -- in anticipation of rising interest rates that could serve as an alternative option for income-oriented investors. Knight said he's not worried about the impact of rising rates on his stock.

"To the extent interest rates rise as a reaction to improvements in the economy, we stand to benefit. [We] can adjust room rates. Volatility in the stock market has little impact on our dividend," said Knight.

Tags: apple reit, investment, investment trust,

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