Apple Hospitality REIT Inc Aktie

Greetings. Welcome to Apple Hospitality REIT First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to Kelly Clarke, Vice President, Investor Relations. Thank you. You may begin.

Good morning, and welcome to Apple Hospitality REIT's First Quarter 2026 Earnings Call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon.

Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2025 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the first quarter 2026 and an operational outlook for the remainder of the year. Unless otherwise stated, all changes in performance metrics refer to year-over-year changes for the comparable period. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our first quarter 2026 earnings call. We are pleased to report a strong start to the year with comparable hotels RevPAR growth of more than 2% despite challenging year-over-year comparisons to the first quarter of 2025. Underscoring the strength of the quarter, approximately 2/3 of our hotels delivered RevPAR growth. And on a same-store basis, RevPAR grew nearly 3% with margin expansion. The efficient operating model of our hotels, combined with our prudent management of expenses, enabled us to deliver meaningful flow-through of top line improvements to bottom line performance, resulting in growth across comparable hotels adjusted hotel EBITDA, adjusted EBITDAre and modified funds from operations.

Demand momentum has continued into the second quarter. Preliminary reports for the month of April indicate comparable hotels RevPAR growth of over 4%, supported by continued strength in demand and the benefit of favorable year-over-year comparisons related to the negative effects of DOGE, Liberation Day and the resulting general macroeconomic uncertainty.

While the ongoing conflict in the Middle East and its effects on global energy markets adds to an uncertain geopolitical and economic backdrop, our broadly diversified rooms-focused portfolio continues to demonstrate demand resilience. Improving occupancy and forward booking trends give us confidence heading into the summer months.

Reflecting our year-to-date outperformance, we are raising our full year RevPAR guidance 100 basis points to 1% at the midpoint. The revised range maintains a measured view of the year ahead, and we believe it could ultimately prove conservative. Transient demand has been stronger than anticipated. Early summer performance may benefit from incremental leisure travel tied to the FIFA World Cup, and we are beginning to lap periods negatively affected by reduced government spending, tariff-related disruption and last year's government shutdown. Taken together, these factors represent potential upside not fully reflected in our updated outlook.

Disciplined capital allocation has been central to our success over decades in the lodging industry. We prudently balance near- and long-term investment decisions to capitalize on current opportunities while positioning for the future. Over time, this approach is designed to deliver compelling total returns to our shareholders through durable earnings growth and long-term capital appreciation.

In April of this year, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sales price represents a 5% cap rate or 14.5x EBITDA multiple before CapEx and a 4% cap rate or 19.6x EBITDA multiple after taking into consideration an estimated $3 million in anticipated capital improvements. We continue to see opportunity to selectively prune our portfolio through transactions that enable us to reinvest proceeds in ways that enhance returns for our shareholders.

Recent acquisitions have performed well despite headwinds in several markets. The Embassy Suites in Madison, Wisconsin saw meaningful improvement as the hotel completed its first full year of operations. The AC Hotel in Washington, D.C., also acquired in 2024, produced full year 2025 RevPAR of $205 and a 43% house profit margin, solid results given the meaningful pullback in government travel and weaker convention calendar last year.

The Nashville Motto, which recently received Hilton's New Build of the Year Award for the Motto brand, continues to ramp well with average RevPAR approaching $200 over recent weeks. And the Homewood Suites Tampa-Brandon acquired last year continues to produce strong yields in advance of a full renovation and repositioning planned this summer.

Turning to out-year commitments. We continue to have forward contracts for 2 projects in early stages of development, an AC in Anchorage, Alaska and a dual brand AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas. The AC in Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the Las Vegas project. The dual brand AC and Residence Inn are currently expected to be completed in the second quarter of 2028.

The current transaction environment does not yet support accretive opportunities relative to our cost of capital, and we do not currently have any agreements for acquisitions in 2026. Consistent with our disciplined approach, we remain actively engaged in the transaction market, evaluating potential hotel acquisitions relative to other uses of capital with a focus on maximizing long-term value for our shareholders. As we have continuously demonstrated over the years, the flexibility of our balance sheet and our reputation for strong execution puts us in a position to act quickly when market conditions shift to be more favorable.

We also continue to strategically reinvest in our portfolio, ensuring that our hotels remain competitive within their respective markets and maintain a strong value proposition for our guests. For the full year, we expect to reinvest between $80 million and $90 million, including major renovations planned at 21 hotels. The scale of our portfolio, efficient design of our rooms-focused hotels and our experienced in-house project management team enable us to maintain our assets with average annual CapEx spend of approximately 6% of revenues, significantly lower than full-service portfolios.

Combined with stronger operating margins, this efficiency translates into substantial free cash flow from operations, which we use to fund shareholder distributions and strategic investments. For the quarter, capital expenditures totaled approximately $27.5 million.

Supported by strong cash flow from our diverse portfolio of hotels, we continue to return capital to shareholders through attractive monthly distributions, which contribute to total returns. During the first quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.2%. Together with our Board of Directors, we will continue to evaluate these distributions in the context of portfolio performance, capital needs and other accretive opportunities to create long-term shareholder value.

Throughout our 26-year history in the lodging industry, we have refined our strategy with intention. We invest in high-quality of hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets and demand generators. We maintain a strong and flexible balance sheet with low leverage. We reinvest strategically in our portfolio, and we work closely with the experienced management teams who operate our hotels. We own one of the largest, most diverse portfolios of upscale rooms-focused hotels in the United States, 216 hotels with almost 30,000 guest rooms diversified across 83 markets in 37 states and the District of Columbia.

Travel demand for our portfolio has remained resilient with meaningful growth in recent months, reinforcing the merits of our strategy. We continue to believe that historically low supply growth from new hotel construction in our markets materially reduces the overall risk profile of our portfolio, limits potential downside and enhances potential upside. At quarter end, 57% of our hotels did not have any new upper upscale or upper mid-scale product under construction within a 5-mile radius.

We have confidence in the outlook for the hospitality industry and in the strength and positioning of our portfolio. As we look ahead, we will continue to focus on the things within our control, operational execution, disciplined capital allocation and an uncompromising commitment to integrity. Above all, we are committed to creating lasting value for our shareholders.

It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year.

Thank you, Justin, and good morning. The first quarter was a strong start to the year with our portfolio demonstrating the durability of our operating model. We are especially pleased with our performance relative to initial expectations that Q1 would be our weakest quarter in the year. With a strong finish to February and acceleration into March, we ended the quarter with RevPAR growth exceeding the high end of our initial full year guidance range.

For the quarter, comparable hotels RevPAR was $115, up 2.2%. ADR was $157, up 0.1% and occupancy was 73%, an increase of 2.1%. Performance improved as we moved through the quarter. In January, comparable hotels RevPAR was down 1.6%, reflecting a challenging comparison to the same period last year, nearly half of which was attributable to wildfire-related recovery business in early 2025.

Excluding our California hotels that saw benefit, first quarter RevPAR grew 3%. In February, comparable hotels RevPAR increased by 1.5%, supported by strengthening business and leisure demand despite some weather disruption. March performance was particularly noteworthy with comparable hotels RevPAR growth of 5.8%, well ahead of expectations and indicative of broad-based demand strength across the portfolio, extending beyond the early effects of policy-driven demand headwinds experienced last year.

For the quarter, comparable hotels total revenue was up 4.3% to $337 million, supported by continued strength in other revenues, which were up 10%. The efficient operating models in our hotels, combined with disciplined expense management, drove strong flow-through from top line growth to bottom line results. For the quarter, we delivered comparable hotels adjusted hotel EBITDA of $108 million, up 3.6%, and an adjusted hotel EBITDA margin of 32.2%, a reduction of just 20 basis points.

Results reflect the ongoing ramp of our recently opened Motto Nashville Downtown and the seasonal impact of Hotel 57, both of which weighed on overall comparable hotels results. On a same-store basis, which excludes the impact of the Motto Nashville Downtown, the transition of Hotel 57 and our recently acquired Homewood Suites Tampa-Brandon, RevPAR grew by 2.8% for the quarter. Same-store total revenue grew 3.1%, supported by continued strength in non-room revenues, which grew 6% in the quarter. Strong top line growth, combined with disciplined cost management, drove same-store adjusted hotel EBITDA growth of 4.2% and 30 basis points of adjusted hotel EBITDA margin expansion.

These bottom line results are especially encouraging given the ADR headwinds we faced during the quarter and the disruption and transition expenses associated with converting our Marriott-managed hotels to franchise. As we move into seasonally higher occupancy months, stabilize recently transitioned hotels and see greater contribution from rate growth, we would expect even stronger flow-through to the bottom line.

As highlighted in January, we completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party management companies who, in most instances, were already operating hotels for us in market, enabling us to realize incremental operational synergies.

While still early, we are encouraged by the initial results and remain confident these transitions, together with a select number of additional market-level management consolidations, will further drive operating performance for our portfolio. The transition also provides us with additional flexibility and enhances the marketability of these hotels as we evaluate select dispositions in the future.

The broad-based strength across our portfolio was noteworthy during the quarter. As Justin highlighted, approximately 2/3 of our hotels delivered RevPAR growth year-over-year despite several markets having challenging comparisons, including wildfire-related recovery business benefiting our California hotels in early 2025 and the inauguration in D.C. This reflects both the diversification of our portfolio and our team's continued focus on hotel and market level execution.

Several of our markets stood out as top RevPAR performers in the quarter. Pittsburgh grew 23%, benefiting from multiple sporting events and a strong convention calendar. Alaska grew 21%, driven by strong leisure demand in market, further aided by incremental crew business. Seattle grew 18% with the return of Boeing production business and additional project-related business at a nearby shipyard. Palm Beach grew 16%, continuing to flourish with both strong leisure and business transient demand. And Memphis grew 14%, capturing incremental medical personnel and airline crew business amid increased government demand in market.

Based on preliminary results for the month of April, comparable hotels RevPAR increased by over 4%. Despite the ongoing benefit in 2025 from the wildfire recovery business in Southern California, we continue to see broad demand strength across our portfolio and additionally benefited from favorable comparisons over a challenging April 2025, which experienced disruption from government policy-related announcements.

Turning back to the first quarter, weekday occupancy was up 170 basis points and weekend occupancy was up 270 basis points. Weekday occupancy followed the same monthly pattern as overall results, down 200 basis points in January, up 200 basis points in February and up over 400 basis points in March. Weekend occupancy was positive throughout the quarter, up 100 basis points in January, 200 basis points in February and nearly 500 basis points in March.

ADR trends also strengthened as we moved through the quarter. After negative ADR growth in January and February, weekday ADR turned positive in March, up 1.4%, finishing the quarter up 30 basis points. Weekend ADR was up 3.5% in March and up 70 basis points for the quarter, a meaningful positive inflection that contributed to the broader RevPAR gains. Excluding our L.A. and D.C. markets, which faced challenging comparisons year-over-year related to wildfire recovery and inauguration business, both weekday and weekend ADR grew over 1% for the quarter, indicative of our ability to drive rate growth alongside occupancy in our portfolio.

Looking at same-store room night channel mix, the quarter illustrated improvement in transient trends. Brand.com remained our largest channel at 39% of room nights, up 40 basis points year-over-year, while OTA bookings were up 170 basis points to 13% of mix. Property direct declined 90 basis points to 26% and GDS bookings declined 90 basis points to 18%.

Turning to segmentation. Transient trends improved each month, while group business remained strong and provided a strong base that helped us grow overall occupancy. Bar led the way with impressive room night growth, particularly in February and March, growing 120 basis points to 34% of our occupancy mix in the first quarter. Other discounts were more steady, declining 50 basis points to 27% of mix. Corporate and local negotiated declined 130 basis points to 17% of mix, but showed steady improvement throughout the quarter and contributed to overall March results. Government grew 20 basis points to 6% of mix, largely driven by comparisons to disruptions in March 2025. Group business mix improved 30 basis points to 17%.

Turning to expenses. Same-store hotels total hotel expenses grew 2.6% in the quarter, down slightly to last year on a CPOR basis. Expense discipline was a meaningful contributor to our margin performance in the quarter. Same-store variable hotel expense per occupied room grew just 0.3% year-over-year. Total payroll per occupied room was $43, up just 1%. We also continue to see reduced reliance on contract labor, which fell to under 7% of total same-store wages, a decline of 80 basis points or 7% year-over-year.

Non-payroll variable expenses declined 10 basis points on a per occupied room basis and fixed same-store hotel expenses declined 1.5%, driven by a favorable property insurance comparison and property tax appeals. For the quarter, we achieved adjusted EBITDAre of approximately $101 million, up 2.2%, and MFFO of approximately $80 million or $0.34 per share, up 1.9% and 3%, respectively.

Turning to our balance sheet. As of March 31, 2026, we had approximately $1.6 billion of total debt outstanding, approximately 3.4x our trailing 12-month EBITDA with a weighted average interest rate of 4.6% and a weighted average maturity of approximately 3 years. At quarter end, approximately 63% of our total debt was fixed or hedged. We had approximately $8 million of cash on hand and $559 million of availability under our revolving credit facility, providing meaningful liquidity. At the end of the first quarter, we had 207 unencumbered hotels in our portfolio.

Conversations are ongoing with our unsecured lenders regarding the scheduled debt maturities for this year, and we are confident we are well positioned to address those maturities on attractive terms.

Building on our strong first quarter, we are raising our full year outlook. Consistent with the measured approach we took when we initiated guidance, we have continued to be thoughtful in our expectations for the balance of the year, recognizing the economic and geopolitical uncertainty in the broader environment while remaining confident in the underlying strength of our portfolio.

For the full year, we expect net income to be between $143 million and $169 million, comparable hotels RevPAR change to be between 0% and 2%, comparable hotels adjusted hotel EBITDA margin to be between 32.9% and 33.9% and adjusted EBITDAre to be between $436 million and $458 million.

We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis. We remain confident in our operating model and the ability to manage expenses and are pleased to share we achieved a favorable property insurance renewal last month, which will generate incremental monthly savings compared to our initial expectations.

As a reminder, effective January 1, 2026, the company began excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation as it represents a noncash transaction and the add back to net income is consistent with the calculation of adjusted EBITDA for the company's financial covenant ratios under its credit facilities and consistent with the presentation of other public lodging REITs.

Demand for our broadly diversified rooms-focused hotels have proven resilient. With recent stronger-than-anticipated transient demand, early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements and the government shutdown in 2025, we acknowledge that our revised guidance could continue to prove conservative. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions.

Recent improvements in occupancy and booking trends highlight the resiliency of travel demand overall and the strength of demand for our hotels specifically. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future.

We are confident with the experience, discipline and agility of our teams, the broad consumer appeal of our portfolio and the strength and flexibility of our balance sheet. We are well positioned to successfully navigate changing market conditions and capitalize on emerging opportunities to deliver growth and maximize total returns for shareholders over time.

That concludes our prepared remarks, and we'll now open the call for questions.

[Operator Instructions] Our first question is from Austin Wurschmidt with KeyBanc Capital Markets.

It's Josh on for Austin. So to the extent that you do see more ADR growth moving forward, does the margin guidance assume RevPAR growth is driven entirely by occupancy? Or is it a composition of the 2? And if it was entirely driven by ADR, what would that imply for flow-through?

That's a good question. And I think generally as we think about guidance, we are looking at the most recent trends and speaking to the impact of ADR headwinds from last year impacting our margin performance in the quarter. And as we lap those comps from last year, specifically related to the L.A. wildfires, we anticipate we'll be able to drive more rate. That is not entirely built into the guide. When we look to revise guidance for Q1, we, given how close in proximity it was to when we reported at year-end and the fact that we're still early in the year, took a more measured approach and really, for the most part, exclusively incorporated the outperformance of Q1 and some improvement in April as well.

And so the balance between occupancy and ADR for the remainder of the year as far as guidance goes at the midpoint is still a split, very similar to what we had anticipated at the beginning of the year. But should trends continue and should we continue to see more broad-based demand improvement, we do anticipate, as we lap those comps, an ability to drive rate as we've demonstrated if you exclude those comparisons from even actual results through Q1 and into April.

Okay. That's really helpful. And then my second question is around the price sensitivity around the consumer. So I guess what are you seeing from that perspective? And then with the macro risks that are currently out there, what could a potential impact on the consumer look like from a demand perspective within your portfolio? Or I guess more broadly, like what are the possible scenarios that you consider at the low end of guidance? And I'd also be curious to know the flip side of that around what you assumed at the high end. And that's all for me.

Sure. We are not currently seeing significant price sensitivity with our customers. As Liz highlighted in her prepared remarks, as we move through the quarter, we were able to grow both occupancy and rate. And the primary weight on overall ADR growth for the portfolio was the year-over-year comps with both the inauguration, which is a high rate event in D.C., and wildfires, which drove rates in the L.A. area.

I think as we look forward to the remainder of the year, as Liz highlighted, we've taken a very conservative approach to guidance for the remainder of the year. And really, what's implied there is very limited growth either in occupancy or in rate. And we recognize that, that is counter to our most recent experience and likely conservative. As we think about how things play out for the remainder of the year, we will be moving shortly into higher occupancy months and anticipate that growth during those months will come increasingly from rate, which will drive incremental margins. And really given the price point for our hotels and perceived value associated with them, we don't anticipate absent a meaningful pullback in demand, broadly speaking, any challenges related to our ability to drive rate on the margin.

Our next question is from Jay Kornreich with Cantor Fitzgerald.

You're referencing a lot about how guidance could be conservative, and you mentioned some of the additional components of lapping the easier government demand comps from last year as well as tariffs in addition to some of the potential upside from the World Cup leisure demand. So I guess in those specific areas, I wonder if you could just unpack those a bit more in terms of, I guess, what your potential upside could be from those? And within the government demand, I think that was really your main headwind last year. So as that came back strongly in 1Q, do you see that continuing to be strong throughout the year?

We're certainly encouraged by the improvement in government demand that we've seen as we lapped the most or the earliest comps from last year from the impact of DOGE and Liberation Day. So we are hopeful that we'll see that continue. Remembering too that as we move into higher occupancy months, should there be broader-based demand or special event compression, we could choose to yield that out, which could make some of our year-over-year comparisons hard to draw meaningful conclusions from if we choose to yield it out.

But at this point, given where occupancy levels were for the first quarter, particularly once we entered March and then April, we were able to take incremental government demand and saw improvement around 13% and from a mix perspective approached around 6%. So encouraged from a government perspective. As we move through the year, we did see government steadily improve. And when I say that, the decline year-over-year decreased as we moved into the summer months and then, of course, increased when we had the government shutdown in the fourth quarter. And so I think that the comps as we move throughout the year will be a little bit fluid. But again, encouraged initially by seeing that improvement in group.

And remembering, again, when we issued guidance in the beginning, we anticipated that first quarter would be our most difficult quarter and that we would see improved performance after that. I'm certainly incredibly pleased with how we performed in the first quarter. And our current guidance does not include potential upside from World Cup, though we have seen strong bookings, especially in some of our smaller markets, which we do anticipate would be incremental to the strong demand trends that we're already seeing.

Okay. I appreciate that. And maybe just following up on your last comment, Justin, just about some of the World Cup bookings you've already seen. Is that largely coming from where you have exposure to markets where games are being played? Or I think as we've talked about before, the potential for international travelers extending stays, traveling in the U.S. for a week or 2 and maybe some additional markets where you have exposure to. Just any lens of insight into where you expect that and where you've already seen some demand?

It's difficult to determine specifically what's driving demand in markets outside of markets that will benefit from FIFA games. That said, when we look at current bookings, a very small percentage of our current bookings are international. That's consistent with past experience. The bulk of what we have on the books now is domestic, and we continue to anticipate that will be a primary driver. Should we see, as we get near to the games, an uptick in international bookings, that would be incremental.

Our next question is from Aryeh Klein with BMO Capital Markets.

Justin, you talked a little bit about, obviously, the conservative nature of the guide, but also that you're seeing positive forward booking trends. Curious if you can just unpack a little bit more about what you're seeing from a forward booking standpoint. It doesn't seem to be reflected in the guide, but it would be helpful just to get a sense of what you're seeing.

I mean, very consistent with what Justin said. As we look forward, we are beginning to see -- we typically look 90 days out or sort of rely more on what's closer in than further out. And within the 90-day window, you're starting to see certainly some impact from the advanced bookings around World Cup, which is positive. And as we -- even as we enter June, thinking about May outside of the calendar shift, that looks positive as well. So from a forward bookings perspective, we are continuing to see improvements around occupancy and rate as we look forward.

And then maybe just on the transaction market, can you just talk a little bit about what you're seeing there and maybe what you need to see to get more active on the trans acquisition front?

Absolutely. I think debt markets have been supportive of transactions for some time. With improving fundamentals, we are beginning to see more interest in the space. And I think for some time there has been a lot of product on the market that would be attractive to us. The challenge has been a meaningful gap between seller expectations and what we would be willing to pay. We've spoken about this in the past, but our acquisitions model runs a comparative analysis to alternative uses of capital, including share repurchases.

And as we look at the environment today and pricing for individual assets relative to the implied value or implied multiple in our stock, our stock still screens better. I think as we think about an environment where we would get more aggressive from an acquisition standpoint, it would be an environment where that reverses. And that could happen either as a result of continued improvement in our share price or a reduction in expectations from sellers. And the most likely scenario is a combination of both.

And as I highlighted in my prepared remarks, given our history in the space and the flexibility that we have with our balance sheet, as the environment shifts, we're poised to move very quickly.

[Operator Instructions] Our next question is from Michael Bellisario with Baird.

My question is for you on the cost side. So 2 parts here. One, could you quantify the insurance savings and/or how much that's boosting your outlook? And then also just with expenses still at plus 2% per occupied room, is the right way to think about it now we're sort of in a steady state? Or are there other puts and takes looking at that, that might cause that 2% number to either inch higher or inch lower?

Okay. I'll answer the first part. Related to the property insurance renewal, what we assumed beginning in the second quarter through the end of the year was about a $900,000 improvement to the forward guidance for the last 3 quarters. So that's a little less than half of the incremental bottom line impact outside of truing up year-to-date. The other portion comes through April improvement on the top line and flow through there.

And then from an expense perspective, we've guided to how the properties have been operating from a cost control perspective. We've gotten very granular from an individual line item perspective and believe that what we've provided is a good run rate. Now certainly if the environment was to shift and a cost line item or something was to materialize differently than what we've anticipated, that could potentially impact how we thought about expenses. But we've had a good trend of very good cost controls and see some improvement on the property insurance line for several years now. And outside of the fixed cost real estate tax comps from last year have seen some good appeals and some steady run rates there too. So we're encouraged about what we've seen from an expense management perspective, and that's certainly factored in here.

Our next question is from Ken Billingsley with Compass Point.

I have a question. I'm going to follow up on the M&A side, maybe from the opposite side. I know you talked about targets necessarily not fitting what you're looking for. But can you talk about maybe inbounds and what you're seeing in requests for properties you would be interested in selling?

Certainly. And I think for clarification, we've spoken to this at some length in the past. But we're continually in market, both underwriting potential acquisitions and testing potential dispositions. And since -- well, over the past several years, we've tested the market with both individual assets and portfolios looking to gauge pricing and have executed where we've been able to achieve pricing that's most attractive to us relative to alternative uses for proceeds from those sales.

I think in any environment we also -- from time to time we see inbounds. I can tell you as we test the market today, we're generally seeing an increased number of potential buyers. So increased interest with a large number of people signing confidentiality agreements, seeking data for the individual assets. And really, I think absent the war or the conflict in the Middle East and fears related to potential impact on energy prices, we would be seeing an even more active market with buyers interested in assets.

Should we continue to see growth industry-wide and specific to our portfolio, like we have year-to-date, my expectation is that the market would get meaningfully more active with buyers beginning to stretch for individual assets. And in that environment, we have in our portfolio prioritized assets for potential sale and could act quickly on that side as well as get more aggressive from an acquisition side.

Is that mix of buyer evolving?

I would say yes. Where we have been executing or successful in executing over the past several months, maybe even a couple of years, has been primarily with local owner operators who have the capacity to drive incremental margins because of their presence in market and lower operating -- cost operating model. Those buyers have tended not to be cap rate bidders. Instead, they're looking more closely at value relative to replacement costs and bidding based on a revenue multiple, which is a very different type of buyer and pricing process and has enabled us to sell at relatively low cap rates and redeploy at a meaningful spread either into our stock or into additional assets.

As the market becomes more active, we would anticipate and are beginning to see signs of increased interest from smaller private equity shops with dedicated hotel practice. And then certainly to the extent we're able to sustain the momentum industry-wide that we've seen recently, our expectation is that, that would broaden to some of the larger players as well.

And lastly, I just want to ask about Pittsburgh and get an idea of on what your expectations were versus -- I believe you said it was 23% RevPAR growth in first quarter '26. But with the NFL draft exceeding expectations, can you talk about how your expectations were met or exceeded?

Generally -- and it's not unique to Pittsburgh. I think we were encouraged about how many markets performed relative to our initial expectations. So I think general demand was stronger in many markets, and certainly Pittsburgh performed well relative to expectations as well.

Yes. But when you look across our portfolio -- and Liz highlighted a number of markets where we saw strong double-digit growth. For Anchorage, which had an amazing year last year, to again move up double digits in the first quarter was equally -- equally surprised us to the positive. So I think the demand strength across our portfolio was much stronger than we anticipated through the first quarter, and as Liz highlighted, has carried forward into April.

What I was trying to get at -- and that's good to hear. What I was trying to get at is trying to understand if the consumer is going to travel to these events. And even though we have high expectations that they are resilient and maybe more people are likely to get out to go to these unique events that we're going to see through the remainder of the year.

I think early indications are positive on that front.

Our next question is from Chris Darling with Green Street.

Just following up on the capital allocation discussion, where is your head at in terms of incremental development takeout transactions? And how is the opportunity set for those types of deals evolving?

It's interesting, and we've been fortunate in our ability to find deals that meet our underwriting criteria. But I'll tell you, as we look across the country and as we evaluate development takeouts, the same factors that are limiting new supply in our markets make underwriting development difficult. Meaning I think in most markets cost of construction have increased faster than fundamentals for hotels have improved. And as a result, there are a very few markets where development pencils broadly speaking.

That said, I think our appetite for new development has always been limited, meaning we've generally targeted within $100 million a year of new development acquisitions. And so should we consider additional development projects, we would be looking beyond 2028 to future years. And we don't currently have any deals pending in that area or that regard. I think as we think about capital allocation opportunities in the near term, we continue to be focused on the existing assets and our shares.

And in an answer to an earlier question, I highlighted how we evaluate those. Given that the forward commitments really are a long ways out, we have a tremendous amount of flexibility in the near term to allocate capital to accretive opportunities and then I think to fund those acquisitions as they are completed. Remembering again the structure of our development deals is such that the developer carries the project on their balance sheet and then our only cash outlay is at the time of completion.

Okay. That's helpful context all around. And then one more for me. Hoping you could elaborate on the early operating trends for your formerly Marriott-managed hotels. And if you could -- I think it's 13 total properties. Can you quantify what percent of overall EBITDA those hotels represent?

I will let Liz work on the second piece. We are very pleased with our progress in the transition. As Liz highlighted in her prepared remarks, there were transition-related expenses. And I think we were somewhat disappointed with sales efforts by the prior Marriott -- by prior Marriott management immediately prior to our takeover of the properties. That said, the new managers have come in and moved quickly and really established themselves in the properties in a way that we think will drive positive results this year. The 13 assets, because of their location, a portion of them are meaningful. A number of them are in California markets that are higher rated markets. And we may have to get back to you with the exact percentage.

Percentage, yes. I'll have to pull it for you.

No, no worries. I didn't mean to put you on the spot with that one, but I appreciate the thoughts.

Absolutely.

There are no further questions at this time. I would like to turn the conference back over to Justin Knight for closing remarks.

We appreciate you joining us for our first quarter earnings call. We're incredibly pleased with the way our portfolio performed during the first quarter and excited about carrying that momentum through the remainder of the year. As always, as you travel, we hope you'll take an opportunity to stay with us in one of our hotels. And we look forward to meeting with many of you as we begin interacting at some of the upcoming conferences.

Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.

Greetings, and welcome to the Apple Hospitality REIT Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Kelly Clarke. Thank you. You may begin.

Thank you, and good morning. Welcome to Apple Hospitality REIT's Fourth Quarter and Full Year 2025 Earnings Call. Today's call will be based on the earnings release and Form 10-K, which we distributed and filed yesterday afternoon.

Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including our 2025 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2025 and an operational outlook for 2026. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our fourth quarter and full year 2025 earnings call. Against the challenging backdrop in 2025, our corporate management and hotel teams skillfully executed against strategic initiatives to maximize operating performance, manage expenses, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile and position the company to maximize shareholder value throughout performance in the years ahead.

Our portfolio of efficient, high-quality hotels is broadly diversified across 84 markets with the exposure to a variety of demand generators. During the year, leisure travel remained strong across our hotel portfolio, while policy uncertainty and a pullback in government travel impacted midweek demand, temporarily disrupting the steady improvement in mid-week occupancy that characterized much of 2024.

Our asset management and hotel teams adjusted strategy to optimize the mix of business at our hotels as demand trends shifted in many cases, layering on additional group business, to bolster market share and strengthen overall portfolio performance. Through the successful navigation of changes in government-dependent demand, combined with continued strength in leisure travel, we achieved comparable hotel RevPAR of $118 for the full year 2025, down 1.6% to the prior year.

Based on preliminary results, comparable hotels RevPAR declined by approximately 1.5% in January 2026 as compared to January 2025, primarily as a result of challenging comps related to wildfire recovery-related business, which benefited a number of our California hotels last year and the presidential inauguration, which benefited our hotels in the Washington, D.C. area. Winter storms also weighed on January and early February results, but occupancies have improved meaningfully with recent weeks, showing significant year-over-year growth.

Together with our management teams, we remain focused on ensuring that we are growing market share and prudently managing expenses to maximize the profitability of our hotels. Variable expense growth for our portfolio has moderated with higher growth in fixed costs during 2025, largely coming as a result of challenging year-over-year comparisons. We achieved comparable hotels EBITDA of $99 million for the quarter and $474 million for the year, resulting in an industry-leading comparable hotel EBITDA margin of 31.1% for the quarter and 34.3% for the year.

In January, we successfully completed the transition of our 13 Marriott-managed hotels to franchise, consolidated management with third-party management companies who are, in most instances, already operating hotels for us in market in order to realize incremental operational synergies. We are confident these transitions together with a select number of additional market-level management consolidations will further drive operating performance at our hotels.

In the case of the Marriott managed assets, the transition away from brand management will also provide us with additional flexibility and increase the marketability of the hotels in the future as we consider select dispositions. The Marriott transitions aligned with Marriott's publicly stated goal to drive incremental efficiencies in our own business, and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome. Our disciplined approach to capital allocation has been a hallmark of our strategy throughout our history, balancing both near- and long-term allocation decisions to capitalize on existing opportunities while securing the long-term relevance, stability and performance of our portfolio and maximizing value for our shareholders.

While our long-term goal is to grow our portfolio, our stock has traded at an implied discount to values we can achieve in private market transactions for much of the past year. We prudently capitalize on the disconnect by selectively selling assets and redeploying proceeds into the purchase of our own stock, preserving our balance sheet to safeguard against potential macroeconomic volatility and to protect our ability to act quickly on future accretive acquisition opportunities.

During the year, we sold 7 hotels for a combined gross sales price of approximately $73 million and repurchased 4.6 million common shares for a total of approximately $58 million. Shares repurchased during 2025 were priced at around a 2.4 turn spread to dispositions completed during the year and around a 6.5 turn EBITDA multiple spread after taking into consideration brand-mandated capital investments.

Our team has done a tremendous job pursuing opportunistic asset sales that further optimize our portfolio concentration, help to manage portfolio CapEx needs and free capital for accretive redeployment and a meaningful spread. Pricing for the individual hotel spares. However, as a group, the 7 hotels we sold in 2025 traded at a 6.5% blended cap rate or a 12.4x EBITDA multiple before CapEx and a 4.9% cap rate or 16.5x EBITDA multiple after taking into consideration the estimated $24 million in anticipated capital improvements.

We were able to use 1031 exchanges to reinvest gains on hotel sales, redeploying proceeds into the acquisition of the Homewood Suites Tampa Brandon, which sits adjacent to our Embassy Suites in market and the [ Moto ] by Hilton, Nashville Downtown, which we acquired in late December upon completion of construction.

Recent acquisitions have performed well despite headwinds in several markets. The Embassy in Madison, Wisconsin saw meaningful year-over-year improvement as the hotel completed its first full year of operations. In the AC Hotel in Washington, D.C., which was also purchased in 2024, and produced full year RevPAR of $205, and a 43% house profit margin despite the meaningful pullback in government travel and a weaker convention calendar.

Four of the 6 hotels we purchased in 2023 achieved yields in excess of 10% last year, including our SpringHill Suites in Las Vegas despite meaningful declines in the performance of that market due to lower inbound foreign travel and a weaker convention calendar. The Nashville motto is ramping nicely, and we continue to have forward commitments for 2 future hotel development projects which are currently in early stages, including a dual brand, AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas and an AC in [indiscernible] Alaska.

The ACM Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the 2 Vegas hotels, though current expectations are for the AC and Residence Inn to be completed sometime in the second quarter of 2028. We do not currently have any pending acquisitions slated for 2026. Through all phases of the economic cycle, we seek to create value for our shareholders by driving incremental earnings per share through accretive transactions that enhance the quality and competitiveness of our existing portfolio and ensure that we are well positioned for future outperformance.

We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. In the near term, we anticipate that we will continue to pursue select asset dispositions where we can redeploy proceeds at a multiple spread while at the same time, managing future CapEx needs and fine-tuning the distribution of our portfolio to increase exposure to potentially higher growth markets.

Disciplined reinvestment in our portfolio is another key component of our strategy and ensures that our hotels maintain competitive positioning within their respective markets and present guests with the value proposition that enables our hotels to drive incremental rate. Our historical annual CapEx spend has been between 5% and 6% of total revenue, which is a significant differentiator for us relative to our full-service peers

Combined with higher margins, the lower CapEx obligation enables us to produce meaningfully more free cash from operations which we then use to fund shareholder distributions and strategic investments. Our experienced capital investment team leverages our scale ownership to reduce costs, maximize the value of reinvested dollars and minimize revenue displacement by optimally scheduling projects during periods of seasonally lower demand.

For the year ended December 31, capital expenditures totaled approximately $88 million. For 2026, we expect to reinvest between $80 million and $90 million in our portfolio with major renovations planned for approximately 21 of our hotels, including the conversion of our resins in Seattle Lake Union to Homewood Suites beginning in the fourth quarter of this year. The transition of this hotel will happen as it reaches the end of its current franchise term. with the determination to change brands informed by competitive supply dynamics within the market and brand incentives. The hotel will continue to operate as a resin in through the renovation, which is expected to be complete in the second quarter of 2017.

Supported by strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which meaningfully enhances total returns for our investors. During the fourth quarter, we paid distributions totaling approximately $57 million or $0.24 per common share and for the full year, we paid distributions totaling approximately $240 million or $1.01 per share.

Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.8%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital. Historically, low supply growth continues to materially reduce the overall risk profile of our portfolio limiting potential downside and enhancing potential upside as lodging demand strengthens.

At year-end, nearly 59% of our hotels did not have any new upper upscale, upscale or upper mid-scale product under construction within a 5 mit radius. Throughout our 26-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, strategically reinvesting in our hotels and closely aligning our efforts with the associates and management teams who operate our hotels.

In 2025, we skillfully executed strategic initiatives to further maximize operating performance, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile and position the company for outperformance in the years ahead. Travel demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy.

Our guidance for 2026 calls for comparable hotels RevPAR to be flat at the midpoint, which generally aligns with Star forecast for our chain scales. We believe that this represents a measured base case scenario for our portfolio with early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026 and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative.

With January and February being seasonally lower occupancy months, it is early in the year for us to identify with conviction trends for either business or leisure travel. And as we saw last year, the possibility of policy-related demand disruption is real. We are, however, optimistic about the setup for the year and feel we are well positioned regardless of how things play out in the broader economy. We remain confident in the long-term outlook for the hospitality industry, the strength of our portfolio specifically and our ability to drive profitability and maximize long-term value for our shareholders. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year.

Thank you, Justin, and good morning. While the travel industry faced several macroeconomic headwinds in 2025, we are generally pleased with the performance and resilience of our portfolio. Comparable hotels total revenue was $319 million for the quarter and $1.4 billion for the full year 2025 down approximately 2% and 1% to the same periods of 2024.

Comparable hotels adjusted hotel EBITDA was approximately $99 million for the quarter and $474 million for the year, down approximately 8% and 6% as compared to the same period of 2024. Fourth quarter comparable hotels RevPAR was $107, down 2.6%. ADR was $152, down 90 basis points and occupancy was 70%, down 1.7% as compared to the fourth quarter of 2024.

For the year ended December 31, 2025, comparable hotels RevPAR was $118, down 1.6%. ADR was $159, down only 10 basis points, and occupancy was 74%, down 1.6% to 2024. Our portfolio continues to outperform the industry where STAR reports RevPAR of $100 an average occupancy of 62% for 2025, highlighting the relative strength of our portfolio demand despite year-over-year disruption.

Our teams have done a tremendous job adjusting strategy to reoptimize the mix of business at our hotels, where there were meaningful shifts in government and other demand segments as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio.

Market performance varied significantly during the quarter with a mix of strong RevPAR gains in several markets and ongoing headwinds impacting others due to demand shifts and challenging year-over-year comparisons. Our team remains focused on hotel and market-specific strategies as well as operational execution to maximize performance. top RevPAR performing hotels during the quarter as compared to the same period last year included our Embassy Suites in Anchorage, Alaska, which was up almost 42% and our Homewood Suites in [ Tukwila], Washington, which was up 33%; our Courtyard in Franklin, Tennessee, which was up almost 22% and our residents in [ Renton], Washington, which was up over 21% as the hotel lapped Boeing strikes in 2024. Other top performers included our [ Manassas ] Residence Inn St., louis Hampton Inn and Nashville Airport TownPlace Suites.

Hotels with significant year-over-year RevPAR declines for the quarter included our San Bernardino Residence Inn, our Arlington Hampton Inn & Suites, our Panama City [ TownePlace ] Suites, our Huntsville Hampton & Suites and our Orlando, SpringHill and Fairfield Inn Suites, which benefited from Hurricane Milton business during the fourth quarter of 2024.

Based on preliminary results for the month of January 2026, comparable [indiscernible] declined by approximately 1.5% as compared to January 2025. impacted by travel disruption related to winter weather, challenging comps related to wildfire recovery-related business, and the presidential inauguration last year as well as ramp from our Nashville motto, which opened at the end of December. Performance has improved in February, bringing comparable RevPAR growth slightly positive year-to-date.

Turning back to the fourth quarter. weekday occupancy was down 140 basis points and weekend occupancy was down only 50 basis points as compared to the same period last year. Encouragingly, occupancy growth turned positive in December with weekday occupancy up 10 basis points after being down around 2% in October and November and weekend occupancy was up 90 basis points after being down around 1% in October and November. ADR declines were more pronounced on weekdays, down 1% for the quarter, while weekend ABR was essentially flat. As previously mentioned, following a pullback in October and November due to travel disruption related to the government shutdown, we began to see improvement in December.

Highlighting same-store room night channel mix for the quarter, [ brand.com ] bookings were flat year-over-year at 40%. OTA bookings were up 110 basis points to 14%. Property Direct was up 70 basis points at 25% and GDS bookings were down 80 basis points to 16%.

Looking at fourth quarter same-store segmentation, bar was around flat at 33% of our occupancy mix, other discounts grew 30 basis points to 31% of mix. Corporate and local negotiated declined 150 basis points to 16% of our mix, and government declined 100 basis points to 4% of our mix. Group business mix improved 130 basis points to 15%. Our fourth quarter channel mix and segmentation trends highlight the relative strength of our leisure consumer.

The pullback in government and other business transient as a result of the government shutdown and our team's ability to reoptimize and grow property direct and group business where available. We continue to see growth in other revenues which were up 5% on a comparable basis during the quarter and up 6% year-to-date, driven primarily by parking revenue and cancellation fees.

Turning to expenses. Comparable hotels, total hotel expenses increased by only 1% in the fourth quarter and 1.9% for the year as compared to the same period of last year. Our 2.5% and 3.3% on a CPOR basis. On a same-store basis, total hotel expenses increased by only 1% for both the fourth quarter and full year.

Total payroll per occupied room for our same-store hotels was $43 for the quarter, up 3.5% to the fourth quarter of 2024 and $41 for the full year, up 3% versus full year 2024. Our managers continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total same-store wages, down 120 basis points or 14% versus the same period in 2024.

Comparable hotels variable hotel expenses increased only 0.5% in the fourth quarter or 1.9% on a per occupied room basis. Cost control efforts amid occupancy softness kept expense growth muted with only 80 basis points of comparable operating expense growth, 30 basis points of hotel administrative expense, and flat sales and marketing expenses.

Comparable utilities and repair and maintenance expense grew slightly higher at 2% and fixed expenses remained an expected headwind at 7% growth. Our comparable hotels adjusted hotel EBITDA margin was strong at 31.1% for the fourth quarter and 34.3% for the year, down 210 basis points and 190 basis points as compared to the same periods of 2024.

Adjusted EBITDAre was approximately $93 million for the quarter and $444 million for the full year, down approximately 3.6% and 5.1% as compared to the same periods of 2024. MFFO for the quarter was approximately $73 million or $0.31 per share, down 3.1% on a per share basis as compared to the fourth quarter of 2024. For the full year 2025, MFFO was approximately $361 million or $1.52 per share, down 5.6% on a per share basis as compared to 2024.

Looking at our balance sheet. As of December 31, 2025, we had approximately $1.5 billion of total outstanding debt approximately 3.4x our trailing 12 months EBITDA, with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately 3 years. We had cash on hand of approximately $9 million, availability under our revolving credit facility of approximately $587 million and approximately 64% of our total debt outstanding was fixed or hedged.

The number of unencumbered hotels in our portfolio as of December 31 was 207. As previously disclosed, in July, we entered into a new unsecured $385 million term loan with a maturity date of July 31, 2030, enabling us to stagger our maturities as we approach a recast of our main credit facility in the coming months.

Turning to our outlook for 2026 provided in yesterday's press release. For the full year, we expect net income to be between $133 million and $160 million, comparable hotels RevPAR change to be between negative 1% and positive 1%, comparable hotels adjusted hotel EBITDA margin to be between 32.4% and 33.4% and adjusted EBITDAre to be between $424 million and $447 million. We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis.

Effective January 1, 2026, the company will begin excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation. As it represents a noncash transaction and the add back to net income is consistent with the calculation of adjusted EBITDA for the company's financial covenant ratios under its credit facilities and is consistent with the presentation of other public lodging rates.

As Justin mentioned earlier, this outlook aligns with STAR forecast for our chain scales and we believe represents a measured base case scenario for our portfolio. With early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026 and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative.

Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Trends early in the year are always difficult to extrapolate, but we are encouraged by recent improvement in midweek occupancies and GDS bookings.

While uncertainty remains elevated and the possibility of policy-related demand disruption continues, including the ongoing partial government shutdown, we believe our experience discipline and agility will enable us to adapt dynamically to maximize profitability, and we remain confident in our team's ability to successfully navigate shifting market conditions. The strength of our differentiated strategy has proven resilience across economic cycles, allowing us to preserve equity value in challenging environments and position ourselves to capitalize on emerging opportunities.

While we have faced economic headwinds this year, favorable supply-demand dynamics persist. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance. And our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future. Importantly, we remain focused on the long term and committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation for shareholders over time. That concludes our prepared remarks, and we'll now open the call for questions.

[Operator Instructions]. And our first question will come from Jack Armstrong with Wells Fargo.

What would you say was the total drag on RevPAR in 2025 from Liberation Day and the government shutdown? And how much of that do you expect to come back as a benefit in 2026?

Jack, it's a good question. I think as we've progressed through the year, and reported on government being pulled back and related business, whether it be government adjacent that we can identify or general BT related to some uncertainty, we've been clear, it's hard to quantify completely.

If you look at room nights for government on a same-store basis for the full year, they were down about 12% and negotiated was down 5% to 6% which really that trend did not start until [ DOGE ] and certainly [indiscernible] can flow throughout the year, ending the year down a little bit more with the government shutdown.

So I'd say if you think about it from that perspective, and you assume a good portion of that could come back. The total of those could be about 1 point in occupancy. But some of that from a [ dose ] perspective may not return. And so that's why the team worked really, really hard to optimize the mix of business and replace some of that with group business throughout the year.

Okay. Helpful color there. And then can you take us through some of the building blocks on the expense side on the fixed and variable side to get us to the 3% for the full year?

Yes. On a comparable basis at the midpoint, you're just under 3% for variable expenses, about 2.7% and then fixed is just under 5%, so 4.5% or so, for fixed expenses at the midpoint.

And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Liz, just you discussed all the moving pieces related to the outlook this year from some of the policy-related disruption that went on last year as well as the event-driven demand coming this year. I'm just wondering if the RevPAR growth guidance assumes any volatility and if you could just kind of maybe provide some of the cadence of how you're thinking about the quarters or first half versus back half of this year?

It's a good question. I think as we think about FIFA World Cup, to the extent we get benefited from that, that would occur probably mostly in late second quarter. We provided in our prepared remarks as well as in the press release last night that not much of that, if any, is contemplated at the midpoint of our guidance range. It's a little early to know how that might materialize. So we are optimistic about the potential.

So if you think about cadence sort of outside of the guidance range, I'd say, the end of the second quarter is when we're anticipating for our hotels where we see the most benefit, the way the matches are lining up. As we think about the midpoint of guidance and what was assumed in guidance, moving throughout the year, the cadence is fairly flat in the middle of the year and then a slight decrease in the first quarter because of the California wildfire comp to last year, where we experienced the most benefit.

And certainly, the weather that we've experienced so far year-to-date has had some impact, too. And then the fourth quarter, certainly, we would have a little bit more of an increase due to the government shutdown last year. So highest growth in the fourth quarter, weakest quarter first quarter.

That's helpful. And then you did reference you were kind of forced to shift the business mix throughout the year, given all the things we just discussed last year. How are you approaching this year with respect to business mix versus last year and just the potential benefit that, that could have on ADR from remixing that business last year?

We've actually been incredibly pleased with our team's ability to bring group into the hotels at attractive rates. And I think as we move forward this year, we expect those efforts to continue direct sales to group within market. Ideally, we see improvement in government business, which helps to fill in the gaps, but certainly benefiting from the efforts of our property level teams in going out and seeking business to replace the business that was no longer available during the government shutdown.

So our expectation would be relative to years prior to last year, potentially slightly less government, slightly more group, but we'll see how the year plays out. I think what we've demonstrated is that we have a team at our hotels that has the ability to act on existing demand in market, and we have product that's first of all and appeals to a broad right of potential customers.

Moving on to Aryeh Klein with BMO Capital Markets.

Just going back to the RevPAR outlook. Just at the high end of the range, is that incorporating the fact that comps are getting easier and some of the event tailwinds that you talked about? And then 2025 was characterized more so by weaker occupancy than ADR growth. Is that your assumption for 2026 will play out as well?

It's a good question. Yes. I mean, I think we at the midpoint of guidance assumes little impact or benefit from the special events that may happen this year or a return to some of the business we were missing. As you move higher up the range and hopefully beyond the range, it would anticipate some growth in occupancy as we lap those comps, more so than rate, though I think that some of the special events to the extent they materialize should provide some rate opportunity as well.

Okay. And then, Justin, maybe you can talk a little bit about just what you're seeing as far as the transaction market is concerned, are you more focused on dispositions at this juncture? Just any color there would be helpful.

Yes, absolutely. I'm incredibly pleased with our team's ability to execute last year. specifically on dispositions, I highlighted numbers during my prepared remarks, but their ability to execute at the multiples they were able to execute at gave us a tremendous amount of flexibility to redeploy at spread multiples, which we think will meaningfully benefit us.

I highlighted in my prepared remarks that at this point in time, we do not have any acquisitions under contract or currently contemplated for this year. A lot can change as we move through the year. And I think we've demonstrated an ability to be nimble and to adjust strategy based on existing opportunities.

But today, the environment looks very similar to the environment that we experienced last year. And I think in the near term, it's safe to assume that we will be focused on select dispositions where we have confidence we can redeploy proceeds into higher producing opportunities. And I think, certainly, at current levels, we see our shares as being attractively priced.

Moving on to Rich Hightower with Barclays.

I think you mentioned in the prepared comments that occupancy for sort of midweek transient business got a little bit better in December? And maybe just if we could dig into your outlook specifically for that segment in '26, better or worse? What trends are you seeing sort of within the core corporate transient group of customers?

So I think we were encouraged, especially post government shutdown that we saw a return to midweek occupancy in December with some slight growth midweek. I mean it was a little better than flat. And I think as we crossed over into the new year, we've had a noisy year-to-date run here with weather especially. We've seen signs of -- especially in February, signs of good midweek occupancy growth, so we're encouraged there.

As we look at segmentation, we'll have more data as we round out current months, and we'll string together a trend. It's a little early because we've had some stops and starts with weather to get too excited about the clean weeks, thinking that there could be some pent-up demand. But what we are seeing is encouraging from a midweek occupancy perspective. We believe that, that translates to business transient or the cause of that is business transient whether it comes through the negotiated segment or not.

And one of the reasons that I highlighted in my prepared remarks, we are seeing an improvement in GDS bookings, which is business-oriented. So some positive -- some positive signs. But as we look forward and as we contemplated guidance given the stops and starts and I'd say every year on this call, at this time, but it's just a really it's a difficult time to extrapolate the full year and what we anticipate from a business transient standpoint.

I think we're a little gun shy because we were seeing slow and steady business transient growth up until the announcement of [indiscernible] and those cuts and that's really when that trend pulled back. Once we see that trend pick back up and continue, we'll get a little bit more optimistic. I think one of the things that's important is what Justin mentioned earlier, which is the broad diversification from a demand standpoint that our properties attract and that the team has done a really good job finding additional business in market, and we'll continue to do that, whether it's midweek occupancy coming through transient and that's business oriented or whether it's group that we're able to put on the books at attractive rates and then drive incremental retail.

So the team continues to be really focused. We do believe there is room to grow from standpoint, it is the trend we're looking for. It's just a little too early to get excited about the recent things we've seen. But we are happy that despite some of the weather that people have gotten out, and we've seen some improvement here in February.

Okay. That's helpful, Liz. And then my second question, I guess, since we're putting a spotlight on this quarter. We all noticed that share-based comp is going to go up in '26 versus '25. So maybe just help us understand the mechanical calculation of how that gets put together every year, if you don't mind.

Absolutely. So the mechanics of how we're approaching our total G&A, which would be now corporate expense and the share-based compensation line items. Combined is the same. We start the year at target compensation, and then we adjust throughout the year based on how we're performing in third-party estimates from a return -- total return and relative return metric standpoint.

And so we're recalibrating to target-based compensation at the beginning of the year like we typically do. Last year, we underperformed. And so G&A expense, including share-based compensation, which is much lower than target. So that's the disconnect between last year and where we're guiding this year at the midpoint.

I see. So there is flexibility throughout the year depending on performance.

Yes.

That could change in other words. Okay, got it.

It will likely change as we move through the year, meaningfully.

If you go back and look at the prior year, the delta is less significant.

And Michael Bellisario with Baird has our next question.

Want to go back to guidance. Can you just have the expense front here. Can you help us bridge the changes in the same-store comp, I think New York is having a big impact on the headline growth rate is -- I think that's a very low-margin property. And also how was Nashville impacting growth rates and margins in '26. Any kind of clarification there as a of like the true comp for comp number would be helpful.

Yes. Okay. So there is a lot of noise, especially since, and thank you for highlighting since I didn't include it in my prepared remarks, we are adding Hotel 57 back to the comparable set. So that creates some noise. It is a lower-margin asset. And so normalizing 2025 comparable for 57 would have a 40 basis point impact on 2025 margin. So that's one thing to note.

When you look at same-store total hotel expense growth at the midpoint, that's actually 1.6%. The additional increase comes from Nashville, adding Hotel 57 back in. And then, of course, we have Tampa that's also not part of the same-store set that we bought earlier last year. So that's impacting total growth rates, but same-store is 1.6% which is something we're proud of, especially given the top line at the midpoint. We're getting some benefit from not having brand conferences in 2026, which we had in 2025. There also have been some fee reductions for the brands, and we'll benefit from that. That's probably a net benefit of -- all 3 of those things combined $5 million.

Got it. That's helpful. And then similarly, just on the manager changes, I know you previously you sort of touched on qualitative expectations but is there any lift explicitly included in your outlook now for 2026?

Not really at this point. And I think we continue to feel good about how the transitions will materialize. Remembering that there are some incremental costs in the beginning of any manager transition, our base case expectations are that we would be offsetting transition costs through more efficient operations as we move through the year with the primary benefit of the transactions being realized in future years.

I think that is as is the remainder of our guidance, a reasonable base case or a measured base case as we interact with management at those properties, their expectations for how they might perform are meaningfully higher.

[Operator Instructions]. And we'll go next to Jay Kornreich with Cantor Fitzgerald.

I just wanted to ask, as we move closer to the World Cup, which I get is tough to pencil how are you guys thinking about, I guess, just the potential upside to your portfolio, either from people attending the games or maybe international travelers extending vacations between games? And what would you estimate as the booking window before the games actually begin?

A lot of good questions there. I want to clarify, we are incredibly excited about the potential for incremental business and incremental travel related to the World Cup. Our team is both at our corporate office and our management teams are intently focused on working to ensure that we maximize the opportunity which means layering the appropriate business into the hotels, taking group where appropriate, and early bookings and then blocking rooms to maximize rate as we get closer to the games.

The booking window is still short. And so I think a significant part of the reason that at the midpoint of guidance, we're not reflecting the optimism we have about the potential business is because from our perspective, it's too soon to talent. As we get closer and our in a better position with more business on the books, we will also be in a better position to quantify the actual impact.

I think as we've had discussions with our property teams. And as we've thought more broadly about how things might play out. We anticipate that this could be a meaningful driver of incremental business as we move through the year. We just are not yet based on business that we have on the books in a position to give you a really good estimate.

Our next question comes from Ken Billingsley with Compass Point.

Two of them here is one on EBITDA growth you've expressed a lot of conservatism on the call with regard to growth expectations, revenue being lower than expense growth guidance. How much is that conservatism impacting your EBITDA guidance, which is lower than last year. How much of it is your conservatism versus just fewer hotels that are in the comps?

A portion of it will be that we sold assets last year, though we also were adding [indiscernible] and Hotel 57 back into back into the pool of assets. So I think for the most part, it's revenue-driven, and it's top line driven. But certainly, there are some puts and takes with hotels sold and again, the new properties as well.

Okay. And then on the Marriott franchise transition, I think it was 13 of them. You mentioned how do you expect by doing that transition, you talked about improved returns. Can you talk about where you see that opportunity? And then the other part is, does it make them more marketable assets by having them under the franchise agreement?

So to answer the second part of your question first, it makes them infinitely more marketable. We have tremendous amount of flexibility to sell at this point, those assets unencumbered by management, which meaningfully increases the potential buyer pool. And even assuming operations remain constant in terms of net income produced by the assets. we see an ability to the extent we were to sell any of these assets to unlock significant value.

Outside of that, I think there are 2 primary drivers that we anticipate for incremental profitability from these assets. The first is that we are, in most cases, consolidating management within markets. with management companies that we already have operating in market, which we believe will drive cost savings, both on formerly Marriott managed assets as well as our other assets in market as we share expenses and build presence with specific management companies in those markets.

And then outside of that, Marriott from an efficiency standpoint, that has not been one of their strengths, especially as they work to deploy themselves against the types of assets that we own -- and so we also anticipate meaningful reductions in overhead allocations to the properties, which will support a stronger bottom line. I think outside of that, we expect that our managers will bring increased focus and attention to the properties which has potential to drive incremental top line results, meaning stronger rate and occupancy at the hotels. But our primary underwriting was on the cost side and easily justified the transition just through anticipated cost savings. Thank you.

And moving on to Chris Darling with Green Street.

Justin, in the prepared remarks, I want to say you said that 59% of your hotels have no new construction within, I believe, 5-mile radius. I think back over the last couple of years, I think that number has sort of consistently gone higher. Although sequentially, it looks like it went lower this quarter. Wondering if you could dig in a little bit anything idiosyncratic driving that change? And maybe just a broad overview of what you're seeing in the supply backdrop would be helpful.

Absolutely. So from a supply standpoint, we continue to feel incredibly good about the supply picture. And I've highlighted on past calls and continue to believe that it meaningfully changes the risk profile of our portfolio, reducing downside risk and improving upside potential as the demand picture improves. Some of the subtle adjustments are nuanced and driven by changes to our overall portfolio.

So when you look at the assets that we've been selling and the types of markets that we've been selling out of -- those are, in some instances, lower supply markets, and the net result has been shrinking the total number of assets, increasing our concentration in some individual markets. And so on the margin, the difference that you're seeing between the number we reported last and the number now has as much to do with kind of subtle shifts in our portfolio as it does a change in outlook or incremental supply.

I think what we have historically been accustomed to in terms of supply growth in our markets is meaningfully greater exposure than we have now. And given the dynamics that continue to exist between construction costs and profitability, we see a meaningful impediment to increase supply growth for the foreseeable future.

Okay. That makes sense. Helpful to hear sort of the nuance there. As a follow-up, if we circle back to the capital allocation discussion, what's the level of appetite you're seeing among private buyers for portfolio deals these days? Or is it safe to say one-off deals still represent best execution?

We -- and I've commented in the past, our team continues to probe the market with various size potential portfolio transactions. To date, we continue to see more attractive pricing for individual assets. I think that potentially shifts as we see industry numbers improve more universally. As investors in order for us to achieve portfolio premiums, generally speaking, investors need to see an industry level trend that would advantage them from buying in scale.

And what we're finding more often is that we're able to maximize value by creating the story around an individual asset for often a local owner operator that has ties to the individual market and an ability to bring incremental efficiencies to the property. So I think you based on our track record over a more extended period of time, I think we have demonstrated an ability to pivot as we see changes in the overall marketplace. For the near term, my expectations are that we'll be likely transacting on individual assets, but we'll continue to probe and look for other opportunities.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Justin Knight for closing comments.

We appreciate you taking the time to join with us this morning and are excited about the year ahead of us. as always, I hope that as you're traveling, you'll take the opportunity to stay with us at one of our hotels, and we look forward to providing you with updates as we continue through the year.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Apple Hospitality REIT's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Kelly Clarke, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning. Welcome to Apple Hospitality REIT's Third Quarter 2025 Earnings Call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon.

Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2024 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the third quarter 2025 and an operational outlook for the rest of the year. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our third quarter 2025 earnings call. While the fundamentals of our business remains strong with supply growth continuing to be well below historical norms and overall demand proving resilient, policy uncertainty, expense pressure and a continued pullback in government travel all weighed on operating performance during the quarter for our portfolio and for the industry broadly. With many of these factors outside of our control, we have focused with our management teams on ensuring that we are growing market share and managing expenses to maximize the profitability of our hotels.

From a capital allocation standpoint, we continue to see an opportunity to take advantage of the current disconnect between public and private market valuations by selectively selling assets and redeploying proceeds to buy our own stock. At the same time, we are leaning into future investments that we feel will ensure our portfolio's continued relevancy and allow us to achieve strong results for years to come.

Together with our management companies, our asset and revenue management teams have done a tremendous job shifting the mix of business at our hotels to strengthen market share and tactically adjust to changing demand trends, driven in part by the pullback in government travel. Transient leisure demand for our portfolio remained resilient during the quarter, and our property teams have successfully targeted group business, which has helped to offset slightly softer midweek business transient.

For the quarter, we achieved comparable hotels occupancy of 76%, down 1.2%; ADR of $163, down only 0.6%; and RevPAR of $124, down 1.8%. Impacted by the recent government shutdown, comparable hotels RevPAR was approximately 3% lower in October 2025 versus October 2024 based on preliminary performance data.

The hotel teams have also been diligent in their efforts to mitigate cost pressures and operate as efficiently as possible while delivering the high level of service and quality our guests expect. As a result of these efforts, variable expense growth for our portfolio has moderated with a higher growth in fixed costs largely coming as a result of challenging year-over-year comparisons. Though slightly down versus prior year, our portfolio continues to produce industry-leading margins with comparable hotels EBITDA margin of 35.2% for the quarter.

In addition to the day-to-day efforts with our management teams to maximize the performance of our hotels through the implementation of systems and effective management practices, we also look for structural ways to drive overall performance. Over the coming months, we will be transitioning our Marriott-managed hotels to franchise and consolidating management in these markets with existing third-party management companies to realize incremental operational synergies.

We are confident these transitions, together with a select number of additional market-level management consolidations will help to further drive operating performance at our hotels. In the case of the Marriott managed assets, the transition away from brand management will also provide us with additional flexibility in the future as we consider select dispositions. The Marriott transitions align with Marriott's publicly stated goal to drive incremental efficiencies in their own business, and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome.

We have always been disciplined in our approach to capital allocation, balancing both near- and long-term allocation decisions to capitalize on existing opportunities while securing the long-term relevance, stability and performance of our platform. Through all phases of the economic cycle, we seek transactions that enhance the quality and competitiveness of our existing portfolio, drive earnings per share, create value for our shareholders and ensure we are well positioned for future outperformance.

In the current environment, we have strategically executed select dispositions and forward commitments on new development to manage our near-term CapEx needs and to ensure we are exposed to markets with strong growth profiles. At the same time, we have been able to take advantage of near-term opportunities that exist because of the disconnect in public and private market valuations, using proceeds from dispositions and cash from operations to fund share repurchases.

We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders.

Since the beginning of this year, we have completed the sale of 3 hotels for a total combined sales price of $37 million, including our full-service Houston Marriott, which we sold during the third quarter for $16 million. We currently have 4 hotels under contract for sale for a total combined sales price of approximately $36 million, including the previously announced pending sale of our Hampton and Homewood Suites in Clovis, California, as well as the contracted sale of our Hampton and Homewood Suites in Cedar Rapids, Iowa. We anticipate closing on the sale of these hotels during the fourth quarter of this year.

While the overall transaction market continues to be challenging, we have successfully executed on select asset sales and ways to continue to optimize our portfolio concentration, manage CapEx and free capital, which we have been able to accretively redeploy at a meaningful spread. Pricing for the individual hotels varies. However, as a group, the 3 hotels we sold this year, together with the 2 Globus hotels and the 2 Cedar Rapids hotels will trade at a 6.2% blended cap rate or a 12.8x EBITDA multiple before CapEx, and a 4.7% cap rate or a 17.1x EBITDA multiple after taking into consideration the estimated $24 million in capital improvements.

Proceeds from these well-timed dispositions have been used primarily to fund share repurchases. Since the beginning of the year through October, we have repurchased approximately 3.8 million of our shares at a weighted average market purchase price of approximately $12.73 per share for an aggregate purchase price of approximately $48 million. Shares repurchased year-to-date have been priced around a 3-turn spread to recent dispositions and around a 7-turn EBITDA multiple spread after taking into consideration estimated capital improvements.

While our long-term goal is to grow our portfolio, when our stock trades at an implied discount to values we can achieve in private market transactions as it has for the past several months, we will opportunistically sell assets and redeploy proceeds primarily into additional share repurchases, preserving our balance sheet so that at the appropriate time in the cycle, we can act quickly on attractive acquisitions opportunities. Since May of last year, we have invested nearly $83 million in our own shares.

In June of this year, we acquired the Homewood Suites Tampa-Brandon for approximately $19 million, and we are on track to acquire the Motto Nashville Downtown, which is nearing completion of construction in December of this year for a total of approximately $98 million. While it is still several months out, we will also be converting our Residence Inn-Seattle Lake Union to a Homewood Suites beginning in the fourth quarter of next year. The transition will happen as the hotel reaches the end of its current franchise term with the determination to change brands being informed by competitive supply within the market and brand incentives.

Upon conversion, the hotel will be 1 of only 2 Homewood Suites in the downtown Seattle market. The hotel will continue to operate as Residence Inn through the renovation and conversion, which will be completed during the second quarter of 2027. This hotel sits on incredibly valuable real estate, and we are excited about the opportunity to reintroduce it under a new flag.

While our primary near-term focus has been on dispositions and share repurchases, we entered into agreements for the development of 3 hotels during the quarter, each located in a key dynamic market that will further enhance our portfolio positioning in the years to come.

We entered into a fixed price forward purchase contract for the purchase of an AC hotel to be developed in Anchorage, Alaska with an anticipated 160 rooms for a total of approximately $66 million. Anchorage has consistently been one of our top-performing markets with both strong leisure and business demand driving overall performance. While early in the development process, the hotel is expected to open in the fourth quarter of 2027.

Also during the quarter, we entered into a fixed price forward purchase contract with a third-party developer to develop a dual-branded property that will include an AC Hotel and a Residence Inn in Las Vegas, Nevada on the land we own adjacent to our SpringHill Suites Las Vegas Convention Center for a total of approximately $144 million. It is our expectation that the hotel will be completed and open for business in the second quarter of 2028. The AC Hotel is expected to have 237 guestrooms and the Residence Inn is expected to have 160 guestrooms.

The Las Vegas market continues to expand as a top destination for sports, entertainment and conventions. And while recent market performance has been negatively impacted by lower international inbound travel, we have strong conviction in the future growth and long-term viability of this dynamic business-friendly market and are excited to expand our presence there.

Since the onset of the pandemic, we have completed approximately $354 million in hotel sales with an additional $36 million under contract and expected to close in the coming months. These sales represent a blended cap rate prior to taking into consideration estimated CapEx of approximately 5% and a 4% cap rate after CapEx and have allowed us to forego significant renovation expenditures in markets where we see limited upside, preserving capital for higher-yielding investments.

Over the same period, we have invested more than $1 billion in acquisitions and purchased 6.9 million shares of our own stock while maintaining the strength of our balance sheet. These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets and positioning us to continue to benefit from economic and demographic trends.

Consistent reinvestment in our portfolio is a key component of our strategy and ensures that our hotels maintain their strong value proposition for our customers. Our experienced team is focused on leveraging our scale ownership to control costs, maximize impact on reinvested dollars and optimally schedule projects during periods of seasonally lower demand to minimize revenue displacement.

Our ability to renovate our hotels efficiently is a meaningful differentiator, which combined with effective portfolio management helps us to achieve consistent strong returns for our investors over time. During the 9 months ended September 30, capital expenditures were approximately $50 million. And for the year, we expect to reinvest between $80 million and $90 million in our hotels with major renovations at approximately 20 of our hotels.

Supported by strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which is meaningfully additive to total returns for our investors. During the third quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.6%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital.

Although macroeconomic uncertainty has continued to weigh on year-over-year growth and fueled capital market volatility, travel demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy, and we are confident we remain well positioned to drive profitability and maximize long-term value for our shareholders. 63% of our hotels do not have any new upper upscale, upscale or upper mid-scale product under construction within a 5-mile radius. This historically low rate of supply growth is unique to this cycle, and we believe materially improves the overall risk profile of our portfolio by reducing potential downside while enhancing potential upside as lodging demand strengthens.

Our hotels, which are broadly diversified across markets and demand generators, operate efficiently and produce strong cash flow while simultaneously providing guests traveling on both business and leisure with a compelling value proposition. We have historically outperformed during extended periods of economic uncertainty, and we believe we are well positioned for upside should we see reacceleration in broader economic growth.

While we are early into our budget process for 2026, we are encouraged by airline and hotel brand commentary related to improvements they are seeing in demand as well as lapping the pullback in government demand we have seen this year. And with hotels in each of the U.S. markets that will host the 2026 FIFA World Cup, we are well positioned to take advantage of additional demand created by the events.

Throughout our 25-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels and closely aligning efforts with associates and management teams who operate our hotels.

Our differentiated strategy has been tested and proven across multiple economic cycles. With the strength of our broadly diversified portfolio, the overall resilience of our business, our low leverage and the depth of our team, I am confident we are well positioned to drive profitability and maximize long-term value for our shareholders in any macroeconomic environment.

It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year.

Thank you, Justin, and good morning. While the travel industry has faced macroeconomic headwinds this year, we are generally pleased with the overall performance and resilience of our portfolio.

Comparable hotels total revenue was $365 million for the quarter and $1.1 billion year-to-date through September, both down approximately 1% to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was approximately $129 million for the quarter and $375 million year-to-date through September, down approximately 7% and 6% as compared to the same periods of 2024, respectively.

Third quarter comparable hotels RevPAR was $124, down 1.8%. ADR was $163, down only 60 basis points, and occupancy was 76%, down 1.2% as compared to the third quarter 2024. For the 9 months ended September 30, comparable hotels RevPAR was $122, down 1.4%. ADR was $161, up 10 basis points, and occupancy was 75%, down 1.4% to the same period of 2024.

Our portfolio continues to outperform the industry where STR reports RevPAR of $102, ADR of $160 and average occupancy of 63% for the first 9 months of the year, highlighting the relative strength of our portfolio demand despite year-over-year declines.

Our teams have done a tremendous job adjusting strategy to reoptimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio.

July was the strongest month of the quarter with comparable hotels RevPAR growth of 1%, while August and September turned negative as anticipated, with September impacted by the unfavorable calendar shift of Rosh Hashanah from October into September. Even with the pullback in August and September, we are generally pleased with the performance of our portfolio and the resilience of travel broadly despite elevated macroeconomic uncertainty and the pullback in government travel specifically.

Market performance varied significantly during the quarter with a mix of strong RevPAR gains in several markets and ongoing headwinds impacting others due to demand shifts and challenging year-over-year comparisons. Our team remains focused on hotel and market-specific strategies as well as operational execution to maximize performance.

Top-performing hotels during the quarter included our South Bend Residence Inn and Fairfield Inn & Suites, both with RevPAR gains over 20%; our Richmond Marriott saw RevPAR increase almost 17% year-over-year during the quarter. And other top performers included our Denton Homewood Suites, Lafayette SpringHill Suites, Mettawa Residence Inn, Boca Raton Hilton Garden Inn, Salt Lake City Residence Inn and our Austin Round Rock Homewood Suites.

Hotels with significant year-over-year RevPAR declines included our Arlington Hampton Inn & Suites, Houston Park Row Residence Inn, Austin Fairfield Inn & Suites, Tucson Town Place Suites, San Bernardino Residence Inn and our Phoenix Homewood Suites.

Based on preliminary results for the month of October, comparable hotels RevPAR declined by approximately 3% as compared to October 2024, which was impacted by incremental pullback in government demand as a result of the government shutdown, which began on October 1. While we expect the shutdown to continue to weigh on demand until the government reopens, we are optimistic that we will benefit from the near-term pent-up demand upon reopening.

Turning back to the third quarter. Weekday and occupancy trends softened as the quarter progressed, together driving overall portfolio occupancy declines. For the quarter, weekend occupancy was strong at 81%, but declined 120 basis points, slightly outperforming weekday occupancy, which declined 160 basis points. Weekend ADR was approximately flat for the quarter, turning negative in September after being positive in July and August, while weekday ADR was softer, declining 80 basis points for the quarter and contributing to overall RevPAR declines.

Highlighting same-store room night channel mix, brand.com bookings were up 110 basis points year-over-year at 40%; OTA bookings were up 70 basis points to 13%; property direct was down 120 basis points at 23%; and GDS bookings were down 20 basis points to 17%.

Looking at third quarter same-store segmentation, bar was up 40 basis points at 33% of our occupancy mix; other discounts grew 30 basis points to 29%; corporate and local negotiated declined 70 basis points to 17% of our mix; and government declined 40 basis points to 5.2% of mix. Group business mix improved 50 basis points to 15% and continues to be a focus area for our property teams in response to demand shifts in other segments.

We continue to see growth in other revenues, which were up 4% on a comparable basis during the quarter and up 6% year-to-date, driven primarily by parking revenue and cancellation fees.

Turning to expenses. Comparable hotels total hotel expenses increased by 1.7% in the third quarter and 2.2% year-to-date through September as compared to the same periods of last year or 2.9% and 3.6% on a CPOR basis. On a same-store basis, total hotel expenses increased by only 1.5% for both the third quarter and year-to-date through September.

Total payroll per occupied room for our same-store hotels was $40 for the quarter, up less than 2% to the third quarter of 2024, an improvement compared to first quarter growth of 4% and second quarter growth of 3%. We continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total wages, down 140 basis points or 16% versus the same period in 2024.

Comparable hotels' variable hotel expenses increased by only 0.7% in the third quarter or 2% on a per occupied room basis. Occupancy declines and cost control efforts resulted in rooms expense decline of 1% versus third quarter of 2024, driven by same-store rooms wages decline of 0.8%. Comparable hotel administrative and repair and maintenance costs grew slightly higher at just under 4% and 3%, respectively, while sales and marketing expense as well as utilities were more muted at just 1% growth.

Consistent with the first and second quarters, fixed expense growth remained elevated, growing 12% in the third quarter, driven by increases in real estate taxes in several markets as well as general liability insurance premium increases. Despite the softer top line, our comparable hotels adjusted hotel EBITDA margin was strong at 35.2% for the third quarter as well as year-to-date through September, down 200 basis points and 190 basis points as compared to the same period of 2024, respectively.

Adjusted EBITDAre was approximately $122 million for the quarter and $350 million year-to-date through September, both down approximately 5% as compared to the same periods of 2024.

MFFO for the quarter was approximately $100 million or $0.42 per share, down approximately 7% on a per share basis as compared to the third quarter 2024. Year-to-date through September, MFFO was approximately $288 million or $1.21 per share, down 6% on a per share basis as compared to the same period of 2024.

Looking at our balance sheet. As of September 30, 2025, we had approximately $1.5 billion of total outstanding debt, approximately 3.3x our trailing 12 months EBITDA with a weighted average interest rate of 4.8%. At quarter end, our weighted average debt maturities were approximately 3 years. We had cash on hand of approximately $50 million; availability under our revolving credit facility of approximately $648 million; and approximately 68% of our total debt outstanding was fixed or hedged.

Subsequent to the end of the third quarter, we repaid in full one secured mortgage loan associated with 2 of our hotels for a total of approximately $29 million, bringing the number of unencumbered hotels in our portfolio as of October 31 to 210. As previously disclosed, in July, we entered into a new unsecured $385 million term loan with a maturity date of July 31, 2030, enabling us to stagger our maturities as we approach our main credit facility in the coming months.

Turning to our updated outlook for 2025 provided in yesterday's press release. The adjustments made to full year guidance reflect performance year-to-date as well as the potential negative impact of prolonged economic uncertainty and the government shutdown on the remainder of the year.

For the full year, we expect net income to be between $162 million and $175 million, comparable hotels RevPAR change to be between negative 2% and negative 1%, comparable hotels adjusted hotel EBITDA margin to be between 33.9% and 34.5% and adjusted EBITDAre to be between $435 million and $444 million.

As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels RevPAR change by 100 basis points while increasing comparable hotels adjusted hotel EBITDA margin by 20 basis points and increasing adjusted EBITDAre by approximately $300,000 as a result of strong cost control measures year-to-date, a more favorable general liability insurance renewal than anticipated and lower G&A expense.

We have assumed for purposes of guidance that total hotel expenses will increase by approximately 2.1% at the midpoint, which is 3.4% on a CPOR basis. We continue to assume these increases are driven primarily by higher growth rates for certain fixed expenses, including real estate taxes and general liability insurance than those experienced last year.

This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. While economic uncertainty remains elevated and the ongoing government shutdown continues to weigh on government demand and travel more broadly, we remain confident in our team's ability to successfully navigate shifting market conditions.

Our experience, discipline and agility enable us to adapt dynamically, maximize profitability and capture value through opportunistic transactions. The strength of our differentiated strategy has proven resilient across economic cycles, allowing us to preserve equity value in challenging environments and position ourselves to capitalize on emerging opportunities. While we have faced economic headwinds this year, favorable supply-demand dynamics persist.

Our recent capital allocation decisions and portfolio adjustments have driven shareholder value and our solid balance sheet continues to provide meaningful flexibility. Importantly, we remain focused on the long term. Despite near-term volatility, we are committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation over time.

That concludes our prepared remarks, and we'll now open the call for questions.

[Operator Instructions] First question comes from Cooper Clark with Wells Fargo.

On expense reductions, curious how your full-time employee count has shifted over the quarter and how much of that is driving some of the cost improvements? And then any color on some of the momentum and cost improvements into 2026 would also be great.

Absolutely. So for wages and payroll overall, in my prepared remarks, I shared some improvement for the quarter, and that is largely driven by managing labor in a way where we are adjusting to the top line from an occupancy decline perspective. And so while we have seen less wage pressure year-over-year in hourly associates, really, it is an improvement from an FTE perspective relative to top line performance.

And as we think about that relative to both Q4 and going forward, I think we just want to emphasize the efficiency of our hotels in general. A select service asset can be managed with very few FTEs. And as the top line adjust both up and down, we have some flexibility with FTE counts. And so we were able to materialize some of that benefit in the third quarter and anticipate that whether we're seeing increases or decreases in occupancy that we'll be able to manage overall labor expenses well going forward.

Great. And then on the acquisition front, it seems like some of the newer additions you're making to the portfolio with the 2 new AC hotels are shifting your portfolio on a relative basis to a higher chain scale. Wondering if this is just where you're seeing the best opportunity or if this represents a slight shift in portfolio strategy longer term?

Technically, from a chain scale standpoint, AC sits squarely in the upscale segment. And from an operating model it is comparable to other hotels that we have within that same space. Our leaning into the AC brand specifically, both from an acquisitions and development standpoint is really driven in large part by the efficiency of the model and our ability to drive incredibly strong margins with that brand.

We've found an ability, especially in markets that have higher -- an ability -- where we have an ability to drive higher rates that, that particular hotel brand competes incredibly effectively with higher chain scale product with an operating model that's meaningfully more efficient and that allows us to bring much more of the top line dollars to the bottom line.

Next question, Austin Wurschmidt with KeyBanc Capital Markets.

I just was curious, Liz, going back to the guidance change, how much of the change would you attribute to the government shutdown directly or indirectly? And historically, how quickly does that demand typically return once the government reopens and things are operating a little bit more normal course?

Yes, absolutely. Happy to give some additional color. And I'll first give you some background as to how we're thinking about quantifying the government impact on October specifically relative to what we saw as we rounded out the third quarter. So first, I want to ground everyone in the fact that Q4 was our strongest RevPAR growth quarter of last year. We were up 2.8% on a comparable basis. That was in part benefited by Hurricanes Helene and Milton. So October -- and October specifically was up 4% last year. So we've got some tough comps we have to overcome.

As we think about what actualized in September and -- August and September, it's important to remember that some of that is likely due to the comps I mentioned, specifically in September and that non-repeat business. But also as we rounded out August and September, we do see -- we did see some transient pickup sort of soften as we ended the third quarter. So while it's hard to quantify specifically, we do believe there was some softening in transient pickup before we even entered the government shutdown.

Had -- we had assumed in guidance for August and September that we would be down about 2%. We actualized down a little over 3% on deteriorating transient pickup. And so that was roughly 120 basis points of deterioration from our prior expectations for August and September relative to where we finished. And if you apply that to the 330 basis point adjustment we made to the fourth quarter at the midpoint, about 1/3 of that change to expectations is driven by fundamentals coming into the fourth quarter and 2/3 of that change is related to the government shutdown.

But again, when we talk about the fundamental -- the fundamentals or even the government shutdown, there is just a backdrop of tough comps year-over-year as we're comparing what we're seeing real time.

And then the second part of your question, historically, so going back and fortunately or unfortunately, we do have a comparison time period. As we look at the last government shutdown, we did see a meaningful pickup in business following the shutdown, implying, we think that there was some business pent-up during that period of time that didn't materialize upon coming out of the shutdown.

That's helpful. I guess where is the government segment as a percent of your business over the last month or so when you saw the disruption versus, I think you were in the 5% to 7% range historically? And any changes in terms of your exposure or strategy around government business, just given the volatility that you've seen over the past year?

That's an interesting question. When you think about government over the long term and over as long as we've been in the space, it's historically been stabilizing to the portfolio. This is unique, what we've been experiencing this year. So the latter part of your question, I think, goes to one of the reasons that we believe in diversification broadly, both from a geographic perspective, but within individual markets, making sure that there's a broad range of demand so that we don't see meaningful fluctuations with one segment of demand falling off.

I -- when you mentioned the 5% to 7% historic range, last year for government, we were 5.5% of our occupancy mix. We have been trending, and I said in my prepared remarks for the third quarter, we were still at 5.2% of our occupancy mix for last quarter. It did drop in October to slightly under 4%. So you definitely saw the impact of the shutdown.

Next question, Aryeh Klein with BMO Capital Markets.

Justin, I was hoping you could talk a little bit more about the strategy of doing more of these development deals versus maybe acquisitions where there's a bit more of a track record. And what type of returns are you targeting? And maybe how you're balancing the acquisitions with share repurchases, which were maybe a little lighter in the quarter?

Absolutely. And there's a lot to unpack there. So have a little bit of patience with me. But as I highlighted in my prepared remarks, we have been working to balance a desire to take advantage of the short-term arbitrage between where we can sell assets and where we're able to buy our stock with a desire to maintain the long-term relevance of our portfolio, which includes factors such as age, market positioning and product type.

What we -- and part of your question spoke to experience that we have with development deals. Historically, development has represented roughly 25% to 30% of our total acquisitions. And so we do have extensive experience with that particular type of acquisition. As we think about capital allocation and target yields for future development deals, we use an average weighted cost of capital, which takes into consideration a longer period of time.

And certainly, our expectation is between now and delivery of those assets, which would be 2 to 3 years from now, that we will be in a better position from a cost of capital standpoint. Those acquisitions, again, because they're some time off, do not preclude us from being active in acquiring our own stock.

From a balance sheet preservation standpoint, I've highlighted on past calls that it is our intent to fund share repurchases largely with proceeds from sale. To date, our share repurchases have exceeded closed sale transactions. And we do, as I highlighted, have 4 more assets under contract. They have not yet sold. And our expectation would be as those transactions close to use proceeds, especially to the extent we're trading at values at or around where we're currently trading to make additional share repurchases.

So to clarify, it is our intent to be active in both spaces, both to take advantage of the near-term opportunity to drive incremental value for our shareholders through these selective sales and share repurchases and to use forward commitments on development deals to ensure that the long term -- that over a longer period of time, our portfolio remains relevant and positioned to drive strong returns for investors.

And maybe if I could just follow up. Is there a limit to how many of these deals you're willing to take on at any given time? You're nearing the completion of the Motto. Now you'll have these 3. Is -- should we expect more over the next year or 2 ahead of these deliveries? Or is this kind of it, I suppose, for the near term?

Given the scale of these developments, it's generally been our intent to have no more than 1 or 2 close in any given year. I think from our perspective, that gives us the maximum amount of flexibility from an ability to close on those assets. And barring a really exceptional deal, I would anticipate that as we look at out years with '27 and '28, this would represent the entirety of the forward commitments we were likely to make. Any additional commitments would likely be for assets anticipated to be delivered further out.

Next question, Ken Billingsley with Compass Point. Ken, your line is live.

We'll move on to Jay Kornreich with Cantor Fitzgerald.

I guess just first, I wanted to follow up on one of the previous government-related questions. As we look towards 2026, if government demand does remain soft, are there any, I guess, initiatives or maybe new strategies you can employ to fill some of the gap in the government and related travel should it continue to be slow, just having this past year of experience and more maybe visibility into what could transpire next year?

I think the team has done an exceptional job pivoting very quickly to build additional base business through group, which is both represented by leisure and corporate group business. I think the team will continue to lean into that as well as exploring other demand opportunities within those respective markets. The team, again, we felt the incremental burden of the pullback in March and April. And certainly, from a market share perspective, realized that.

And very, very quickly, the team has been able to pivot and maximize based on what's available in market to regain share and be back in a market share growth position. So I think we'll continue to lean into that. And each market is different, but the team is certainly mobilized and working very hard to maximize in the current environment.

Okay. And then just as a follow-up, any [ curious ] -- or what are, I guess, the updated thoughts as to how we should think about the mix shift going forward with some of the corporate occupancy potential lift and some potential deceleration on the leisure side?

So we're actually seeing the opposite in our portfolio. So when we look at recent performance, in part driven by the pullback in government. We've seen greater strength in leisure for our portfolio than we have in midweek corporate, where we saw some weakness, partially offset, as I highlighted in my earlier comments by improvement in group.

I think to the comments that Liz just made, every market is a little bit different, and we will work in each market to maximize on the opportunities that are available to us. And I think continue in many markets to see potential, especially as the government shutdown resolves, which has impact both on government travel directly, but also adjacent businesses to begin to build back some of the corporate demand that has softened for us.

Which we were asked earlier about -- Jay, just as a follow-up, we were asked earlier about the rebound when the government reopens and what we've seen in the past. We believe that part of the negotiated pullback from a corporate standpoint is related to just general uncertainty or potential travel implications with the government shutdown. And that if we saw the government reopen and we did see a return of some of that pent-up demand, but that would not only benefit us from a government perspective, but also from a corporate transient perspective.

Ken Billingsley with Compass Point.

All right. Hopefully, I got the mute button working this time. Can you hear me?

We can hear you.

Excellent. Two questions. One on the expense side, and it was a clarification of something you said earlier. So G&A expense savings has been pretty significant in '25. Is some of this temporary due to management decisions and we'll see this tick back up? Or is this something we can expect to continue?

And with that, on the expense side, can you talk about the -- maybe I didn't quite understand. You're talking about the Marriott shift plan and expected expense savings? Or did I hear that incorrectly?

Okay. I'll start with G&A, and then we can pivot to the Marriott transitions. So from a G&A expense perspective, that is really tied primarily to the executive compensation incentive plan. And as such, it's really correlated to how we're performing from an operating metrics perspective, but largely relative and total shareholder return driven.

So it resets every year. So it will fluctuate every year. This year, the way we've been trending year-to-date, that's what's providing the decline as we look to the revised guidance and as you look year-over-year.

So it's all aligned with shareholders?

Yes, very aligned with shareholders.

And then from a Marriott managed transition standpoint, as I highlighted in my prepared remarks, it is our intent over the coming months to transition our Marriott managed hotels to franchise, entering into long-term franchise agreements with Marriott for those hotels and consolidating management with existing third-party management partners that we're working with already in those same markets. That consolidation is anticipated to unlock incremental value, both in terms of near-term cash flow from the individual assets and over the longer term, to the extent we pursue a sales transaction with any of those assets.

As I highlighted, that the transition aligns with Marriott's strategy to improve and enhance the efficiency of their organization, and we think provides us with an excellent opportunity to further drive operating performance for those hotels.

And then lastly, on the Las Vegas market, I mean I know this is a few years out, but I mean, some talk about it being weaker. Can you discuss the decision to put 2 more there at this time?

Certainly. I think important to highlight in the beginning that despite the pullback in that market, we're currently yielding 10% on a trailing 12-month basis on the SpringHill Suites that we purchased in market. Our hotel has outperformed the market more broadly in part because we target a slightly different piece of business.

We have historically owned hotels in the Vegas market and understand that because of the demand drivers in that market, it tends to be slightly more volatile than other markets where we have ownership in our portfolio. That said, we believe, as I highlighted in my prepared remarks, in the long-term trajectory of the market based on continued investment in meaningful demand drivers, which are more diverse than they have been historically.

And given our location in market immediately adjacent to the recently expanded convention center, we see that being a meaningful driver for long-term value in this complex of hotels. I think when we purchased the SpringHill Suites, we acquired with it adjacent land, which is where these hotels will be built. They will be connected to the SpringHill Suites. And so when we think about operating efficiencies, we will have an ability using the same manager for all 3 hotels to drive really strong bottom line numbers for the hotels.

And again, I think as we think about both additions and subtractions from our portfolio and look to prune and plan, we're taking a long-term view and see our presence in Vegas as a meaningful differentiator from our publicly traded peers and a potential driver for -- of long-term value.

Next question, Michael Bellisario with Baird.

Just a -- first question for you, just in terms of CapEx and disruption, sort of 2 parts here. Just on the Seattle Lake Union project, any outsized cost there? And then how should we think about earnings disruption next year? I think that hotel is pretty large and significant in terms of earnings contribution.

And then the 13 Marriott-managed hotels, just help us understand what's sort of the typical disruption like when you do transition a management company?

Both very good questions. When we think about the Residence Inn, because it was coming up on end of franchise, we anticipated that we would be renovating the hotel regardless of whether or not we transition brand. And so the renovation-related disruption, I think, would have been the same regardless of whether or not we had kept it within that same brand family.

I think as we looked at options in that market, and I highlighted this in my prepared remarks, we looked at competitive supply and recognized quickly that Marriott had significantly greater presence in the market than Hilton, more than double. And given the strength of both reward systems, we saw value in repositioning the hotel to another flag.

Certainly, there should not be a read-through as to our feelings related to the Residence Inn brand or other Marriott brands as indicated by the recently signed development deals. We continue to feel very strongly that those are incredibly powerful brands. Our decision in this market was driven largely by the competitive supply picture and facilitated, frankly, by brand incentives, which helped to sweeten the deal.

As we think about disruption for that particular property, we anticipate some outsized disruption as we transition from one reservation system to another, because it's an extended state property with a higher percentage of direct sales than a typical hotel, we hope to mitigate a portion of that. And I think certainly, we'll be in a position to report back as we work through that process, remembering again that we've given a lot of advance notice to this group and that, that transaction still happens sometime in the future.

Speaking to the other properties, the transition we anticipate there will be much less disruptive. And in fact, we have, from time to time, as you know, transitioned assets from one management company to another in an effort to drive incremental performance from those hotels, especially to the extent we're able to consolidate management within individual markets and leverage that combined presence to reduce staff and to combine sales efforts in a way that -- that really drive incremental profitability.

Because we have a lot of experience with that, I think we feel good about our ability to drive incremental value in the short term. That, combined with the fact that we will be transitioning the hotels during -- for most of the hotels, the slowest period of the year from an overall occupancy standpoint, we see those transitions as going smoothly and positioning us to drive near-term incremental efficiencies from an operational standpoint.

Beyond that, the transition to franchise unlocks incremental flexibility as we think about potential transactions down the road. And so we saw it as a win-win-win with Marriott being able to achieve some incremental efficiencies from an operational standpoint on their side, us gaining operational efficiencies near term as we combine management in individual markets and then long term, unlocking incremental value to the extent we pursue a sale of the assets.

Good. Understood. And then a follow-up for Liz. I think you mentioned 3.4% cost per occupied room this year at the midpoint. Just early look into next year, how should we think about cost per occupied room, at least the growth rate relative to this year? Any puts or takes to consider? That's it for me.

So I think it's a little bit early for us to give definitive guidance from an expense growth perspective given where we are in the budgeting process. And as Justin mentioned, we have several things we're working through, which we ultimately believe will go smoothly and will put us in a better position, but could have some short-term impact.

So if we remove that from the equation, I think we have seen in many areas, expenses moderate as we've moved through the year and feel like the team has done a very, very good job given the top line flexing and maximizing cost savings and maximizing profitability as we think about the bottom line.

We've outperformed our expectations, and we certainly hope that we'll be able to carry some of that through as we think about next year.

[Operator Instructions] Next question comes from Chris Darling with Green Street.

So just a quick follow-up on the Las Vegas development deal. Would you expect any revenue synergies just being next to the convention center with a larger footprint over time?

Absolutely. And especially, I think our team was incredibly thoughtful in the selection of brands such that we could, from a sales perspective, present a very versatile total product with an ability to house larger groups spread among the 3 brands in ways that drive their overall stay experience. But certainly believe that having the combined assets there meaningfully better positions us from a sales standpoint as well as providing us with incremental ability to drive operational efficiencies on brands that, quite frankly, are already leading brands from a margin production standpoint.

All right. Understood. That's helpful. And then maybe more broadly, just taking a step back, as you think about the past few years of transaction activity, hoping you can discuss how you think about market selection. When you're buying into new markets, maybe selling out of others, just curious what are the driving factors behind those decisions? Is it supply? Is it the ability to densify with the same operators? What are the main factors you think about?

A good question. I think zooming out, we're mindful to start with the portfolio profile we're looking to create overall with an emphasis on creating exposure to a broad variety of demand segments and balancing that exposure in a way that creates overall stability from a performance standpoint in the portfolio overall.

And then as we zoom in and look at individual markets, and hopefully, this is apparent as you look at our recent acquisition and disposition activity. Generally, we're looking to lean into markets that are business-friendly where the overall demand trends are expected to be positive and are supported by demographic trends, both in terms of the movement of people and in most cases, large businesses to those [ same ] markets.

And so if we look at pending transactions and start with Nashville, which we anticipate closing on later this year, certainly, Nashville from a hotel performance standpoint has been negatively impacted near term by supply growth and the absorption of that supply.

When you zoom out and look at the overarching trends from a demand standpoint in that market, they continue to be very strong, both from a leisure standpoint and as we look at continued movement of large and small businesses into that market and thinking specifically of the announced movement of Oracle's headquarters to the market as one example, but also expansion of electric vehicle battery plant facility as a joint venture in that same market, combining with expansion of sporting venues, which will have an ability to drive incremental concert-related business, all with the overarching kind of demand for that market continuing to be very strong leisure filling in the gaps.

Moving to Vegas, similar, as we think about overall demographic trends, a largely growing market, they continue to see meaningful investment in additional demand drivers.

And then Anchorage for some time has been one-off and for the past quarter and year-to-date, our top RevPAR producing market, benefiting again from a strong mix of leisure and business demand. I think certainly, as we think about the makeup of our portfolio and our ability to drive long-term profitability, we're mindful of the margins that we're able to drive in those markets, which come from a combination of ability to drive top line performance with appropriate cost structure for that top line performance.

And then we're looking at the overall age of our portfolio and our ability to efficiently maintain our assets. And all of those things combine to drive both our acquisitions and our dispositions activity.

We've been fortunate in the current market to be able to transact at very attractive cap rates on the types of assets that we see as being less strategic for us long term, which has created really an incredible environment where we are able to achieve our strategic objectives in an environment where doing so also immediately enhances our performance from a fundamental standpoint.

And I think as I highlighted in my prepared remarks, we will continue to lean into that. And in the near term, because of where we're trading, look to redeploy proceeds into our stock, in an effort to further improve our cost of capital to fund future acquisitions.

I would like to turn the floor over to Justin for closing remarks.

Thank you for joining us today. We continue to be excited about near- and long-term opportunities for our portfolio and hope, as always, that as you have an opportunity to travel, you'll take the opportunity to stay with us in one of our hotels. I know over the coming weeks and months, we'll have an opportunity to meet with many of you, and we look forward to seeing you in person and answering any further questions you might have.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Good day, and welcome to the Apple Hospitality REIT Second Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kelly Clark, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Apple Hospitality REIT's second quarter 2025 earnings call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon.

Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied.

Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2024 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the second quarter of 2025 and an operational outlook for the rest of the year. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our second quarter 2025 earnings call. Fundamentals for our portfolio improved sequentially as we moved through the quarter with RevPAR declines moderating each month and preliminary results for July showing RevPAR growth year-over-year.

As anticipated, April was the most challenging month as heightened economic uncertainty, a pullback in government travel, the shift in timing of the Easter holiday and the elongated spring break period all weighed on overall performance.

During the quarter, we worked with our management companies to further optimize the mix of business at our hotels, and we're able to strengthen market share broadly across our portfolio as well as in those markets more heavily impacted by demand shifts related to government travel.

Our teams have demonstrated an exceptional ability to swiftly adapt to changing demand trends within our markets, in many cases, layering on additional group business at attractive rates. Although variable expense growth has generally moderated, higher fixed costs and lower-than-expected top line growth impacted our bottom-line performance during the quarter.

Though down slightly, our portfolio continues to produce industry-leading margins with comparable hotels' EBITDA margin of 37.4% for the quarter. Our hotels operate efficiently and produce strong cash flow, while simultaneously providing guests traveling for both business and leisure with a compelling value proposition. While broad economic uncertainty weighed on year-over-year growth and fueled capital market volatility during the quarter, travel demand for our portfolio remained resilient, further reinforcing the merits of our underlying strategy. The fundamentals of our business are strong with growth in our group business largely offsetting slightly softer performance in other segments.

Although the booking window for our hotels remain short, we are encouraged by recent airline and hotel brand commentary related to improvements they are seeing in demand and view these comments as potentially positive indicators for performance in the back half of the year.

Our portfolio of rooms-focused hotels, broadly diversified across markets and demand generators has historically outperformed during extended periods of economic uncertainty and is well positioned for upside should we see a reacceleration in broader economic growth.

Supply-demand dynamics remain favorable across our markets. At the end of the second quarter, nearly 60% of our hotels did not have any new upper upscale, upscale or upper mid-scale product under construction within a 5-mile radius. This historically low rate of supply growth is unique to this cycle, and we believe materially improves the overall risk profile of our portfolio by reducing potential downside, while enhancing potential upside as lodging demand strengthens.

Supported by the strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which is meaningfully additive to total returns for our investors. During the second quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Tuesday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.2%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital.

We remain disciplined in our approach to capital allocation, seeking opportunities to refine and enhance our existing portfolio, drive earnings per share and maximize long-term value for our shareholders.

Since the beginning of this year, we have completed the sale of 2 hotels for a total combined sales price of approximately $21 million, entered into agreements for the sale of our full-service Houston Marriott for $16 million and the sale of our Hampton and Homewood Suites in Clovis, California for a combined sales price of approximately $20 million, acquired the Homewood Suites Tampa Brandon for approximately $19 million, repurchased approximately $43 million of our common shares and paid distributions of nearly $146 million, all while maintaining the strength and flexibility of our balance sheet.

We completed the previously announced acquisition of the 126-room Homewood Suites Tampa Brandon in June. The hotel is located adjacent to our Embassy Suites and represents a unique opportunity to expand our ownership in a submarket that continues to perform well for us with a strong going-in yield and operational upside at a price below replacement cost.

The hotel was offered for sale by the loan servicer and the $18.8 million purchase price represents a 12% cap rate on trailing 12-month results through June of this year and a high single-digit cap rate on trailing numbers after all anticipated capital expenditures. We anticipate that additional upside from operational synergies as a result of clustering this hotel with our Embassy Suites and improved market positioning following our planned renovation will further enhance returns on our investment.

Our execution of this transaction in the current environment illustrates the underlying strength of our platform and our ability to effectively and efficiently deploy capital to maximize total shareholder returns over the long term.

While the overall transaction market continues to be challenging, we have successfully executed on select asset sales in ways that continue to optimize our portfolio concentration and free capital, which we have been able to effectively redeploy at a meaningful spread.

Pricing for the individual hotels varies. However, as a group, the 2 hotels we sold earlier in the year together with the Houston Marriott and the 2 Clovis hotels will trade at a sub-6% blended cap rate or 13.6x EBITDA multiple before CapEx and a 4.3% cap rate or 18.2x EBITDA multiple after taking into consideration the estimated $19 million in required capital improvements. The proceeds from the sales have been used primarily to fund share repurchases.

Since the beginning of the year through June, we have repurchased approximately 3.4 million of our shares at a weighted average market purchase price of approximately $12.83 per share for an aggregate purchase price of approximately $43 million.

Shares repurchased year-to-date have been priced at around a 3.5 turn spread to recent dispositions and over an 8 turn EBITDA multiple spread after taking into consideration required capital investments. We continue to have one hotel under contract for purchase, the Motto by Hilton, which is under construction in downtown Nashville. This asset is being developed under a fixed price contract, and we anticipate acquiring the hotel for approximately $98 million upon completion of construction later this year.

Since the onset of the pandemic, we have completed approximately $338 million of hotel sales with an additional $36 million under contract and expected to close in the coming months. These sales have allowed us to forego over $100 million in capital investments and represent a blended cap rate prior to taking into consideration necessary CapEx of approximately 5% and a sub-4% cap rate after CapEx.

Over the same period, we have invested more than $1 billion in acquisitions and purchased 6.5 million shares of our own stock while maintaining the strength of our balance sheet. These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets and positioning us to continue to benefit from near-term economic and demographic trends.

We have consistently demonstrated our ability to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. Since May of last year, we have purchased nearly $78 million of our own shares.

While our long-term goal is to grow our portfolio, when our stock trades at an implied discount to values we can achieve in private market transactions as it has for the past several months, we will opportunistically sell assets and redeploy proceeds primarily into additional share repurchases, preserving our balance sheet so that at the appropriate time in the cycle, we can act quickly on attractive acquisition opportunities.

Consistent reinvestment in our portfolio is a key component of our strategy and ensures that our hotels maintain their strong value proposition for our customers and remain competitive in their respective markets while further driving EBITDA growth.

Our experienced team is focused on leveraging our scale ownership to control costs, maximize impact on reinvested dollars and schedule projects during periods of seasonally lower demand to minimize revenue displacement. Our ability to effectively renovate and maintain our assets is a meaningful differentiator that helps us to achieve strong returns for our investors over long periods of time.

During the 6 months ended June 30, capital expenditures were approximately $32 million. For the year, we expect to reinvest between $80 million and $90 million in our hotels with major renovations at approximately 20 of our hotels.

We entered the quarter at a time of heightened macroeconomic uncertainty, and we're prepared to adjust operational and capital allocation priorities accordingly. Although we did see a pullback in government travel beginning in March, demand trends have stabilized, and overall travel demand remains strong. Our booking window remains short.

But as we look ahead to the second half of the year, we are encouraged by modest improvements in consumer sentiment and some easing of uncertainty related to policy changes, though economic uncertainty remains elevated, and these improvements are not yet fully reflected in current booking data, which has pulled back slightly year-over-year for August and September.

The adjustments we have made to full year guidance reflect current booking trends and could prove conservative if improvements in the macro environment drive better in the month for the month pick up like we saw in the first half of the year. With historically low exposure to new supply, our portfolio is particularly well positioned to benefit from incremental improvements in overall travel demand.

This year, we are celebrating 25 years in the hospitality industry and 10 years since our listing on the New York Stock Exchange. Throughout our history, we have worked to refine our strategy, intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels, developing our corporate team and closely aligning efforts with the associates and management teams who operate our hotels.

Our differentiated strategy has been tested and proven across multiple economic cycles. With the strength of our broadly diversified portfolio, the overall stability of our business, our low leverage, and the depth of our team, I'm confident that we are well positioned to drive profitability and maximize long-term value for our shareholders in any macroeconomic environment.

It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and the outlook for the remainder of the year.

Thank you, Justin, and good morning. As we have previously messaged, a challenging macroeconomic environment and difficult calendar shifts weighed on our portfolio second quarter results.

Comparable hotels total revenue was $380 million for the quarter and $706 million year-to-date through June, both down slightly to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was $142 million for the quarter and $248 million year-to-date through June, both down approximately 5% to the same period of 2024.

Second quarter comparable hotels RevPAR was $129, down 1.7% as compared to the second quarter 2024. ADR was $164, down only 10 basis points, and occupancy was 79%, down 1.6% as compared to the second quarter 2024.

For the 6 months ended June 30, comparable hotels RevPAR was $120, down 1.1%. ADR was $160, up 0.4% and occupancy was 75%, down 1.6% to the same period of 2024, respectively.

Our portfolio continues to outperform the industry, where STAR reports RevPAR to be $100 and average occupancy for the industry to be 62% for the first 6 months of the year, highlighting the relative strength of our portfolio demand despite year-over-year declines.

During the quarter, RevPAR declines steadily improved each month as we moved past a few key headwinds and our team's adjusted strategy and reoptimized the mix of business at our hotels where there were meaningful shifts in government and other demand segments, strengthening market share for our overall portfolio.

Concerns related to potential policy changes and reductions in government spending as well as the shift in timing of the Easter holiday heavily impacted April results with RevPAR down 4% compared to April 2024.

In May and June, clear of challenging calendar shifts, fundamentals steadily improved with RevPAR down 0.9% in May and only 0.2% in June as compared to the same periods of 2024.

Market performance varied significantly during the quarter with a mix of strong RevPAR gains in several markets and ongoing headwinds in others due to demand shifts and challenging year-over-year comps. Our team remains focused on hotel and market-specific strategies as well as operational execution to maximize performance.

Based on preliminary results for the month of July 2025, comparable hotels RevPAR improved by approximately 1% as compared to July 2024, driven by increases in both occupancy and ADR.

Turning back to the second quarter, weekend and weekday occupancy trends were heavily impacted by calendar shifts and saw improvement as the quarter progressed. Weekend occupancy was positive year-over-year in June at up 1.1% after being down 3.7% in April and down 0.2% in May.

Weekday occupancy was also positive in June, up 0.3% after being down 3.1% in April and down 1.5% in May. Weekend ADR grew slightly at 0.1% and weekday ADR contracted by only 0.5% in the quarter, driving the slight overall ADR decline.

Same-store room night channel mix was also impacted by the Easter holiday shift, macroeconomic uncertainty and reductions in government travel. Brand.com bookings were up 40 basis points year-over-year at 40%. OTA bookings were up 20 basis points to 13%. Property direct was up 40 basis points at 25% and GDS bookings were down 60 basis points to 16%.

Looking at second quarter same-store segmentation, bar remained strong at 32% of our occupancy mix. Other discounts grew 40 basis points to 28% of mix. Corporate and local negotiated declined 90 basis points to 17% of mix and government declined 70 basis points to 5.2% of mix.

Group business mix improved 150 basis points to 17%, largely offsetting declines in government and negotiated as our property teams adjusted strategy in response to shifts in demand during the quarter.

While our group business benefits from citywide conventions, it is not dependent on large group events and is generally comprised of smaller business and leisure groups ranging from local corporate meetings and training events to more leisure-oriented groups like family reunions, weddings and sports teams.

We continue to see growth in other revenues, which were up 6% on a comparable basis during the quarter and up 8% year-to-date, driven primarily by parking revenue.

Turning to expenses. Comparable hotels total hotel expenses increased by 2.8% for the second quarter and 2.6% year-to-date through June as compared to the same period of last year or 3.7% and 3.8% on a CPOR basis.

On a same-store basis, total hotel expenses increased by only 1.7% for the second quarter and 1.5% year-to-date through June. Total payroll per occupied room for our same-store hotels was $39 for the quarter, only up 3% to the second quarter 2024, an improvement compared to Q1 at $42 per occupied room and 4% growth year-over-year. We continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total wages, down 150 basis points or 15% versus the same period in 2024.

Comparable hotels variable hotel expenses increased 2.1% in the second quarter, with cost control efforts holding rooms expense growth to only 1.5% and nearly flat on a same-store basis. Sales and marketing expenses and utility costs, which were headwinds in the first quarter, saw improvement in the second quarter, growing only 0.7% and 1.9% year-over-year, respectively.

Comparable hotel administrative and repair and maintenance costs grew slightly higher at just under 4% during the quarter, driven by administrative wages and other employee-related costs, but only 3% on a same-store basis. Consistent with the first quarter, real estate taxes were a headwind with increases in several markets and challenging comparisons related to 2024 appeals.

Despite a softer top line, our comparable hotels adjusted hotel EBITDA margin is strong at 37.4% for the second quarter and 35.1% year-to-date through June, down 200 basis points and 190 basis points as compared to the same period of 2024, respectively.

Adjusted EBITDAre was approximately $133 million for the quarter and $228 million year-to-date through June, both down approximately 6% to the same period of 2024, respectively. MFFO for the quarter was approximately $112 million or $0.47 per share, down 6% on a per share basis as compared to the second quarter 2024. Year-to-date through June, MFFO was approximately $188 million or $0.79 per share, down 6% on a per share basis as compared to the same period in 2024.

Looking at our balance sheet. As of June 30, 2025, we had approximately $1.5 billion of total outstanding debt, approximately 3.4x our trailing 12 months EBITDA with a weighted average interest rate of 5%.

At quarter end, our weighted average debt maturities were approximately 2 years. We had cash on hand of approximately $8 million, availability under our revolving credit facility of approximately $475 million and approximately 61% of our total debt outstanding was fixed or hedged.

During the quarter, the company repaid in full 2 secured mortgage loans for a total of approximately $33 million, bringing the number of unencumbered hotels in the company's portfolio as of June 30, 2025, to 209.

Subsequent to quarter end, in July, we entered into a new unsecured $385 million term loan facility with a maturity date of July 31, 2030. At closing, proceeds were used to repay all amounts outstanding under our unsecured $225 million term loan facility in advance of its maturity date with the incremental capacity used to pay down a portion of the outstanding balance on our revolving credit facility.

Interest payments on the $385 million term loan facility are determined by an annual SOFR rate plus a margin ranging from 1.35% to 2.2%, depending on the company's leverage ratio as calculated under the terms of the credit agreement and without a credit spread adjustment. The new credit agreement for the $385 million term loan facility otherwise contains substantially the same terms as the previous credit agreement for the $225 million term loan facility.

Looking ahead, the 5-year tenor will enable us to manage and stagger our maturities as we approach our main credit facility in the next 12 months. Following the close of this facility, our weighted average debt maturities increased to over 3 years. We paid down the existing balance as of that date on our revolving credit facility, increasing our availability to $650 million and approximately 67% of our total debt outstanding is now fixed or hedged after entering into 2 new swaps on $100 million of outstanding debt subsequent to quarter end, improving our weighted average interest rate.

Turning to our updated outlook for 2025 provided in yesterday's press release. For the full year, we expect net income to be between $161 million and $187 million. Comparable hotels RevPAR change to be between negative 1.5% to positive 0.5%. Comparable hotels adjusted hotel EBITDA margin to be between 33.5% and 34.5% and adjusted EBITDAre to be between $428 million and $450 million.

As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels RevPAR change by 50 basis points, resulting in a 20 basis point decrease in comparable hotels adjusted hotel EBITDA margin and a decrease in adjusted EBITDAre by $5.5 million.

We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3.3% at the midpoint, which is 4.1% on a CPOR basis. We continue to assume these increases are driven primarily by higher growth rates for certain fixed expenses, including real estate taxes and general liability insurance than those experienced last year.

Additionally, we expect approximately $2 million of incremental expenses related to brand conferences, which occur every 18 to 24 months, a portion of which was realized during the second quarter with the majority expected to materialize in the third quarter. This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions.

Looking ahead to the second half of the year, though economic uncertainty remains elevated, it is encouraging to see modest improvements in consumer sentiment and some easing of uncertainty related to policy changes. Our reservation booking window is short, and we do not believe these improvements are reflected in our current booking data, which has pulled back slightly year-over-year for August and September, likely impacted at least in part by the shift in Rosh Hashanah into September from October.

The adjustments we have made to full year guidance reflect current booking trends and could prove conservative if improvements in the macroeconomic environment drive stronger short-term bookings.

As we celebrate and reflect our 25 years in the hospitality industry and 10 years since our listing on the New York Stock Exchange, we are confident our team has the knowledge and experience to successfully and dynamically navigate market shifts and changing conditions to maximize profitability and drive additional value through opportunistic transactions. The underlying merits of our differentiated strategy have proven resilient across economic cycles, enabling us to preserve equity value in challenging environments and to be uniquely positioned to enhance value as opportunities arise.

While we have experienced some economic headwinds early this year, we believe favorable supply-demand dynamics persist. Our recent capital allocation activity has enabled us to drive incremental value for shareholders, and our balance sheet continues to provide us with meaningful optionality. We are confident we remain well positioned.

That concludes our prepared remarks, and we are now happy to answer any questions you have for us this morning.

[Operator Instructions] And today's first question comes from Austin Wurschmidt with KeyBanc.

It's Josh Friedland on for Austin. My first question is around guidance. If the positive booking trends seen in July were to continue, absent the holiday shift impact, would you have been comfortable holding the prior midpoint of RevPAR guidance?

It's a good question. I mean I think had -- I think it's entirely based on what we see from a guidance -- from a booking position perspective as we sit here today for August and September, if trends continue to improve, it's been 4 or 5 weeks of sequential improvement, which is encouraging. How much it would continue to improve would sort of dictate whether we feel comfortable maintaining guidance. But I do believe that there is some upside relative to the current trajectory of pick up.

But again, we have seen how we materialize relative to booking position be noisy like the monthly performance we've seen year-to-date. And so felt more comfortable basing guidance on the position that we -- where the position is today.

Okay. That's helpful. And on booking strategy, do you continue to add some group onto the books in the third quarter? And at what point would you pivot away from group and look to remix into higher-rated segments?

Interestingly, group has been an ADR benefit to us in the second quarter. I think it's one of the reasons that we have seen ADR hold in there despite some overall occupancy declines in the second quarter.

So group hasn't negatively impacted our overall RevPAR performance. So I think as we think about layering on group, it's all about the right group at the right rate. And over the past few months, it really has been a key driver to the improvement in our RevPAR performance as you look from April through June and even into July, we've had elevated group business.

We were really, really pleased with our team's ability to pivot quickly once we saw dynamics change in March and April and re-strategize and think market by market and hotel by hotel and layer on some incremental groups.

So I think today, as we are approaching mix of business in each hotel, we'll be prudent and certainly not saying we would layer it in everywhere.

But overall, it certainly has been a benefit, and the team has done an exceptional job of putting it in on attractive rates that have only enhanced our RevPAR position.

And the next question comes from Aryeh Klein with BMO Capital Markets.

And maybe just a bit of a follow-up. If you could provide a little bit more color just on what you saw in July and kind of the relative strength there and maybe also just on the book on bookings, what you're seeing from that front? And then just as far as the cadence of RevPAR growth in 3Q and 4Q, how we should be thinking about that?

Okay. I'll try to answer all those questions. But if I miss one, ask again. Thinking about July specifically and how that month materialized, we were pleased. We were pleased with performance in July. The improvement in RevPAR growth and market share that we saw really coming out of April and progressing into July, the sequential improvement in RevPAR change performance was overall encouraging.

When we look at booking position in August and September, were down, and that's factored into guidance. But August booking position does not take into account, at least today, the trajectory of what we saw in July with short-term pick up in our booking position. So I think overall. So I think July, we did see improvement as we were looking at future bookings and in the month for the month bookings.

But just several weeks, we needed to be somewhat cautious there. As we think about beyond August and September and sort of thinking about your cadence question, August and September are down from a booking position standpoint. October, though, is up to last year and certainly looks -- at least today, though it's very early to be looking at October, looks to offset September decline. So I think that's where we, in part, believe some of it is the shift in Rosh Hashanah into September and October just being for our portfolio, historically, a very strong business and leisure-oriented month.

So when you think about Q2 and -- or Q3, I'm sorry, and Q4, we have anticipated that RevPAR because of August and September booking position today would be down and that we would see improvement in the fourth quarter, and we'd have RevPAR growth in the fourth quarter.

And then maybe just looking at the portfolio and the market performance, it looks like some of the Sunbelt markets were really some of the weakest in the quarter, whether it was Phoenix, Nashville, Dallas. Just curious if you can provide a little bit more color on what you're seeing in those markets and maybe what specifically drove that weakness?

Absolutely. And actually, if you look at our market results, you'll see there are broad disparities in terms of performance market to market. Remember, across the entire portfolio, performance for the quarter is skewed by April's performance, which is largely calendar shift, remembering that our hotels tend to perform worse over holiday weeks than they do outside of those weeks because of the mix we generally have are business travel.

When we look at some of the markets that you highlighted, the specific factors vary. Dallas, for example, was negatively impacted by convention calendar and renovations at the convention center. Phoenix was negatively impacted by a pullback in semiconductor business, largely impacting our portfolio of hotels. That business is expected to come back as we round out the third quarter and move into the fourth quarter of this year. There is some impact from a slight pullback in government in certain other areas. And then when you look through some of our other Sunbelt markets, markets like Huntsville that don't show up specifically as an individual market, but as one of our Alabama markets saw a pretty significant pullback in government, which negatively impacted that market.

When we look at the portfolio as a whole, though, what's interesting is looking at our top-performing markets, nearly half of them were positively impacted by improvement in government travel. And then when we look at the bottom portion of our portfolio, there are a significant number of the markets that were negatively impacted by a pullback in government.

Certainly not the only factor impacting our market, but we did see across the board, in addition to the holiday shift in April, some pretty significant shifts in travel patterns. And as Liz highlighted earlier, are incredibly pleased with our team's ability to shift focus and to attract largely group business across the portfolio at higher rates over the course of the quarter, improving our occupancy and rate positioning and by July, putting us in a position to be positive. I think certainly speaks to the strength of our team, both here corporately and at the property level and also the versatility of the product that we own and the appeal that that product has with a broad consumer base.

So I would love to be able to point you to a single factor that impacted all of our markets, but the reality is it's a variety of factors that came together, all exacerbated during the quarter by the calendar shift impacting April.

And the next question comes from Cooper Clark with Wells Fargo.

Just given some of the comments on weaker August and September bookings, can you talk about what gives you confidence in the acceleration in 4Q RevPAR pick up, whether it's mix shift, acceleration in fundamentals or softer comps?

It's a combination of things. I'd say you highlighted in your question several of them. Part is looking ahead at booking position today. And again, it's too far out to put too much weight into that. But as we look at the fourth quarter, our booking position is positive. Looking at calendar shifts is a piece of it, benefiting from not having the election in November. And then having -- we started to talk about it and were more impacted in Q1, but we did have some market share opportunity beginning in November and feel like we have some opportunity as we round out the year.

Great. And then as we think about capital allocation moving forward in a seemingly improving transaction market with more available financing, could we see the pace of disposition activity accelerate beyond the announced closings with proceeds used for share buybacks?

I think certainly, I think moving back or looking back 12 months or so, we had hoped that there would be a more rapid recovery in our share price, given how we have traded recently and the effectiveness of our team at executing, I think, incredibly well on sales transactions and our ability to benefit from the arbitrage between private market valuations and the implied multiple in our current share price, you could expect us to dig even deeper into that area.

Incredibly pleased with both the transactions we've done to date, but also the assets that we currently have under contract. We're continuing to test the market to see if there's an appetite for larger scale transactions. And to date, have had a better ability even with more open debt markets to secure attractive pricing with smaller assets or as you saw with our most recent announcement, small portfolios still in that $20 million or less kind of price range. But rest assured that to the extent we continue to see an arbitrage opportunity as big as the one we see now, we'll continue to pursue it.

Importantly, in my prepared remarks, I highlighted the fact that it is our desire long term to grow the portfolio. And I think using proceeds from these sales to fund share repurchases, while we certainly have balance sheet capacity, to do more than that. It preserves balance sheet capacity to pursue acquisitions as market conditions shift and that becomes the more attractive opportunity for us.

In the meantime, in addition to the immensely positive arbitrage opportunity that we're taking advantage of, we're also offloading CapEx that would be needed over the next several years to buyers of these hotels. And we think better positioning the portfolio for the long term.

And the next question comes from Chris Darling of Green Street.

Justin, actually, going back to that last point, as you think about incremental dispositions, you highlighted the opportunity to repurchase shares. How does the Nashville purchase contract factor into that thinking? And how would you intend to finance that acquisition?

It's a good question. A portion of our acquisitions activity, as you know, has always been forward commitments on new development assets because we're making those commitments in many cases, 2 to 3 years in advance of the acquisition, we're taking into consideration in our analysis more of an average cost of capital than a spot cost of capital. I think our intent would be largely to use balance sheet capacity to fund that acquisition and proceeds from sale to fund asset or stock repurchases.

Interestingly and importantly, highlighted in our press release is the 1031 exchange opportunity. And for tax purposes, we will be utilizing that to pursue the Nashville asset. But largely, we see those as 2 separate phenomenon. And as I highlighted today, where there are limited comps that potentially make NAV analysis tricky, it's very easy for us to do the analysis from a relative value standpoint between where we're able to transact on individual assets and where we're able to buy our shares and take advantage of the large gap that we're seeing today to drive incremental value for our shareholders.

Okay. That all makes sense. And sticking with Nashville, can you speak to the performance maybe in the downtown submarket relative to some of the suburban areas in which you already own? And what's your latest perspective on sort of current market trends relative to your underwriting for the Motto and your ultimate cost basis there?

So from a cost basis standpoint, I think looking at our per key pricing relative to recent trades in the market, it's easy to see that we have cushion beyond where recent trades have happened. We anticipated in our underwriting that the market would stabilize and potentially temporarily pull back and feel good about the long-term value that we will achieve on that asset.

I think Colin on Ryman's call had very good commentary about the Nashville market, and we are equally bullish long term about the potential there. When we look at the delta from a performance standpoint between the downtown markets, remembering we own assets in the Vanderbilt area, which is just outside of downtown.

We also own assets in Franklin. The Franklin market has been a little bit more challenging recently for us. The long-term prospects, we think, are good as they repurpose auto manufacturing facilities in that area, which have historically been a key driver of kind of overall demand for that market. And as the market continues to grow as a healthy suburb of the downtown Nashville area.

But near term, we have greater confidence. And when I say near term, over the next 6 to 12 months, I think that the downtown area will continue to perform on a relative basis, slightly better with both areas absorbing, I think, higher than the national average amounts of new supply, but continuing also to see an influx of new businesses and very strong leisure demand, which we think, over time, continue to make Nashville a very compelling market for us.

And the next question comes from Daniel Hogan with Baird.

First question is quickly on buybacks. It didn't look like there was anything in July. Do you feel like those buybacks start to track asset sales in your mind? Or is there room to sort of be opportunistic and incrementally use the balance sheet there?

I think as I highlighted in my earlier response, we intend over time to primarily fund share repurchases, utilizing proceeds from sale. In those instances, the arbitrage is very easy to quantify. Though we do have incremental capacity and have shown an ability to look forward and to buy shares opportunistically and then reset the balance sheet with future sales. I think the pullback in July had much more to do with timing of our earnings than it did appetite for shares. Certainly, at or around current pricing, we continue to see significant value in our shares.

Okay. That's helpful. And then just a follow-up then on being opportunistic with the transactions. Is there still a large appetite for buyers out there looking to take on assets with larger portions of required renovations or CapEx needs? Or would you still consider dispositions of assets regardless of CapEx needs or not if there's a buyer out there?

Our CapEx is a driver, but not the only driver of our dispositions activity. Certainly, we're looking to maximize the value of the trade and we would be willing to sell assets where we could maximize current price and where we felt we could further improve the trajectory and quality of our overall portfolio, even where near-term CapEx is not an issue. And in fact, as we move forward over the next 12 to 24 months, you're likely to see us renovating assets in advance of sale in some instances because of our ability to perform renovations more efficiently than potential buyers and seeing that as a way as well to potentially maximize the value on sale.

[Operator Instructions] And the next question comes from Ken Billingsley with Compass Point.

I wanted to follow up when you talked about the group business contributing to the bottom line. I would imagine it has a little bit of a lead time. So what was different that allowed you to accelerate adding more group business? Is that something you are going to continue to replicate? And why not continue to maintain that?

There will be a continued focus on group, where it makes sense. I think one of the things that differentiates our group business from more traditional citywide and convention calendar type group business or large group business is that it is and typically has always been shorter term in nature. So you think family reunions, sports teams, smaller corporate events, things of the sort, we've been able to layer that in fairly quickly. So I think, as I mentioned before, because we have been able to do that and focus in on that at attractive rates and with some success, we'll continue to focus there where it makes sense from an overall mix perspective.

When you say attractive rates, I would imagine if it's short turnaround for like a family reunion, is it attractive for them to get them in? Or is it attractive to you?

To us. When I say attractive rates, I mean, obviously, we are working with the respective group. And hopefully, we're coming up with a win-win for everybody. But when I say that, I talk about our group rates year-over-year. So rate growth as we think about different segments of business, we've been able to grow group ADR year-over-year in an environment where rate has remained strong, but we certainly haven't seen the rate growth across all segments of the business that we have seen in group business over the last quarter. And so, I think it's certainly group by group, but we've been able to grow base group rates year-over-year, which has been additive.

And lastly, the -- I believe you said something about market share opportunity in November. What is it that you think you're going to be able to grab market share? And why specifically November or why it's not something that persists in general? Can you just kind of explain what you mean by grabbing market share that I'm assuming you would always be looking to get anyways. So what's different here?

Yes. So I'm going to touch on November specifically, and then I'm going to kind of zoom out and talk about market share more broadly since we have highlighted it both last quarter and this quarter, and it isn't something we've typically highlighted quite as much.

But for November specifically, the week of the election, given the makeup of our portfolio and when we think about our RevPAR growth in November relative to the broader industry, we did not see the same level of performance largely because of the makeup of our portfolio and being so significantly business transient oriented.

So less about specific market share, like comp set market share in individual markets and more broadly speaking about how the calendar did not play in our favor -- relative favor given the composition of our portfolio for November specifically. But as we talk about market share, I want to ground us a little bit.

Our overall portfolio has always had strong market yield relative to the specific markets we're in. And we've had a history of consistently gaining market share within our markets overall as a portfolio. When we reference market share, we look at it 2 different ways, which I've sort of highlighted already.

We look at our portfolio RevPAR growth relative to the broader industry, which is influenced in part by market concentration and portfolio composition as well as property-specific performance relative to its comp set or market.

And as I mentioned earlier, we've consistently had strong market share on an absolute basis in our individual markets. That said, we also like to be gaining market-specific market share, and we did see in both our performance to the broader industry and our individual markets, some opportunity in the first quarter specifically, which again was unusual, and we highlighted that.

Given the abrupt market shifts driven largely by the macro, we really are -- and I'll say it again, we're really incredibly pleased that by the end of the second quarter and for the second quarter overall, we regained that market share within our respective markets and in June, outperformed the broader industry as well.

Our corporate teams, our management company teams and our property teams really did an exceptional job quickly adjusting tactical strategy with all the demand shifts and dynamics that played into the macro, but our portfolio specifically that we spent a lot of time highlighting the last call. And I'm pleased too, to say that we've maintained that market share growth in the running 28 days as well.

And this concludes our question-and-answer session. I would like to return the floor to Justin Knight for any closing comments.

We appreciate you joining us on today's call and look forward to speaking with a number of you over the coming weeks. We hope, as always that as you travel, you'll take the opportunity to stay with us at one of our hotels until next time.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.