Apple Hospitality REIT (APLE) has started 2023 on the right foot, with improving operational and financial metrics across its upscale hotel portfolio.
As travel demand rebounds, this high-yield stock offers investors Exposure to premium hotel brands generating higher rates and margins.
A Focus on High-End Hotels Fuels Outperformance
Apple Hospitality owns a geographically diverse portfolio of hotels across the United States, with a focus on upscale brands like Hilton and Marriott. This strategic positioning in the higher-end of the market has fueled outperformance as travel activity accelerates.
While broader economic uncertainty persists, APLE’s mix of premium hotels has proven more resilient. Business and leisure travelers continue to prioritize these best-in-class accommodations.
Compared to economy hotels, APLE’s portfolio generates higher average daily rates (ADR) and revenue per available room (RevPAR).
So far in 2023, occupancy, ADR, RevPAR, and revenue have all trended significantly above 2022 levels and near pre-pandemic metrics. This recovery is driving substantial growth in net income and adjusted funds from operations (AFFO).
Strategic Expansions Strengthen Market Position
Beyond its existing portfolio, Apple Hospitality continues using its strong balance sheet to acquire assets in attractive markets. These new hotels expand their presence in areas drawing increased visitation.
Most recently, APLE acquired a 192-room Hilton Embassy Suites Hotel in Salt Lake City’s tech hub for $36.8 million. This follows other recent purchases in Charleston, SC, Fort Myers, FL, and other high-growth Sun Belt cities.
The development pipeline also remains active, with several new hotels under construction carrying premium brand flags. These organic expansions will further boost APLE’s market share in areas exhibiting solid demand trends.
Healthy Performance Fuels Growing Distributions
Apple Hospitality’s improving operating performance has translated into higher distributions for shareholders. The board recently declared a monthly dividend of $0.08 per share, plus a special dividend of $0.05 per share this January.
This brings the forward dividend yield to a very attractive 5.67%. While broader REIT yields have climbed with interest rates, APLE continues trading at a premium 459 basis point spread over the sector average.
With a low payout ratio near 60% of AFFO, the current dividend remains very safe. As profitability expands, APLE has plenty of cushion to keep increasing the monthly dividend.
Upside Potential for the Shares
So far in 2023, Apple Hospitality REIT has outperformed the broader market, with shares rising nearly 10% year-to-date. However, the stock still lags its pre-pandemic levels.
The average analyst price target of $18.33 represents additional upside of 8.3% from current levels. Wall Street anticipates 4-5% annual FFO and revenue growth in 2023-2024, indicating the operating momentum will continue.
While not cheap at 15x forward AFFO, APLE continues trading at a discount to lodging REIT peers. With a strong growth outlook, there’s room for multiple expansion in the years ahead.
Out of eight analysts covering the stock, four rate APLE a “Strong Buy” and four say “Hold.” Certainly the macroeconomic risks call for prudence, but the positives appear to outweigh any near-term turbulence.
Take the Upgrade to Apple Hospitality
For investors seeking high, recurring income, Apple Hospitality checks all the boxes. The company has carved out a strategic niche in premium hotel brands supported by loyal business and leisure travelers.
As the travel recovery gains steam, look for APLE to continue seeing surging occupancy, rates, and profits. Led by a veteran management team, Apple Hospitality remains well-positioned to drive growth through acquisitions, development, and operational excellence.
The attractive high yield, reasonable valuation, and upside potential give this hotel REIT investment appeal. In an uncertain market, APLE offers exposure to defensive real estate driving reliable income.