Ladenburg Thalmann Says Newly Merged Apple Hospitality REIT Could See Weakness Near Term

Apple Hospitality completed its merger with Apple REIT 10 (AR-10) and simultaneously lowered its 2016 RevPAR growth guidance by 100bps at the midpoint. The brokerage noted that sentiment among REIT investors toward the lodging space is broadly negative.

Apple Hospitality cut its RevPAR forecast to 2-4 percent from 3–5 percent. Further, AR-10's first half RevPAR growth was about 2 percent versus the 4.5 percent growth of the pre-merger company.

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Moreover, the brokerage suspects that the lower RevPAR growth range was also a result of management tempering their expectations for the second half of 2016.

"Given that this steep growth reversal seems too punitive for the AR-10 portfolio, we believe APLE's reduced outlook for RevPAR was likely driven by August coming in weaker than expected and fall not looking so hot either," analyst Daniel Donlan wrote in a note.

n the positive side, Apple Hospitality also introduced new adjusted EBITDA guidance of $370 million–$390 million, which is $30 million above the prior guidance midpoint and includes merger impact. However, the new guidance midpoint was $19.0 million above 2016 consensus of $361.0 million and $10.1 million above brokerage's $369.9 million estimate.

"We reiterate our SELL rating, but note that APLE's 6.3 percent dividend yield could keep some income- starved retail investors from acting too rashly in the coming days/weeks," analyst Donlan added.

At the time of writing, shares of Apple Hospitality fell 1.53 percent to $18.65.

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