After terrible performances in 2022, real estate investment trusts (REITs) that own and operate hotels and resorts have been making a solid comeback. Over the past month, 9 of 11 hotel REITs have increased share prices, and all 11 have risen 4% or more in just the last five trading days.
But with 11 hotel REITs to choose from, which one should an investor lean toward for a possible purchase? Take a look at two of the most popular hotel REITs to see which one is a better buy right now:
Host Hotels and Resorts Inc. HST is a Bethesda, Maryland-based hotel REIT that calls itself “the world’s largest lodging REIT.” It’s an S&P 500 company that owns and operates 42,300 rooms in 73 hotels in 20 of the largest markets across the U.S. and another five hotels in Canada and Brazil. It was formed in 1993 and has a market capitalization of $12.63 billion.
Host Hotels and Resorts’ portfolio includes well-known names such as Marriott, Hilton, Sheraton and Hyatt. Many of its properties are upscale in central business districts that are conveniently located near airports.
Apple Hospitality REIT Inc. APLE is a Richmond, Virginia-based hotel REIT, formed in 2007. It has a portfolio of approximately 29,000 rooms in 220 hotels in 87 markets across 37 states. Its portfolio includes 96 Marriott, 119 Hilton and four Hyatt hotels and one independent hotel. It has a market capitalization of $3.84 billion.
Size and Diversity
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Despite Apple Hospitality owning more hotels, give a slight edge to Host Hotels and Resorts in this category. It has been in business longer, operates more rooms, has a much larger capitalization and has the diversity of owning international properties.
Performance Over Time
Since 2015, Host Hotels and Resorts’ total return is 7.48%, while Apple Hospitality has a much greater total return of 29.63%. Since the COVID-19 low of March 16, 2020, Host Hotels has a total return of 88.57%, while Apple Hospitality’s total return is 149.57%.
Over the last three months, Host Hotels and Resorts has had a total return of 0.45%, and Apple Hospitality had a total return of 6.15%. Apple Hospitality is the clear winner in this category, for both short- and long-term performance.
Host Hotels and Resorts pays a quarterly dividend of $0.12 per share, or $0.48 per share annually, for a present yield of 2.7%. Apple Hospitality pays a monthly dividend of $0.08 per share, or $0.96 per share annually, for a present yield of 5.7%. Host Hotels recently paid a bonus dividend of $0.20 per share, while Apple Hospitality paid a bonus dividend of $0.08 per share.
Apple Hospitality’s yield is significantly higher and it pays out monthly, so give this category to Apple Hospitality.
Dividend Growth and Stability
Host Hotels and Resorts cut its $0.20 per share quarterly dividend to $0.03 per share in March 2020, paid no dividends until March 2022 and has been trying to grow its dividend back since then. But the dividend is still 40% below pre-COVID-19 levels.
Apple Hospitality cut its $0.10 per share monthly dividend to $0.01 per share in March 2021, but has since raised it several times and is now only 20% below its pre-COVID-19 level.
Although the dividend growth and stability of both companies is not good, Apple Hospitality’s is still better so it prevails in this category as well.
Dividend Coverage by FFO
Host Hotels and Resorts has forward funds from operation (FFO) of $1.78 and an annual dividend of $0.48, for a payout ratio of 26.9%. Apple Hospitality has a forward FFO of $1.54 which covers the $0.96 dividend with a 62% payout ratio.
No contest here – Host Hotels is clearly superior in FFO dividend coverage.
Host Hotels and Resorts has an FFO multiple of 9.77, while Apple Hospitality has an FFO multiple of 10.89. It’s only a slight difference, but Host Hotels gets the better of this category.
Host Hotels and Resorts has debt of $4.78 billion and a total debt-to-equity ratio of 68.52. Apple Hospitality has debt of $1.43 billion and a debt-to-equity ratio of 43.97. Score this category in favor of Apple Hospitality.
Most Recent Operating Results
Host Hotels and Resorts had revenue of $1.19 billion in third-quarter operating results, up 40.88% from the third quarter of 2021, and FFO of $0.38, up 36% from $0.20 in the third quarter of 2021, but missed analyst expectations by $0.01.
Apple Hospitality’s third-quarter revenue of $341.15 million was 23.09% ahead of the third quarter of 2021. Its FFO of $0.45 was 36.3% better than the $0.33 FFO in the third quarter of 2021 and a penny better than analyst estimates.
Both REITs had improved third quarters from the third quarter of 2021. Host Hotels and Resorts improved its revenue by a higher percentage than Apple Hospitality, but the latter’s FFO percentage increase was slightly higher, albeit by a fraction. Additionally, Apple Hospitality’s FFO beat analysts’ expectations by a penny while Host Hotels and Resorts missed Wall Street estimates by a penny.
Third-quarter operating results are close so it’s best to call this category a draw.
Host Hotels outperformed Apple Hospitality in size and diversity, dividend coverage by FFO and FFO multiple. Apple Hospitality won the categories of performance over time, dividend yield, dividend growth and stability and debt ratio. The REITs’ most recent operating results were basically a draw.
While both of these hotel REITs could greatly outperform 2022 results, Apple Hospitality seems to be a slightly better choice. Its monthly dividend payout and yield, better dividend growth and superior performance over time are hard factors to ignore.
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