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Subject:  Re: Opinions on APLE REIT Date:  9/21/2019  2:19 PM
Author:  BruceCM Number:  85130 of 85593

I'm not interested in adding any additional REITs (commons and preferreds) to my current holding of 25, and I'm particularly not interested in leisure REITs, which tend to be quite sensitive to recessions.

But for fun, I downloaded 22Q of CF and historic dividend data and took a look.

The dividend has not grown from $.10/month since it was formed by the merger ("liquidity event") of APLE and the unlisted REIT Apple Ten, Sept 2016. Prior to that, APLE's dividend had progressively declined from 2008 $1.76 to $1.27 in 2015, with a $1.50 dividend of LTCG in 2012. This is not exactly confidence inspiring, as we were coming out of a recession, not going into one.

The CF data going back to 1Q14 show problems. APLE had a dividend to CFFO payout ratio consistently in the 90% range, which has gradually improved to just under 70% today.

Revenue and CFFO per share improved up to 4Q period ending 3Q17 and has shown little change since.

What is unique about this REIT is the interest expense, which has consistently remained in the 10% - 12% of interest expense to [CFFO + Interest]. This is very fact, probably the lowest of any REIT I've ever looked at and comperable to PSA, whose low interest expense is due to their extensive use of preferred stock. From my look, APLE has no preferreds. Apparently, they also have no non-controlling interests. It appears they have financed all growth through issuance of equity.

Their 1099-DIV for 2018 shows 16% of dividend is return of capital. Now, tax accounting is different than GAAP, but its usually a pretty good indicator of financial health. 100% ordinary income suggests the company has strong earnings. The higher the % of the dividend that is capital gains and return of capital suggest unhealthy. A long flat dividend, small fluctuation in Revenue and CFFO per share suggest a continued flat dividend. But the low payout ratio, low interest expense and the % of its investing activities covered with operational cash, which has varied from 49% - 131%, using rolling 4Qs, since the merger, are indeed healthy signs and certainly suggest the company could raise the dividend.

The 7.3% yield is tempting. But I remind myself, leisure REITs are going to find the bottom first in a recession....and that may be the reason for his kind of yield with these kinds of CF numbers.

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