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Subject:  Re: Opinions on APLE REIT Date:  9/22/2019  9:40 PM
Author:  Valuemongeragain Number:  85132 of 85594

"Now, tax accounting is different than GAAP,"

The tax depreciation period for most hotels is 39 years (the period for most commercial properties), but 27.5 years (residential period) for some hotels. The code specifies that if the average occupancy is more than 30 days then that hotel property gets to use 27.5 year depreciation as a residential property. Ever wonder why they put some condos into some hotels?

JimL questioned how many hotels expensed their frequent upgrades. In my opinion, most of such upgrades should be capitalized for GAAP purposes, but not use very long depreciation periods.

Where normally GAAP depreciation periods are longer than tax depreciation periods, hotels may be one period where the GAAP depreciation periods might should be shorter than what is allowed by the code for tax depreciation.

I have a theory that the concept of FFO & AFFO are only valid due to the appreciation of the underlying land that offsets the depreciation expense. I am not sure that the land appreciation fully offsets the depreciation expense of hotels once you consider the frequent "upgrades" that hotels often seem to require.

Hotels are not my favorite REIT sector and might be best bought near the bottom of the economic cycle. Today we are closer to the top of the economic cycle than we are to the bottom, so I would stay away from hotels.
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