Shares of hotel-focused real estate investment trust Apple Hospitality REIT (APLE 1.16%) rose sharply at the start of trading on Wednesday. Early gains peaked at around 11%, with the stock falling back to a roughly 6% advance by 11 a.m. EDT. There was no specific news out of the company, so investors are likely focusing on the big picture.
The effort to contain the spread of COVID-19 involves social distancing and the shutting of nonessential businesses. The U.S. economy came to a screeching halt. Hotels, even if they kept their doors open to guests, were effectively shut down as people chose to stay home, large events were canceled, and businesses curtailed travel. Apple was no different from any other hotel owner here, noting in its first-quarter 2020 earnings release that occupancy fell from 76% at the end of February to less than 20% by the end of March. Apple stopped paying its monthly dividend in March.
But things change fast these days, and investors are starting to warm up to the idea that the worst may be over for hotel operators like Apple. In fact, an upbeat article appeared in today's edition of The Wall Street Journal, which likely helped improve investors' outlook for the hotel space. The Journal noted that occupancy levels at hotels tracked by industry watcher STR were at their highest levels in nine weeks. Although the average, roughly 33%, was still well below levels seen prior to the economic shutdown, the data suggests that people are indeed starting to use hotels again. That is a positive sign for Apple and its hotel REIT peers.
There is a long way to go before hotel REITs like Apple are seeing anywhere near normal business levels. And it goes beyond just occupancy; STR also noted that average room rates were nearly 75% below year-ago levels. Yes, there are solid signs that the worst is over, but a full recovery still appears to be a long way off. In fact, most investors would probably be better off sitting on the sidelines until more-material progress has been made.