Updated on August 22nd, 2024 by Bob Ciura
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:
Apple Hospitality has a 6.7% dividend yield, which represents a high yield. The high current yield, along with the monthly dividend payouts, make APLE an appealing stock for income investors.
This article will discuss this REIT in greater detail.
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.
As of June 30th, 2024, Apple Hospitality owned 224 hotels encompassing over 30,000 guest rooms, located in 37 states and the District of Columbia.
APLE’s hotel portfolio consists of 100 Marriott-branded hotels, 119 Hilton-branded hotels and five Hyatt-branded hotels.
Source: Investor Presentation
On August 5th, APLE reported second-quarter results. Adjusted funds-from-operation (FFO) rose 2% to $0.50 per share, compared with the same quarter last year. Comparable hotels occupancy was 80% during the quarter.
APLE reported comparable hotels adjusted hotel EBITDA of approximately $152 million, a 1.5% improvement over second quarter 2023. Comparable hotels RevPAR was $130, an increase of 2.5% over second quarter 2023.
Comparable hotels adjusted hotel EBITDA margin was approximately 39% for the quarter, down 50 basis points from the same quarter last year.
Growth Prospects
Since it first began reporting FFO/share in its annual reports (2011), Apple Hospitality initially generated very impressive annualized FFO/share growth thanks to its growing scale (due in large part to a merger in 2015), effective and efficient business model, and strong economic tailwinds in the United States during that period.
However, this growth rate has slowed dramatically recently, largely due to the Covid-19 outbreak and an accompanying downturn in the hotel industry that was further accelerated by the rise of companies like AirBnB.
Still, we expect growth to resume in the years ahead. Specifically, we forecast 2.4% compound annual growth of FFO-per-share over the next five years.
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, through the first seven months of 2024, APLE sold three hotels for a combined sales price of approximately $41 million, and purchased two hotels for a combined purchase price of approximately $196 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.
Lastly, stock buybacks will boost per-share FFO growth. Through July, APLE repurchased 1.6 million of its common shares for an aggregate purchase price of approximately $23 million.
More locations 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. The stock pays its dividend monthly, which is attractive to many income 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 resumed the dividend. Starting March 2022, the company is now paying its dividend monthly at $0.05 per share. APLE currently pays a $0.08 monthly dividend, which equates to $0.96 per share annually.
The company’s healthy balance sheet helps support the dividend. APLE has some of the lowest debt-to-equity in the sector and plenty of liquidity along with a well-laddered debt maturity profile.
With an expected 2024 dividend payout ratio of approximately 60% in terms of FFO, we view the dividend as secure, although a steep recession would put the dividend at risk.
Apple does not have a recorded history as a public trust during a typical recession, therefore it is hard to judge its
recession resilience, other than to compare it to hotel REITs.
Typically, during a recessionary period, hotel REITs experience significant losses of income. Therefore, Apple is likely not very recession resistant.
However, its concentration in strong brand names, excellent locations, strong balance sheet, franchising model, and emphasis on value should enable it to outperform its peers in a recession.
Final Thoughts
Apple Hospitality is one of the strongest players in the hotel sector due to its strong brand power, healthy balance sheet, and high-quality assets. The company has the potential to start increasing its dividend now that the COVID-19 pandemic is in the past.
The dividend payout ratio is relatively low, and AFFO per share is expected to grow over the next five years. Overall, we think that it makes for an attractive buy right now.
Don’t miss the resources below for more monthly dividend stock investing research.
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Cheapest Monthly Dividend Stocks
- 10 Safest Monthly Dividend Stocks
- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 5%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more