No. of Recommendations: 1
This Seeking Alpha writer makes a case that certain hotels which cater more to extended stay customers did well in the last recession and might be worth consideration now. This REIT specializes in that type of holding. Currently has yield above 7%.

Any opinions or folks that own this company?


https://seekingalpha.com/article/4292446-apple-hospitality-r...


David
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No. of Recommendations: 3
Any real reason to expect growth? I'd like to see a path to 10% total return.

I can't understand how FFO could equal AFFO. he said they spend a lot to keep the hotels in good condition. I doubt that's all being expensed.

I suggest comparing to RLJ or its convertible preferred.
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No. of Recommendations: 12
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 low..in 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.

BruceM
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No. of Recommendations: 0
Thanks Jim and Bruce.

I'm looking at retiring in the next year and would like to generate a couple of thousand more a month in dividend income. Of course preservation of capital is also important but capital gains less so. The yield was tempting but you don't get 7% plus without risk as noted....

David
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No. of Recommendations: 7
"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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No. of Recommendations: 0
Look at ET preferred's. ETP-C,D,E. I haven't looked at it and have no idea. ET is a $35 B market cap MLP, so I guess preferred's should be okay.
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No. of Recommendations: 1
Kingran,

You wrote, Look at ET preferred's. ETP-C,D,E. I haven't looked at it and have no idea. ET is a $35 B market cap MLP, so I guess preferred's should be okay.

Just bear in mind that ET's preferreds are also considered to be partnership units, so they have the same kind of tax issues as the common. Even if you are willing to file all the various state returns required, you will at least want to avoid buying ET preferreds in a retirement account.

- Joel
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I thought generally preferred's are not treated as partnership units. Is this something special to ET?
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I thought generally preferred's are not treated as partnership units. Is this something special to ET?

Yes, that's my understanding also.

The way you can tell, I think, is there is no capital account recalculation on the annual K-1. Instead, the distribution is just treated as an interest-like expense, wherein you actually hold no partnership units. At least that's how I read it.

BruceM
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No. of Recommendations: 11
BruceCM,

Kingran wrote, I thought generally preferred's are not treated as partnership units. Is this something special to ET?

To which you replied, Yes, that's my understanding also.

The way you can tell, I think, is there is no capital account recalculation on the annual K-1. Instead, the distribution is just treated as an interest-like expense, wherein you actually hold no partnership units. At least that's how I read it.


I am 110% certain. I have very recent, very relevant experience informing my assertion. In 2018 I made the mistake of purchasing ETP-D in my 401(k) brokerage link account. Around tax time I received a K-1 and the K-1 distribution package in the name Microsoft 401(k) Trust, FBO Joel Corley. (I work for Microsoft, FWIW.) That's when I dug into the details and sold.

The prospectus clearly identifies the preferreds as partnership units - though it may have been unclear to me what the ramifications of that were at the time I made the purchase. However that is cleared up when you read the section on dividend distributions. A key difference is that the ETP-D's prospectus creates a contractual obligation to assign dividend payments from specific sources of income (or return of capital) ahead of the common. In fact it looked like all of ETP's preferreds have this feature.

My guess is that all publicly traded partnership have to issue preferreds in much the same way. Partnership or corporation, preferreds have to adhere to the tax rules associated with dividends distributed by the entity. And preferred stock is part of the capital structure. In fact preferred stock is considered part of the owners equity - even for corporations - so payments must comply with the tax rules for that entity - ie: a partnership. These rules are different for a corporation or trust.

It was close, but fortunately I hadn't been paid enough in dividends for it to become an issue. However Fidelity followed that forwarded K-1 up with a nasty notice telling me I had a week to liquidate the shares or they would do it for me. (They allowed this purchase in a retirement account but do not permit the purchase of many other preferred stocks! Idiots.)

- Joel
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It just so happened today I was talking about Satya to someone, because of his leadership, vision and purpose he brought to a big organization like MSFT and the innovation he unleashed all that resulting in share price tripling. Hope you got some of the benefit.
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No. of Recommendations: 4
Kingran,

You wrote, It just so happened today I was talking about Satya to someone, because of his leadership, vision and purpose he brought to a big organization like MSFT and the innovation he unleashed all that resulting in share price tripling. Hope you got some of the benefit.

My 7 year anniversary with Microsoft was last week, so yes I've seen some benefit. Compared to what I was used to, Microsoft's benefits are incredibly generous even if the base pay was similar.

Our 401(k) plan is the best I've ever seen. The base plan includes excellent options at very low expense ratios and if that doesn't do it for you the brokerage link option lets you buy anything Fidelity offers. The match is 50 cents for every dollar you contribute, no plan limit. Including the company match, this lets me set aside $62K/year in tax-advantaged savings. Add in the HSA and I've set aside $69K this year alone. Add to that excellent healthcare insurance, stock grants and ESPP and a sizable annual bonus and you can probably see why I like the benefits package.

As for Sathya's leadership, well I suppose I can give him credit for some of the rise in the stock price. Have I benefited from it? Hell yes. I still hold a few shares of my first ESPP purchase. They have a cost basis of $24.04 per share. That's something like a 479% unrealized gain. My average cost basis overall is just $51.73. Of course I've sold a lot of my MSFT to try to keep my MSFT allocation around 10% of invested assets, but it's still well north of a year's gross salary despite taking just 7 years to accumulate.

So yes, I suppose I have seen some benefit. :-)

- Joel
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