Real estate investment trusts (REITs) like Apple Hospitality, are a great way to get exposure to the real estate market without becoming a landlord. And the cost of getting in this space by owning a REIT versus buying properties is much cheaper too. But with so many REITs out there, how do you figure out which one is the best of breed?
Luckily I have done some of the work for you. And the previously mentioned Apple Hospitality (NYSE: APLE) is a great option to start with. So let’s take a closer look at why this REIT might be a great addition to your portfolio.
Who Is Apple Hospitality?
Apple Hospitality runs a bevy of select service and extended stay hotels in the United States. These hotels are made up of Hilton and Marriott brand properties and are mainly located in suburban locations.
As of this writing, the company has over 30,000 guest rooms and 236 properties in 33 states.
So now that you know the basics, what makes this REIT so special?
They outsource the management of these properties and then base the pay of the managers to the properties performance. This helps each property run as efficiently as possible.
Added to this, Apple Hospitality makes it a point to reinvest money into its properties to make sure they are always top of the line. And while the majority of the properties are just 4 years old, Apple Hospitality is making a point to keeping them look brand new.
The Numbers Behind Apple Hospitality
Recently the company reported earnings per share of $0.51 which missed estimates by $0.01. Revenues also missed, this time by $4 million but the company did see an increase of revenues by 29%.
In fact, revenues have been growing at a healthy clip since Apple Hospitality merged with Apple REIT Ten in 2016.
Since Apple Hospitality is a REIT, it is required to pay out the majority of its income to shareholders. This results in a current dividend yield of over 6%. The bonus here is that this only a 70% payout ratio, so the company can easily increase dividends without issue for years to come.
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What Gives Apple Hospitality An Advantage?
While Apple Hospitality looks great on paper, we need to look at the areas where they have a competitive advantage over the competition.
This starts with reinvesting money back into its properties. Doing so allows for a higher profit margin, meaning every dollar of revenue is worth more to Apple Hospitality than other REITs. Additionally, this reinvestment results in lower volatility too. The company won’t have to undertake a massive amount of debt to complete major upgrades across its entire portfolio.
By consistently updating and upgrading its properties, revenue and income is more predictable over the long term.
Finally, while REITs are never immune to recessions, Apple Hospitality has put itself in a great position. When the economy is booming, most guests will opt for something nicer than a no-frills hotel. This is where Apple Hospitality comes in.
And when the economy sours, high end guests will skip the high end chain hotels and look for something nice but lower priced. Again, this is where Apple Hospitality comes in.
Apple Hospitality has a lot going for it. They have their business model down and are making smart decisions about reinvesting profits, property locations and the expansion of the business. Add the fact of a healthy and sustainable long term dividend and there is not a lot to dislike about the stock.
While the future is rosy for this REIT, they are not immune to recessions or other issues completely. Just like any other investment, there is risk involved. But I feel investing in this REIT is a risk worth taking.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.