PEB - A Case Study On Leverage In Cyclical Sectors: Apple Hospitality
2024-02-06 07:40:44 ET
Summary
- Hotel revenues have recovered from the pandemic but hotel REITs remain below pre-pandemic levels.
- The failure of hotel REITs to recover is due to the interaction between leverage and cyclicality.
- Apple Hospitality has fully recovered due to its low leverage and conservative balance sheet.
A sound understanding of the interaction between leverage and sector cyclicality provides insight into the hotel sector. This article will look at Apple Hospitality ( APLE ) as a case study on this interaction, and after discussing the concept, we will use it to point out clear mispricing in the sector.
Recovered, but not really
Hotel revenues have entirely recovered from the pandemic and are now hitting record highs. On January 18 th Smith Travel Research reported :
A Case Study On Leverage In Cyclical Sectors: Apple Hospitality“The U.S. hotel industry posted its highest average daily rate ((ADR)) and revenue per available room (RevPAR) on record, according to 2023 data”