Apple Hospitality: My Top REIT For Income With Attractive Yield

seekingalpha11-07

The US economy's strong performance and GDP growth suggest a positive outlook for REITs, presenting a good opportunity to invest in Apple Hospitality REIT for its 6.9% yield.APLE's portfolio of select...

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VeranoVerde/iStock via Getty Images  Introduction The US economy seems to have performed well in the third quarter, with the GDP growing at a rate of 2.8% and strong momentum entering the fourth quarter and 2025. The latest bond market also seems to suggest that the economy is very likely to expand because “recent yield increases reflect expectations of stronger economic growth.” While the latest pullback of the REIT market may puzzle investors, I view the pullback offering as a good opportunity to position/reposition my income portfolio with REIT exposures. Apple Hospitality REIT (NYSE:APLE) has come into my attention as a strong income play for high monthly dividend with 6.9% yield and a portfolio of highly profitable select-service hotels, which should do very well for a good economy moving forward. APLE Highlight - REIT portfolio for growing business APLE is a REIT that focuses on the hotel assets. The following is a good summary from its official site: a publicly traded real estate investment trust (\"REIT\") 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 224 hotels with more than 30,000 guest rooms located in 87 markets throughout 37 states and the District of Columbia. The following wide geographic coverage shows good diversification across 37 states and 87 markets. APLE Hospitality Portfolio - from APLE APLE is special because it operates highly profitable hotels called self-services hotel facilities, which are different from the full-services hotels, which typically come with all the amenities. The hotel and select services are often designed to serve business travelers with conference centers, pools, gyms, etc. The direct benefit is the relatively low maintenance and management cost. On the other hand, the room rates can be similar or even higher than full-service hotels. Apple Hospitality also has two major tenants with well-known brands, Marriott and Hilton, that help boost its strong operational expertise. APLE just released its Q3 report. I see a few encouraging signs of business recovery. Firstly, the total revenue ($378 million) for hotels, which is the main business, is up about 2% compared to 2023. The second is that leisure demand remains strong. My third finding is that there is occupancy uptrend within the months in Q3. The management indicated that there was a slightly down month in July, but up in August and September. The net result is \"bringing total weekday occupancy growth to 40 basis points for the quarter.\" Lastly, it is also interesting to notice that APLE has shown a sequential deceleration on the expenses. Hotel expenses increased by 2.7% year-over-year in the third quarter, lower than the second quarter (3.5%) and the first quarter (4.2%) of 2024. It is my opinion that the operations in 2024 has shown a continued business improvement from 2023. A resilient US economy should create a strong, supportive environment for Apple's Hotels, enabling further progress in its business growth. The following is a summary of the APLE market characteristics with some additional analysis.  Market Cap: $3.53B. APLE is one of the largest hotel REITs. Volume: 1,726,971 Dividend ('FWD'): 6.9%. It is monthly distributed. Volatility (52-Week HV): 22.9. The Volatility is relatively low compared to other REITs. Payout Ratio: 64.12%. A lower payout indicates the potentials for increasing dividends. Dividend Growth (3-year): 217.48%. A very strong dividend growth. Price/FFO ('FWD'): 9.18. It is lower than Sector Median 14.22. Revenue Growth (yoy): 5.72%. It is higher to sector average 4.06%. Institutional Ownership: 87.55%. APLE is popular among the institutions.  Great Income for Retirement Portfolio For income investors, high-income and low risk are two tenets for investment. High income is easy to understand and track. Low risk is probably the most difficult to comprehend; in fact, even the definition of the risk could vary based on the different investment strategies, such as non-diversification risk for portfolio, duration risk for fixed income, volatility risk for equity, etc. I believe REITs possess all of these and, as a result, can be difficult to manage. I have written and covered a few REIT funds in Seeking Alpha, and recommend a fund-based approach, so the risk management tasks can be offloaded. The main benefits are high yields (such as 6-7%) and managed risks, including a REIT portfolio with over 30 constituents and the fund management itself. However, the REIT CEFs, such as the ones I analyzed, tend to have high leverages which will cause big drawdowns when interest rates are high, and NAV discounts may be difficult to narrow. My other alternatives are the REIT subsector leaders with proven track records of running and managing its assets. I also prefer the monthly dividend payers with yields typically exceeding 6%. APLE is one of the top choices that fit the criteria very well with a yield of 6.9% and a 52-week Historical Volatility (HV) at 22.9, which is comparable to the REIT CEFs I have covered. The Hotel/Resort REITs in general expect to get strong tailwinds from the growing US economy. The Q3 2.8% growth on GDP and the future FED rate cuts are very positive factors for the REIT industries when I look forward into future quarters. I am also considering REIT companies in similar subsectors as the complimentary holdings for swapping trades and diversification purposes. VICI Properties (VICI) is a triple net lease REIT that owns one of the largest portfolios of casino and entertainment assets. I expect VICI to do very well with a strong economy moving forward. VICI pays nice dividends with a 5.3% yield, which is a little lower than APLE but still very attractive. On the other hand, VICI carries a Market Cap of $33B and offers a much bigger and safer portfolio base with a 52-week HV at 19.3. However, I actually use VICI for swapping trades to capture the (quarterly) dividend and manage the price volatility risk dynamically. Why Swapping/Trading is Important Swapping/trading is related to risk management for the income portfolio. Equity REITs are generally known for being volatile in the market because they are usually smaller companies and sensitive to interest rate changes. It may not be the perfect income investment for many investors. As mentioned earlier, I typically recommend REIT funds for collecting income. The funds will do the stock selection and risk management for investors. However, holding individual REITs such as APLE and VICI may also be very profitable investments, but investors have to manage the risk themselves. In what follows, I will share one of my practical approaches to handle my individual REIT investment. The pullback of the REIT market seems to suggest that there are still strong risk concerns in the real estate market. I have spent quite some time monitoring various risk factors affecting my individual investment holdings in the portfolio and debating the most effective approach for swapping the trade. Take VICI and APLE as an example. The following price comparison reveals that they may not always move in the same direction. This creates swapping windows if we can monitor and detect the trending differences (examples are shown in the blocks below). I actually compare 30-day historical volatility values of the two stocks to decide if a swapping is warranted. Such dynamic swapping trades will provide more stability and reduce the risk for my income portfolio because I could always hold the \"safer\" one.   APLE and VICI Price Behavior Study - from SA Notice that both REITs are income plays, meaning the performance gain may be limited. The long-term holdings for income seekers may not be driven by the performance gain. I think that the focus should be on the safety of the capital used to hold the (dividend) income generator. The main takeaway is that I will find multiple individual alternatives. The monthly dividend and solid performance will make APLE a main holder and VICI will be used for swapping based on the price behavior. I use 30-day HV to identify the price trends; there are many other technical indicators that can be monitored and used. I believe such monitoring and management activities are necessary for mediating the inherent volatility risk for some individual REIT investments. Closing Thoughts APLE is a strong REIT operating self-service room-based hotels. It has shown a strong growth track record in business. APLE pays an attractive monthly dividend with a 6.9% yield. I rate ABLE as BUY and recommend it as a core REIT holding for income investors who are interested in REIT exposures with the individual REIT companies and are able to self-manage their income portfolio. Although the current economic backdrop has been positive for REITs, interest rates and the real estate market have not been entirely risk-free. The resulting risk and volatility in the REIT stock market can be more effectively managed by tracking more leading REITs (such as VICI) in a similar industry with different services, and swapping as necessary based on price trending characteristics. Swapping can offer better risk management and reduce the volatility of the portfolio dynamically in my opinion.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481723950"}