Apple Hospitality REIT Inc Stock

Good morning, and welcome to Apple Hospitality REIT's Second Quarter 2026 Earnings Call. Today's call is 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 second 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. All references to year-to-date performance refer to the 6-month period ending June 30, 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 second quarter 2026 earnings call. We are pleased to report comparable hotels RevPAR growth of more than 5% for the second quarter, driven by broad-based improvements in both business and leisure travel demand. Approximately 3/4 of our hotels delivered RevPAR growth, up from 2/3 in the first quarter. The efficient operating model of our hotels, combined with prudent management of expenses, enabled us to convert approximately $0.58 of each incremental revenue dollar into comparable hotels adjusted hotel EBITDA. That flow-through produced 120 basis points of margin expansion and MFFO of $0.52 per share, an increase of more than 8%.

Demand momentum has continued into the third quarter with preliminary reports for the month of July indicating comparable hotels RevPAR growth of more than 5.5%. Weekday occupancy improvement outpaced weekend occupancy improvement during the quarter, indicative of strengthening business travel across our portfolio. While the 2026 FIFA World Cup drove significant pricing power in our host markets, RevPAR, excluding those markets grew nearly 5%, demonstrating that the improvement we are seeing is broad-based and not tied to a temporary catalyst.

Reflecting our year-to-date outperformance and continued strength in forward bookings, we are raising our full year RevPAR growth guidance 225 basis points to 3.25% at the midpoint and raising our full year comparable hotels adjusted hotel EBITDA margin guidance 75 basis points at the midpoint to an increase of 25 basis points year-over-year. Even at the revised midpoint, our outlook implies more modest growth in the second half than we delivered in the first, and we believe it could continue to prove conservative. Transient demand has been stronger than anticipated, and our group business continues to build, providing strong base business at attractive rates.

We also lapped periods adversely affected by reduced government travel and last year's government shutdown, which represents potential upside not fully reflected at the midpoint of our outlook. To date, we have not experienced any adverse impact from the escalation of energy costs attributable to the ongoing conflict in the Middle East. However, should this begin to impact consumer spending, our hotels offer a value proposition that has historically held up well during periods of economic uncertainty. In July, we completed a series of refinancing transactions that extended our maturities, improved our pricing and increased the capacity of our revolving credit facility, which Liz will address in more detail. Taken together, they leave us with meaningful liquidity, no near-term maturities of consequence and the flexibility to grow when the opportunity is right.

Our approach to capital allocation is comparative in nature with each potential use of capital measured against the alternatives available to us to maximize value for shareholders. In April, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sale price represents a 5% cap rate or 14.5x EBITDA before capital expenditures and a 4% cap rate or 19.6x EBITDA after taking into consideration an estimated $3 million in anticipated capital improvements. Buyers for these types of assets remain active, though pricing varies meaningfully by hotel and by market. We continue to evaluate select assets where we believe a sale together with the redeployment of proceeds creates more value than continued ownership.

The Motto Nashville Downtown, which recently received Hilton's New Build of the Year Award for the brand, achieved ADR of approximately $243 during the second quarter, a meaningful premium to the Nashville market with occupancy continuing to build as the hotel ramps. At the Homewood Suites Tampa Brandon, acquired last year, we recently began a comprehensive renovation, that once complete, will further strengthen the hotel's competitive position in this market.

Turning to out-year commitments. We continue to have forward contracts for 2 projects under development, an AC Hotel in Anchorage, Alaska, which we expect to be delivered in late 2027, and a dual-branded AC and Residence Inn adjacent to our existing SpringHill Suites in Las Vegas, which we expect to be delivered in the second quarter of 2028. Construction is underway on both, and in each case, the developer carries the project under a fixed price forward purchase contract. Our cash outlays occur only at completion, allowing us to secure newly built, well-located assets at a known cost without deploying capital until delivery. Both are markets we know well.

Our 2 hotels in Anchorage grew RevPAR nearly 17% during the second quarter, operating at approximately 95% occupancy at an average daily rate of $346. And our SpringHill Suites in Las Vegas has grown RevPAR nearly 5% year-to-date. Development has been a consistent part of how we grow. But in most markets, construction costs continue to rise faster than hotel fundamentals, limiting new projects and keeping industry supply growth near historic lows to the benefit of the hotels we already own. At quarter end, 55% of our hotels had no new upper upscale, upscale or upper mid-scale product under construction within a 5-mile radius, which limits potential downside and enhances potential upside.

There continues to be product in the market that would be attractive to us. The primary constraint remains the gap between seller expectations and what we are willing to pay. The gap has narrowed, but 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. We remain actively engaged and the flexibility of our balance sheet and our reputation for execution position us to act quickly as conditions change.

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 6 months ended June 30, capital expenditures totaled approximately $40 million. For the full year, we expect to reinvest between $85 million and $95 million, a $5 million increase to our earlier range with comprehensive renovations now planned at 18 hotels. As we refined our plan, we prioritized 2 larger projects, the renovation of our Embassy Suites in Anchorage, one of our strongest performing hotels in a market where demand has been exceptional, and the rebranding of our Seattle Residence Inn, which we expect to meaningfully improve its competitive position in that market. We continue to invest across the portfolio at levels that keep our hotels competitive while weighing our larger investments towards the highest returning assets.

At the midpoint of our revised range, reinvestment represents approximately 6% of revenues, consistent with our historical average and supported by the stronger operating performance we have seen this year. The scale of our -- the efficient design of our rooms-focused hotels and our experienced in-house project management team allow us to renovate and maintain our hotels for meaningfully less than full-service portfolios. Combined with stronger operating margins, this efficiency translates into exceptional free cash flow from operations, which we used to fund shareholder distributions and strategic investments.

During the second quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Monday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 5.8%. 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 hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets, industries 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. Together, those principles differentiate our portfolio from our peers.

Efficient rooms-focused hotels produce strong operating margins and require less capital to maintain. And our lower leverage leaves more of the resulting cash flow available to fund distributions, reinvest in our hotels and pursue growth. Through the first 6 months of the year, MFFO per share grew more than 7% to $0.86, reflecting both the strength of our model and the execution of our teams. While we cannot control the broader economic environment, we can control how well our hotels are operated, how prudently we allocate capital and the integrity with which we conduct our business. Those remain our priorities, and we believe that they are what will create lasting value for our shareholders over time.

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. Last quarter, we noted that as we moved into seasonally higher occupancy months and saw greater contribution from rate growth, we would expect stronger flow-through to the bottom line. That is what the second quarter delivered. Comparable hotels ADR grew 3.5%, driving RevPAR growth that combined with the disciplined expense management, we converted into 120 basis points of adjusted hotel EBITDA margin expansion and MFFO of $0.52 per share.

For the quarter, comparable hotels RevPAR was $136, up 5.3%, with ADR of $170, up 3.5%, and occupancy of 80.1%, up 130 basis points. For the 6 months ended June 30, comparable hotels RevPAR was $125, up 3.8%, with ADR of $164, up 1.9%, and occupancy of 76.5%, up 140 basis points. Comparable hotels RevPAR grew 4.8% in April, 4% in May and 7% in June, with results for the quarter well ahead of our expectations. World Cup events in our host markets contributed approximately 150 basis points to June RevPAR growth and approximately 50 basis points to the quarter.

Preliminary results for July of more than 5.5% RevPAR growth reflects continued momentum across the portfolio. July also included the balance of World Cup activity, but unlike June, saw minimal contribution from World Cup matches with our non-World Cup markets performing similarly to our host markets. With the tournament concluding mid-month, we do not expect any continuing impact for the balance of the quarter.

Comparable hotels total revenue was $402 million for the quarter and $739 million year-to-date, up 6.2% and 5.3%, respectively, supported by continued strength in other revenues, which were up 8% for the quarter and 9% year-to-date. For the quarter, comparable hotels adjusted hotel EBITDA was $153 million, up 9.7%, with an adjusted hotel EBITDA margin of 38.1%, up 120 basis points. Year-to-date, comparable hotels adjusted hotel EBITDA was $262 million, up 7.1% with margin of 35.4%, up 60 basis points.

In January, we completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party operators, who in most cases, were already running hotels for us in those markets. Second quarter results for this group were encouraging with RevPAR growth of over 7% and adjusted hotel EBITDA margin expansion of over 300 basis points, well ahead of the portfolio overall. These hotels represent approximately 8% of our adjusted hotel EBITDA. That performance reflects significant effort by our asset management team and our new operators who managed the transition and moved quickly to integrate these hotels into their existing platforms and market clusters.

Performance was broad-based across the portfolio, with our top 30 markets growing RevPAR 5% and all other markets growing 5.9%. Several markets stood out. In our World Cup host markets, RevPAR growth came almost entirely from rate. For example, Kansas City RevPAR grew 17% on ADR growth of 16% and Fort Worth Arlington RevPAR grew 16% on ADR growth of 14%. Elsewhere, we continue to see healthy demand fundamentals with occupancy leading RevPAR growth in a number of markets. South Bend RevPAR grew 24% on midweek group demand tied to Notre Dame. Anchorage RevPAR grew 17% on strong leisure demand supplemented by military and airline crew business. Washington, D.C. grew RevPAR nearly 8% as National Guard deployment compressed the market. St. Louis grew RevPAR 13%, recovering from a softer period last year and aided by group business. And Chicago grew RevPAR 13% on strong leisure trends and continued recovery in midweek demand.

Not every market shared in this growth. Phoenix saw RevPAR decrease 5% with a decline in both occupancy and rate, driven in part by a pullback in semiconductor-related business. That said, we are encouraged by announcements of continued investment in the market and believe this segment's long-term fundamentals remain strong.

Looking at the portfolio more broadly, same-store weekday occupancy improved 240 basis points during the quarter, outpacing weekend improvement of 120 basis points, consistent with the highlighted strength in business demand. That strength was consistent throughout the quarter with weekday occupancy up 280 basis points in April, 310 basis points in May and up 130 basis points in June. Weekday and weekend ADR each grew approximately 350 basis points in the second quarter, punctuated by 6% growth in June with the start of FIFA World Cup.

Shifting to same-store booking channel trends. Brand.com remained our largest channel at 40% of room nights, up 80 basis points year-over-year, while GDS bookings grew 100 basis points to 18%. OTA bookings were flat at 13% of mix and Property Direct declined 140 basis points to 25%. Growth in our GDS bookings reflect continued strength in business travel, while gains in brand.com support both our lowest distribution cost and some of our highest-rated segments.

Turning to segmentation. Bar grew 120 basis points to 33% of our occupancy mix, while negotiated declined 160 basis points to 15%. With midweek occupancy improvement outpacing weekends, that shift indicates the incremental business travel we captured came largely at retail rates rather than contracted rates, which supported our rate growth for the quarter. Group grew 60 basis points to 18% of mix, providing a base of occupancy that supported our ability to drive rate and remains our second highest rated segment. Government grew 30 basis points to nearly 5.5% and discount declined 50 basis points to 28%.

Moving to expenses. With same-store revenue growth of 4.7%, operating expenses grew 3.5%, while fixed expenses declined, bringing total same-store hotel expenses up 3.3% for the quarter and 3% year-to-date, increases of 1.3% and 0.6%, respectively, on a per occupied room basis. That discipline and expense control delivered 80 basis points of adjusted hotel EBITDA margin expansion. Wage growth continued to moderate with rooms wages up less than 3% or less than 1% per occupied room. Utilities and repair and maintenance were our primary headwinds, growing 9% and 6%, respectively. The decline in fixed expenses reflected the favorable property insurance renewal that took effect in April as well as successful real estate tax appeals.

Adjusted EBITDAre was approximately $145 million for the quarter, up 7.5% and $245 million year-to-date, up 5.3%. MFFO was $123 million for the quarter or $0.52 per share, up 9% and 8.3%, respectively. Year-to-date, MFFO was approximately $204 million or $0.86 per share, up 6.1% or 7.5%, respectively. As a reminder, effective January 1, 2026, we began excluding share-based compensation expense from adjusted EBITDAre and MFFO. Prior year results have been updated to conform with the current presentation, so the growth rates I have referenced are on a consistent basis.

Turning to our balance sheet. As of June 30, 2026, we had approximately $1.5 billion of total debt outstanding, approximately 3.2x our trailing 12 months EBITDA with a weighted average interest rate of 4.8% and a weighted average maturity of approximately 2 years. Nearly 60% of our total debt was fixed or hedged, and we had approximately $10 million of cash on hand and $602 million of availability under our revolving credit facility. During the quarter, we repaid one secured mortgage loan for a total of approximately $19 million, bringing the number of unencumbered hotels in our portfolio to 207.

In July, subsequent to quarter end, we completed a series of refinancing transactions that further strengthen our balance sheet and position us well for the years ahead. We amended and restated our primary unsecured credit facility, increasing total capacity from $1.2 billion to approximately $1.3 billion, extending maturities and generally improving the pricing grid. The facility now consists of a $700 million revolving credit facility maturing in 2030, a $275 million term loan maturing in 2031 and a $300 million term loan maturing in 2032.

We also amended and restated our $130 million term loan, increasing it to $160 million and extending the maturity by 7 years. We conformed the improved pricing on an additional $470 million of term loans, extending those benefits across our capital structure. Taken together, these transactions enhance our financial flexibility. Our weighted average debt maturity is nearly 5 years. We have no outstanding revolver balance, and our next significant unsecured maturity is in 2029. We are grateful for the continued support of our bank group throughout this process. The strength of these relationships and the confidence our lenders have shown in our strategy and in the underlying fundamentals of our business are a real testament to the quality of our portfolio and platform. As a result, our capital structure gives us considerable flexibility to be opportunistic as we look ahead.

Turning to guidance. For the full year, we now expect comparable hotels RevPAR change between 2.25% and 4.25%, comparable hotels adjusted hotel EBITDA margin between 33.7% and 34.7%, adjusted EBITDAre between $453 million and $476 million and net income between $152 million and $180 million. As a result of the improvement in RevPAR growth expectations, our guidance assumes total hotel expense growth of approximately 4% at the midpoint. On a per occupied room basis, expense growth remains unchanged at approximately 2%, continuing to reflect the favorable property insurance renewal that took effect in April, along with continued moderation in wage growth.

The revised guidance range incorporates our stronger-than-anticipated second quarter performance and an increase in our outlook for the remainder of the year, driven by improved business and leisure travel demand. We are encouraged by the setup for the remainder of the year given the broad-based demand strength across our markets and favorable comparisons to prior periods impacted by government-related disruptions. 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.

Growth in both occupancy and rate through the quarter, along with continued strength in booking trends, reflects the resilience of travel demand and the specific appeal of our hotels. Our strongest gains came midweek at a portfolio average daily rate of $170. Because rate growth carries higher flow-through than occupancy, that mix contributed to margin expansion and cash flow growth we delivered for the quarter. Our capital allocation decisions have strengthened the portfolio, and our July refinancing extended our maturities and increased our capacity. Together with growing cash flow from operations after capital expenditures, that leaves us with meaningful flexibility to pursue accretive opportunities as they arise. We believe that combination positions us well to navigate changing market conditions and to continue growing cash flow and creating long-term value for shareholders.

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

[Operator Instructions] Our first question is from Aryeh Klein with BMO Capital Markets.

Hoping you could elaborate a little bit on what you're seeing from BT and how that continues to trend. It seems like it's been doing pretty well. What are some of the drivers, I guess, behind that? Is it SMB driven or maybe broader than that? And then you also highlighted group. It's not, I guess, a huge driver for you, but just curious what you've been seeing there and what's been driving that?

We have been very encouraged by the business transient trends that we've seen really since March. And while we began to see in Q1 some ability to shift the mix of our business outside of negotiated corporate rates into retail, we really started to see that continue to amplify in Q2. So if you look at both brand.com and bar-related business, you can see the improvement there, as I mentioned in my prepared remarks. And through GDS, a channel that's predominantly BT-driven, we saw an increase there, which is the first time we've seen meaningful change in many years. So both of those, I think, are clear indications that we're seeing both overall demand strength on peak nights where we can compress the hotel and drive business transient into our highest-rated segments, but also that we're seeing the sheer improvement in demand overall.

And I'd add to that. One of the things that we're most excited about is as you look across our portfolio, the growth is widespread. And thinking about how we've assembled our portfolio, we've intentionally looked to create exposure to a variety of different industries. And I think to see multiple industries contributing to BT business across multiple geographies, I think, indicates a trend that we feel good about and continue to feel good about moving into the back half of the year.

What was the second part of your question, Aryeh? Sorry.

Sorry?

What was the second part of your question?

Just on group, what you've been seeing there?

Group, similar to BT, really strong trends. We were at 18% of our occupancy mix for the quarter, which is one of our strongest quarters. Historically, we've run more in the 15% to 16% range. It's our second highest rated segment. So again, not only are we seeing strength there, we see an ability to capture high rates in that segment, which is driving overall RevPAR growth. It's a mix between corporate and leisure depending on sort of day of week, stay pattern in market. So like Justin mentioned, when speaking about overall demand and how broad-based it is and across segments, group also is benefiting from seeing it both on the business transient or the business group side, remembering ours is more small group, but also on the leisure side.

And then maybe just on expense trends. They seem to be pretty encouraging in terms of what you're seeing. I realize it's early looking ahead to 2027, but just how should we think about it? Are the levels that you're growing at right now from an expense standpoint, sort of what you'd expect next year? Any reason to think it'd be higher or lower at this point?

It's a little early to give definitive guidance on '27, but we have seen fairly consistent performance on the expense side and feel really comfortable that barring any meaningful changes to the environment overall and that would sort of impact things more broadly than just our portfolio, we'd expect similar trends to what we have seen both year-to-date. But really, we've seen it, especially on the variable cost side, really well controlled over the past couple of years.

Our next question is from Michael Hirsh with JPMorgan.

Could you help us further unpack the broad-based demand you're seeing? Is it more so with your higher end travelers or also with the lower end? And then are there any segments that aren't as strong?

So I'll take that. I think looking across our portfolio, it's been broad-based. I think an important point of clarification is we do not own economy or even mid-scale hotels. So I think can't speak based on our own experience to the performances and behaviors of low-end travelers. Average daily rate was nearly $200 for our portfolio, which I think speaks to the type of travelers staying at our hotels. I think looking across markets, that seemed to be the more preeminent driver. Liz highlighted Phoenix was down slightly. In terms of industries driving that market, we continue to feel really good about what's happening in that market and feel that that will be a market that rebounds. And on the flip side, you have markets like Anchorage that have been strong for years, that continued to see outsized growth.

I think, as I said earlier, what pleased us most about the quarter is we came into it thinking that World Cup would be the primary driver of growth during the quarter, if it manifests, remembering that we have been conservative in our guide related to World Cup -- potential World Cup business. As we emerged from the quarter, we saw the majority of our markets experiencing RevPAR growth. And given the diversity of our exposure, we see that as a broad-based positive indicator for the type of business that we attract to our hotels, both business travel and leisure.

And as a quick follow-up, you mentioned that upside from lapping easier government comparisons is not baked into the midpoint of the guide. So I'm just wondering how is that pacing in the third quarter and the second half? And what are your expectations for government travel?

I think we do expect that we would see an improvement in RevPAR relative to the government shutdown in the fourth quarter, in particular. Our third quarter comp relative to last year is not as significant in the third quarter. We have started to improve and not be down quite as much in government in Q3 as we were in Q2 and obviously Q4 of last year. So we have seen year-to-date improvement in the government segment. But with the demand across segments that we've seen, we've also been able to prioritize higher-rated business.

So to quantify precisely what government would be if we did not have other demand to supplement that or to take from a higher-rated segment. I can't perfectly ascertain what I think it would have been just without that improvement in overall demand. But for Q4, even at the midpoint, we have some growth in the fourth quarter related to that. But really, when you combine the current trends that we're seeing with the lapse in government comps, you see that more baked in at the high end of our range.

Our next question is from Rick Hightower with Barclays.

Justin, I know you talked about this a little bit in the prepared comments, but I'm wondering about the prospect to accelerate or kind of increase some of these development property forward purchase deals. And then kind of as an offshoot to that question, when you think about the different -- the moving parts to getting a development deal done, whether it's the equity part of the capital stack, the debt part or just simply operating fundamentals keeping up with construction costs, where do you see the biggest gap today? And how long do you think it would take to sort of plug that gap to see new construction again broadly?

I appreciate the question. We are incredibly excited about the 3 hotels, the 2 development projects we currently have under contract, especially in Anchorage, which will be the first of the projects to come online. The market has done incredibly well, and we feel exceptionally good about our underwriting there. We've seen increased strength in Vegas as well, which gives us incremental confidence. The SpringHill Suites that we've purchased where we'll be building these additional hotels is yielding 11% right now on our acquisitions price, which all of that feels really good.

The reality is that it's difficult to underwrite and to find deals that handful like the deals we currently have under contract. And while we are given regular occasion to look at potential additional development deals, a variety of factors have made them more difficult to pencil. And you highlighted the primary factors there. Certainly, interest rates are elevated relative to where they once were, even if they're closer to historical averages when you zoom out and look at a more extended period of time. But really, the primary driver of the disconnect has been a really rapid increase in overall construction costs, some of which started before COVID. And certainly, we saw an accelerated runoff afterwards.

The year-over-year growth rate seems to have slowed a little bit, but talk of tariffs, increased shipping costs and challenges with freight and things of sort continued to plague development deals from a cost standpoint. And then many markets really have been slower to rebound from an operating performance standpoint relative to the meaningful increases we've seen in overall construction costs. And so when we look across markets, and I highlighted in my prepared remarks as well, we continue to have very limited exposure to new construction, whether or not we're involved in it across the markets where we have ownership. I think that continues.

And as we think about near-term acquisitions, we're much more likely, I think, over the next 6 to 12 months to be signing up existing deals than we are to be entering into new forward commitments, just given where we see values for the 2 different options. I think the brands have spoken to things they're doing to try to reaccelerate or to sustain their development pipelines. And certainly, we've experienced that in the form of key money and other incentives. I think for the foreseeable future, that's going to continue to exist.

And thinking about our portfolio specifically where we're heavily invested in upscale select service assets, supply has historically impacted our sector specifically. The meaningful pullback, we think -- and I've said this in prepared remarks for several earnings calls now, but we think meaningfully shifts the risk profile of a portfolio like ours, decreasing the downside risk and meaningfully increasing the upside potential. I think this past quarter, we began to see that with strong performance across markets and the ability to flow that to the bottom line. And given what we're looking at today in terms of forward booking pace through the remainder of the year, we think we continue to benefit.

Our next question is from Michael Bellisario with Baird.

Justin, I want to -- first on sort of capital allocation as a follow-up there. Just could you dig into the bid-ask spread that you mentioned in your prepared remarks? Maybe help us understand how wide is it? What looks more or less interesting today from an investment perspective? And then what do you think needs to happen for that spread to reach parity?

Yes, sure. It's interesting. I think my expectations were at this point in the cycle, especially given the strength we've seen recently, we would be experiencing or seeing more transactions happen in our space. I think we're more optimistic based on products that we're underwriting today and products coming to market that we're nearing a point where we could see meaningfully greater deal flow. But the reality is for some period of time -- and this varies pretty dramatically by market. For some period of time, there's been a fairly wide bid-ask spread as much as 200 or 300 basis points from a cap rate standpoint, depending on market and product.

I think what we've observed happening is product that has been on the market for an extended period of time is starting to look, in some cases, more reasonable given the recent run-up in operating performance, which is making yields more attractive. And should current trends continue, which we feel reasonably confident they will, I think that alone gets us to a point where more deals pencil and we are able to get more active on the acquisitions front.

Aligned with that somewhat is the fact that we have seen improvement in our share price over the past several months. And as we think about uses of capital, our underwriting consistently weighs potential acquisitions against purchases of our shares. And I think up until recently, the math clearly pointed towards the share purchases. I'll tell you today, and I said in my prepared remarks, there's still a gap. And as we think about valuation, especially on days where share price pulls back, I think we still feel that there is meaningful value and upside in our shares, but the gap is shrinking. And I could see us becoming more active on the acquisitions front and really, quite frankly, that market in total becoming more active as we move towards the end of the year, especially to the extent we continue to see positive indicators for how 2027 might shape up.

That's very helpful. I want to also go back and ask on some of the revenue management topics, probably for Liz here. Just maybe how have operators shifted their approach? I mean I know you gave some of the stats, but maybe help us understand sort of where they're leaning in or pulling back? Are they holding out for more short-term high-rated business? Just sort of any updates here on sort of on the ground strategies would be helpful. That's all for me.

I think that a combination of the revenue management system and our revenue management teams have focused their efforts on maximizing total RevPAR through segmentation, really capitalizing on the pickup in near-term demand. Where we had some opportunity last year was where transient was not picking up last minute the way it had historically. And we certainly attributed a good part of that to the overall uncertainty, the pullback in government and government adjacent business. And that really created a scenario where we needed to think through other forms of base business.

Base business is typically always a good idea, just depends on what rate you're putting it on the books for. And I'd say, one of the strategies our teams have taken in markets where we're seeing strength, which is more than not right now is putting on good group-based business. You saw or I highlighted in my prepared remarks, we were up to 18% in the quarter, which is very high for us at really, really strong rates, further compressing the hotel, not taking it at rates that would diminish our overall ADR penetration from an index perspective and really capitalize on the pickup in that near-term transient business. And we're seeing really good success that way.

Part of our performance was based on World Cup markets, but we saw that phenomenon outside of those markets, too. And so we're really encouraged by that. And again, one of the things that gives us confidence to increase the back half of the year from a guidance perspective is the consistency across markets and consistency over time periods where we're seeing near-term transient picking up in a positive way.

Our next question is from Floris Van Dijkum with Ladenburg Thalmann.

A question, I'm encouraged by the improvement in your conversion assets. Obviously, it's only a quarter. What kind of impact do you think putting new management teams on those assets could do to the EBITDA, which I think you alluded to was 8% of your total EBITDA prior to the conversion. How much upside -- further upside is there ahead in your view?

We're really pleased with the transitions and how quickly the teams have reacted to integrate them into the new management organizations, the market clusters that we have in many cases where we transition to managers that we -- that have presence in those markets as well, leveraging that from an economies of scale perspective, from a market expertise perspective, both helping to drive the top line and also cost synergies for managing multiple assets across a given market. So we're really pleased with how quickly they integrated into the new management platforms and the near-term margin expansion that we've seen.

There was some transition related to moving those contracts to new managers, meaning we had open positions and things of this sort. I think we will end up in a very favorable place from a margin gain perspective for those assets long term. We anticipated that when we made the transition. And we really think that between the cost synergies and the top line benefit that we'll continue to see margin and EBITDA contribution in excess of what we would if we had stayed and not transitioned.

If you think back to my prepared remarks in the quarter, those assets had 300 basis points of margin gain. That was about a 15 basis point impact on same-store margin. Hopefully, we'll be able to continue to maintain some of that, but there were some transition-related impacts that helped drive that. But overall, very, very pleased. And again, how quickly we were able to integrate and start driving the top line, especially puts us in a really good position as we continue to move through the year.

And then maybe my other question is more on the capital markets side. You talked a little bit, Justin, about the disconnect still. Are there specific as you look at your portfolio, what are the areas where you would like to have more exposure, if you could? If the markets continue to move in your favor and you continue to see opportunities and pricing disconnect between buyers and sellers narrows, what are the sort of the things that we should expect you to allocate capital? Is it more urban markets? Or is it like the deals in -- sorry, Las Vegas and D.C.? Or is it more your traditional suburban markets?

I think you'll continue to see us pursue assets that are in a mix of locations. I think, thinking about how our portfolio performed over the quarter, we saw strength in both our urban markets and our suburban markets. Recent acquisitions are indicative of the types of hotels and markets that we would love to be in. And they've been a combination of more urban locations and high-density suburban markets. For us, the key is adequate density and demand on both the business and leisure side to enable us to achieve premium rates and drive efficiencies from an operating standpoint.

And the reality is, if I look at recent acquisitions like the South Jordan Embassy, which is in a suburban suburb of Salt Lake City, we're yielding 11% on that asset. And we've done incredibly well Downtown Salt Lake, where we're yielding just under 11% on the Courtyard and the Hyatt House that we bought most recently. So I think you should expect the makeup of our portfolio to be relatively similar to what we have now with continued investments looking much like the types of assets that we've acquired recently.

Our next question is from [ Jack ] Armstrong with Wells Fargo.

We've spent a lot of time talking about the BT strength you saw in the quarter, even outside of your larger markets and those with World Cup exposure. Do you have a sense of the specific industries that are driving that strength? Is that related at all to the higher infrastructure spend we're seeing around the country or maybe an uptick in some of the consulting businesses that have historically been pretty impactful for your portfolio? Or anything else you'd highlight there?

I'd say yes to all of that. I think I commented earlier, our portfolio is intentionally diversified not only across geographic areas, but across exposure to different industries. And we've seen strength across a variety of different industries and business types. I think certainly encouraged with some improvement in consulting tech business, which had been really slow to rebound and tech business, which had also been slow to rebound. But looking outside of that, we've benefited from a broad variety of different sectors. Certainly, on the margin, whether directly or indirectly through compression, I believe that we are benefiting from incremental infrastructure spending, but not exclusively that. And looking across markets that performed really well for us, the drivers of those markets is very diverse.

Helpful there. And then is there any meaningful change in the renovation disruption you're expecting this year as you shift to the projects in Alaska and Seattle?

I mean that's a good question. They are larger assets and high EBITDA-producing assets. We've intentionally timed the renovations to minimize disruption, and they will be spread over fourth quarter and first quarter of next year, such that the impact will be felt across both. I think relative to past years, we work to manage renovations in a way that minimizes overall disruption. And as a result, you don't hear us speak to it regularly. We don't anticipate disruption to be outsized. I will make one comment, though. The work that we're doing in Seattle Lake Union is different. In that beyond the renovation disruption, we are rebranding that hotel. And so we do anticipate a ramp period for that hotel, which would be factored into next year's guidance.

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

I wanted to go back to the comment around cost per occupied room. And I was just wondering if the back half -- what's really driving the increase in cost per occupied room in the back half of the year relative to what you achieved in the first half, given some of the mix shift benefits and opportunities that you've talked about?

It's a good question. On a cost per occupied room basis related to variable costs, it's very similar across the guidance range as well as relative to how we performed in the first half of the year. Really, it's a fixed cost phenomenon. We had a favorable real estate tax appeal that hit in the fourth quarter of last year. It was our largest of last year. We have them hit throughout the year, but the largest one was in the fourth quarter. So we have that hurdle baked in. And then we also had mentioned at the beginning of the year that we had assumed that we would have an increase beginning in November related to an insurance renewal. That may prove to be conservative, but that's baked in there, too.

So it's an assumption across the guidance range that fixed costs will be driving the CPOR differential. And the better that we do on the top line, the easier that hurdle will be. But overall, really pleased with where we've been trending from a total hotel perspective both from a dollar standpoint and growth, but also on a CPOR basis. Really proud of the team and how they've been able to manage our variable costs and how our partners have been able to help us with appeals. We've been successful this year. We had a credit in the second quarter as well that was helpful that impacted April flow-through in a positive way, and we continue to work, and we may see more of that as we move through the year. But do have relative to last year, a little bit of a hurdle in Q4.

Understand. And then I was just wondering, Justin, I mean, any preliminary thoughts given your exposure to Marriott properties around the intent to recommend? And just how you're thinking your portfolio might stack up within a relative scoring system versus other hotels?

I appreciate the question. Details are still limited at this point. So we do not yet know where Marriott intends to set those thresholds. We have a high-quality portfolio of hotels. And I think assuming reasonable thresholds, we would anticipate benefiting from it. I think more importantly, I think what we've seen recently is increased effort on the part of the brands to work with owners to find ways to drive incremental profitability. And I think Marriott's move to implement an incentive program designed to drive intent to recommend and to reward owners for investment to that end, improves the consumer experience at Marriott Hotels and provides owners with a pathway towards incremental profitability, which from our vantage point is a win-win.

We have reached the end of the question-and-answer session. I would like to turn the floor back over to Justin Knight for closing remarks.

Thank you. I'm going to end today on a bit of a personal note. We recently lost our Chief Accounting Officer, Rachel Labrecque, to cancer. Rachel was one of the most exceptional individuals I have ever known, and her loss has been felt across the entire company. I wanted specifically to express my appreciation to her team who's really stepped up in amazing ways, ways that I'm confident would make Rachel incredibly proud. We are and own amazing real estate. But at the end of the day, it's our people who differentiate us, and Rachel was one of our best. She will be deeply missed.

I also want to thank you for joining us today. We're pleased with our strong results for the quarter and appreciate your continued interest. As always, I hope that as you travel, you'll take the opportunity to stay with us at one of our hotels, and we look forward to meeting with many of you over the coming months.

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

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.