Apple Hospitality REIT Q2 2025 Earnings Report

Apple Hospitality REIT EPS Results

• Actual EPS: $0.47
• Consensus EPS: $0.47
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Apple Hospitality REIT Revenue Results

• Actual Revenue: $384.37 million
• Expected Revenue: $381.37 million
• Beat/Miss: Beat by +$3.00 million
• YoY Revenue Growth: N/A

Apple Hospitality REIT Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 10:00AM ET

Apple Hospitality REIT (NYSE:APLE) (NYSE: APLE) is a publicly traded real estate investment trust (REIT) that owns one of the largest and most diverse portfolios of upscale, rooms-focused hotels in the United States. Apple Hospitality's portfolio consists of 223 hotels with more than 29,400 guest rooms located in 87 markets throughout 37 states as well as one property leased to third parties. Concentrated with industry-leading brands, the Company's hotel portfolio consists of 99 Marriott-branded hotels, 119 Hilton-branded hotels and five Hyatt-branded hotels.

Apple Hospitality REIT Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Portfolio RevPAR declines moderated each month in Q2, with preliminary July results showing 1% year-over-year RevPAR growth, implying momentum for the back half of 2025.
• Positive Sentiment: Comparable hotels delivered an industry-leading EBITDA margin of 37.4% in Q2, underscoring strong operational efficiency and cash flow generation.
• Negative Sentiment: Full-year guidance was lowered to a -1.5% to +0.5% RevPAR change and adjusted EBITDAre to $428–$450 million, reflecting weaker August and September booking trends.
• Positive Sentiment: Management executed asset sales at sub-6% blended cap rates, repurchased 3.4 million shares at a 3.5× EBITDA spread, and agreed to acquire a Tampa hotel at a 12% cap rate below replacement cost.
• Positive Sentiment: Apple Hospitality maintains an 8.2% annualized dividend yield ($0.96 per share) supported by strong portfolio cash flow and disciplined capital allocation.

Presentation

[Operator]

Good day, and welcome to the Apple Hospitality REIT Second Quarter Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kelly Clark, Vice President of Investor Relations. Please go ahead.

[Kelly Clarke, VP - IR at Apple Hospitality REIT]

Thank you, and good morning. Welcome to Apple Hospitality REIT's second quarter twenty twenty five 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.

[Kelly Clarke, VP - IR at Apple Hospitality REIT]

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 ks 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.

[Kelly Clarke, VP - IR at Apple Hospitality REIT]

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 twenty twenty five and an operational outlook for the rest of the year. Following the overview, we will open the call for Q and A. At this time, it is my pleasure to turn the call over to Justin.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Good morning and thank you for joining us today for our second quarter twenty twenty five earnings call. Fundamentals for our portfolio improved sequentially as we move through the quarter with RevPAR declines moderating each month and preliminary results for July showing RevPAR growth year over year. As anticipated, April was the most challenging month as heightened economic uncertainty, a pullback in government travel, the shift in timing of the Easter holiday and the elongated spring break period all weighed on overall performance. During the quarter, we worked with our management companies to further optimize the mix of business at our hotels and we're able to strengthen market share broadly across our portfolio as well as in those markets more heavily impacted by demand shifts related to government travel. Our teams have demonstrated an exceptional ability to swiftly adapt to changing demand trends within our markets, in many cases layering on additional group business at attractive rates.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Although the booking window for our hotels remained short, we are encouraged by recent airline and hotel brand commentary related to improvements they are seeing in demand and view these comments as potentially positive indicators for performance in the back half of the year. Our portfolio of rooms focused hotels, broadly diversified across markets and demand generators, has historically outperformed during extended periods of economic uncertainty and is well positioned for upside should we see a reacceleration in broader economic growth. Supply demand dynamics remain favorable across our markets. At the end of the second quarter, nearly 60% of our hotels did not have any new upper upscale, upscale or upper mid scale product under construction within a five 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.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Supported by the strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which is meaningfully additive to total returns for our investors. During the second quarter, we paid distributions totaling approximately $57,000,000 or $0.24 per common share. Based on Tuesday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.2%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital. We remain disciplined in our approach to capital allocation, seeking opportunities to refine and enhance our existing portfolio, drive earnings per share and maximize long term value for our shareholders.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Since the beginning of this year, we have completed the sale of two hotels for a total combined sales price of approximately $21,000,000 entered into agreements for the sale of our full service Houston Marriott for $16,000,000 and the sale of our Hampton and Homewood Suites in Clovis, California for a combined sales price of approximately $20,000,000 acquired the Homewood Suites Tampa brand for approximately $19,000,000 repurchased approximately $43,000,000 of our common shares and paid distributions of nearly $146,000,000 all while maintaining the strength and flexibility of our balance sheet. We completed the previously announced acquisition of the 126 room Homewood Suites Tampa brand in June. The hotel is located adjacent to our Embassy Suites and represents a unique opportunity to expand our ownership in a submarket that continues to perform well for us with a strong going in yield and operational upside at a price below replacement cost. The hotel was offered for sale by the loan servicer, and the $18,800,000 purchase price represents a 12% cap rate on trailing twelve month results through June and a high single digit cap rate on trailing numbers after all anticipated capital expenditures. We anticipate that additional upside from operational synergies as a result of clustering this hotel with our Embassy Suites and improved market positioning following our planned renovation will further enhance returns on our investment.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Our execution of this transaction in the current environment illustrates the underlying strength of our platform and our ability to effectively and efficiently deploy capital to maximize total shareholder returns over the long term. While the overall transaction market continues to be challenging, we have successfully executed on select asset sales in ways that continue to optimize our portfolio concentration and free capital, which we have been able to effectively redeploy at a meaningful spread. Pricing for the individual hotels varies. However, as a group, the two hotels we sold earlier in the year together with the Houston Marriott and the two Clovis hotels will trade at a sub-six percent blended cap rate or 13.6 times EBITDA multiple before CapEx and a 4.3 cap rate or 18.2 times EBITDA multiple after taking into consideration the estimated $19,000,000 in required capital improvements. Proceeds from the sales have been used primarily to fund share repurchases.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Since the beginning of the year through June, we have repurchased approximately 3,400,000 of our shares at a weighted average market purchase price of approximately $12.83 per share for an aggregate purchase price of approximately $43,000,000 Shares repurchased year to date have been priced at around a 3.5 turn spread to recent dispositions and over an eight turn EBITDA multiple spread after taking into consideration required capital investments. We continue to have one hotel under contract for purchase, the Motto by Hilton, which is under construction in Downtown Nashville. This asset is being developed under a fixed price contract and we anticipate acquiring the hotel for approximately $98,000,000 upon completion of construction later this year. Since the onset of pandemic, we have completed approximately $338,000,000 of hotel sales with an additional $36,000,000 under contract and expected to close in the coming months. These sales have allowed us to forego over $100,000,000 in capital investments and represent a blended cap rate prior to taking into consideration necessary CapEx of approximately 5% and a sub-four percent cap rate after CapEx.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Over the same period, we have invested more than 1,000,000,000 in acquisitions and purchased 6,500,000.0 shares of our own stock while maintaining the strength of our balance sheet. These transactions have further enhanced our already well positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near term CapEx needs, increasing exposure to high growth markets and positioning us to continue to benefit from near term economic and demographic trends. We have consistently demonstrated our ability to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. Since May, we have purchased nearly $78,000,000 of our own shares. While our long term goal is to grow our portfolio, when our stock trades at an implied discount to values we can achieve in private market transactions as it has for the past several months, we will opportunistically sell assets and redeploy proceeds primarily into additional share repurchases, preserving our balance sheet so that at the appropriate time in the cycle, we can act quickly on attractive acquisitions opportunities.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Consistent reinvestment in our portfolio is a key component of our strategy and ensures that our hotels maintain their strong value proposition for our customers and remain competitive in their respective markets, while further driving EBITDA growth. Our experienced team is focused on leveraging our scale ownership to control costs, maximize impact on reinvested dollars and schedule projects during periods of seasonally lower demand to minimize revenue displacement. Our ability to effectively renovate and maintain our assets is a meaningful differentiator that helps us to achieve strong returns for our investors over long periods of time. During the six months ended June 30, capital expenditures were approximately 32,000,000 For the year, we expect to reinvest between 80,000,000 and $90,000,000 in our hotels with major renovations at approximately 20 of our hotels. We entered the quarter at a time of heightened macroeconomic uncertainty and we're prepared to adjust operational and capital allocation priorities accordingly.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Although we did see a pullback in government travel beginning in March, demand trends have stabilized and overall travel demand remains strong. Our booking window remains short, but as we look ahead to the second half of the year, we are encouraged by modest improvements in consumer sentiment and some easing of uncertainty related to policy changes, though economic uncertainty remains elevated and these improvements are not yet fully reflected in current booking data, which has pulled back slightly year over year for August and September. The adjustments we have made to full year guidance reflect current booking trends and could prove conservative if improvements in the macro environment drive better in the month for the month pickup like we saw in the first half of the year. With historically low exposure to new supplier, portfolio is particularly well positioned to benefit from incremental improvements in overall travel demand. This year, we are celebrating twenty five years in the hospitality industry and ten years since our listing on the New York Stock Exchange.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Throughout our history, we have worked to refine our strategy, intentionally choosing that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels, developing our corporate team and closely aligning efforts with the associates and management teams who operate our hotels. Our differentiated strategy has been tested and proven across multiple economic cycles. With the strength of our broadly diversified portfolio, the overall stability of our business, our low leverage and the depth of our team, I'm confident that we are well positioned to drive profitability and maximize long term value for our shareholders in any macroeconomic environment. 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.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Thank you, Justin, and good morning. As we have previously messaged, a challenging macroeconomic environment and difficult calendar shifts weighed on our portfolio second quarter results. Comparable hotels total revenue was $380,000,000 for the quarter and $7.00 $6,000,000 year to date through June, both down slightly to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was $142,000,000 for the quarter and $248,000,000 year to date through June, both down approximately 5% to the same periods of 2024. Second quarter comparable hotels RevPAR was $129 down 1.7% as compared to the second quarter twenty twenty four.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

ADR was $164 down only 10 basis points and occupancy was 79%, down 1.6% as compared to the second quarter twenty twenty four. For the six months ended June 30, comparable hotels RevPAR was $120 down 1.1% ADR was $160 up 0.4% and occupancy was 75%, down 1.6% to the same period of 2024 respectively. Our portfolio continues to outperform the industry where Star reports RevPAR to be 100 and average occupancy for the industry to be 62% for the first six months of the year, highlighting the relative strength of our portfolio demand despite year over year declines. During the quarter, RevPAR declines steadily improved each month as we moved past a few key headwinds and our team's adjusted strategy and re optimized the mix of business at our hotels where there were meaningful shifts in government and other demand segments, strengthening market share for our overall portfolio. Concerns related to potential policy changes and reductions in government spending as well as the shift in timing of the Easter holiday heavily impacted April results with RevPAR down 4% compared to April 2024.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

In May and June, clear of challenging calendar shifts, fundamentals steadily improved with RevPAR down 0.9% in May and only 0.2% in June as compared to the same periods of 2024. Market performance varied significantly during the quarter with a mix of strong RevPAR gains in several markets and ongoing headwinds and others due to demand shifts and challenging year over year comps. Our team remains focused on hotel and market specific strategies as well as operational execution to maximize performance. Based on preliminary results for the month of July 2025, comparable hotels RevPAR improved by approximately 1% as compared to July 2024, driven by increases in both occupancy and ADR. Turning back to the second quarter, weekend and weekday occupancy trends were heavily impacted by calendar shifts and saw improvement as the quarter progressed.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Weekend occupancy was positive year over year in June at up 1.1% after being down 3.7% in April and down 0.2% in May. Weekday occupancy was also positive in June, up 0.3% after being down 3.1% in April and down 1.5% in May. Weekend ADR grew slightly at 0.1% and weekday ADR contracted by only 0.5% in the quarter, driving the slight overall ADR decline. Same store room night channel mix was also impacted by the Easter holiday shift, macroeconomic uncertainty and reductions in government travel. Brand.com bookings were up 40 basis points year over year at 40%.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

OTA bookings were up 20 basis points to 13%, property direct was up 40 basis points at 25%, and GDS bookings were down 60 basis points to 16%. Looking at second quarter same store segmentation, bar remained strong at 32% of our occupancy mix. Other discounts grew 40 basis points to 28% of mix. Corporate and local negotiated declined 90 basis points to 17% of mix and Government declined 70 basis points to 5.2% of mix. Group business mix improved 150 basis points to 17%, largely offsetting declines in government and negotiated as our property teams adjusted strategy in response to shifts in demand during the quarter.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

While our group business benefits from citywide conventions, it is not dependent on large group events and is generally comprised of smaller business and leisure groups ranging from local corporate meetings and training events to more leisure oriented groups like family reunions, weddings and sports teams. We continue to see growth in other revenues, which were up 6% on a comparable basis during the quarter and up 8% year to date driven primarily by parking revenue. Turning to expenses, Comparable hotels total hotel expenses increased by 2.8% for the second quarter and 2.6% year to date through June as compared to the same periods of last year or 3.73.8% on a CPOR basis. On a same store basis, total hotel expenses increased by only 1.7% for the second quarter and 1.5% year to date through June. Total payroll per occupied room for our same store hotels was $39 for the quarter, only up 3% to the second quarter twenty twenty four, an improvement compared to Q1 at $42 per occupied room and 4% growth year over year.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

We continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total wages, down 150 basis points or 15 versus the same period in 2024. Comparable hotels variable hotel expenses increased 2.1% in the second quarter with cost control efforts holding rooms expense growth to only 1.5% and nearly flat on a same store basis. Sales and marketing expenses and utility costs, which were headwinds in the first quarter, saw improvement in the second quarter, growing only 0.71.9% year over year respectively. Comparable hotel administrative and repair and maintenance costs grew slightly higher at just under 4% during the quarter, driven by administrative wages and other employee related costs, but only 3% on a same store basis. Consistent with the first quarter, real estate taxes were a headwind with increases in several markets and challenging comparisons related to 2024 appeals.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Despite a softer top line, our comparable hotels adjusted hotel EBITDA margin is strong at 37.4% for the second quarter and 35.1% year to date through June, down 200 basis points and 190 basis points as compared to the same period of 2024 respectively. Adjusted EBITDAre was approximately $133,000,000 for the quarter and $228,000,000 year to date through June, both down approximately 6% to the same periods of 2024 respectively. MFFO for the quarter was approximately $112,000,000 or $0.47 per share, down 6% on a per share basis as compared to the second quarter twenty twenty four. Year to date through June, MFFO was approximately $188,000,000 or $0.79 per share, down 6% on a per share basis as compared to the same period in 2024. Looking at our balance sheet, as of 06/30/2025, we had approximately $1,500,000,000 of total outstanding debt, approximately 3.4 times our trailing twelve months EBITDA, with a weighted average interest rate of 5%.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

At quarter end, our weighted average debt maturities were approximately two years. We had cash on hand of approximately $8,000,000 availability under our revolving credit facility of approximately $475,000,000 and approximately 61% of our total debt outstanding was fixed or hedged. During the quarter, the company repaid in full two secured mortgage loans for a total of approximately $33,000,000 bringing the number of unencumbered hotels in the company's portfolio as of 06/30/2025 to 02/2009. Subsequent to quarter end, in July, we entered into a new unsecured $385,000,000 term loan facility with a maturity date of 07/31/2030. At closing, proceeds were used to repay all amounts outstanding under our unsecured $225,000,000 term loan facility in advance of its maturity date with the incremental capacity used to pay down a portion of the outstanding balance on our revolving credit facility.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Interest payments on the $385,000,000 term loan facility are determined by an annual SOFR rate plus a margin ranging from 1.35% to 2.2%, depending on the company's leverage ratio as calculated under the terms of the credit agreement and without a credit spread adjustment. The new credit agreement for the $385,000,000 term loan facility otherwise contains substantially the same terms as the previous credit agreement for the $225,000,000 term loan facility. Looking ahead, the five year tenor will enable us to manage and stagger our maturities as we approach our main credit facility in the next twelve months. Following the close of this facility, our weighted average debt maturities increased to over three years. We paid down the existing balance as of that date on our revolving credit facility, increasing our availability to $650,000,000 and approximately 67% of our total debt outstanding is now fixed or hedged after entering into two new swaps on $100,000,000 of outstanding debt subsequent to quarter end, improving our weighted average interest rate.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Turning to our updated outlook for 2025 provided in yesterday's press release. For the full year, we expect net income to be between $161,000,000 and $187,000,000 Comparable hotels RevPAR change to be between negative 1.5% to positive 0.5%. Comparable hotels adjusted hotel EBITDA margin to be between 33.534.5% and adjusted EBITDAre to be between $428,000,000 and $450,000,000 As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels RevPAR change by 50 basis points resulting in a 20 basis point decrease in comparable hotels adjusted hotel EBITDA margin and a decrease in adjusted EBITDAre by $5,500,000 We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3.3% at the midpoint, which is 4.1% on a CPOR basis. We continue to assume these increases are driven primarily by higher growth rates for certain fixed expenses, including real estate taxes and general liability insurance than those experienced last year. Additionally, we expect approximately $2,000,000 of incremental expenses related to brand conferences, which occur every eighteen to twenty four months, a portion of which was realized during the second quarter with the majority expected to materialize in the third quarter.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Looking ahead to the second half of the year, though economic uncertainty remains elevated, it is encouraging to see modest improvements in consumer sentiment and some easing of uncertainty related to policy changes. Our reservation booking window is short, and we do not believe these improvements are reflected in our current booking data, which has pulled back slightly year over year for August and September, likely impacted at least in part by the shift in Rosh Hashanah into September from October. The adjustments we have made to full year guidance reflect current booking trends and could prove conservative if improvements in the macroeconomic environment drive stronger short term bookings. As we celebrate and reflect our twenty five years in the hospitality industry and ten years since our listing on the New York Stock Exchange, we are confident our team has the knowledge and experience to successfully and dynamically navigate market shifts and changing conditions to maximize profitability and drive additional value through opportunistic transactions.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

The underlying merits of our differentiated strategy have proven resilient across economic cycles, enabling us to preserve equity value in challenging environments and to be uniquely positioned to enhance value as opportunities arise. While we have experienced some economic headwinds early this year, we believe favorable supply demand dynamics persist. Our recent capital allocation activity has enabled us to drive incremental value for shareholders, and our balance sheet continues to provide us with meaningful optionality. We are confident we remain well positioned. That concludes our prepared remarks, and we are now happy to answer any questions you have for us this morning.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. And today's first question comes from Austin Wurschmidt with KeyBanc.

[Josh Friedland, Senior Equity Research Associate at KeyBanc Capital Markets]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

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

[Josh Friedland, Senior Equity Research Associate at KeyBanc Capital Markets]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Interestingly, group has been an ADR benefit to us in the second quarter. I think it's one of the reasons that we have seen ADR hold in there despite some overall occupancy declines in the second quarter. So group hasn't negatively impacted our overall RevPAR performance. So I think as we think about layering on group, it's all about the right group at the right rate. And over the past few months, it really has been a key driver to the improvement in our RevPAR performance as you look from April through June and even into July.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

We've had elevated group business. We were really, really pleased with our team's ability to pivot quickly once we saw dynamics change in March and April and re strategize and think market by market and hotel by hotel and layer on some incremental groups. So I think today as we are approaching mix of business in each hotel, we'll be prudent and certainly not saying we would layer it in everywhere. But overall, it certainly has been a benefit and the team has done an exceptional job of putting it in on attractive rates that have only enhanced our RevPAR position.

[Josh Friedland, Senior Equity Research Associate at KeyBanc Capital Markets]

Great. Thanks for the color.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Thank you.

[Operator]

Thank you. And the next question comes from Ari Klein with BMO Capital Markets.

[Ari Klein, Director - Equity Research at BMO Capital Markets]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Okay. I'll try to answer all those questions. But if I miss one, ask again. Thinking about July specifically and how that month materialized, we were pleased. We were pleased with performance in July.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

The improvement in RevPAR growth and market share that we saw really coming out of April and progressing into July, the sequential improvement in RevPAR change performance is overall encouraging. When we look at booking position in August and September, we're down and that's factored into guidance. But August booking position does not take into account at least today the trajectory of what we saw in July with short term pickup in our booking position. So I think overall. So I think July we did see improvement as we were looking at future bookings and in the month for the month bookings.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

But just several weeks we needed to be somewhat cautious there. As we think about beyond August and September and sort of thinking about your cadence question, August and September are down from a booking position standpoint. October though is up to last year and certainly looks at least today though it's very early to be looking at October, looks to offset September decline. So I think that's where we in part believe some of it the shift in Rosh Hashanah into September and October just being for our portfolio historically a very strong business and leisure oriented month. So when you think about Q2 and Q3, I'm sorry, and Q4, we have anticipated that RevPAR because of August and September booking position today would be down and that we would see improvement in the fourth quarter and we'd have RevPAR growth in the fourth quarter.

[Ari Klein, Director - Equity Research at BMO Capital Markets]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Absolutely. And actually, if you look at our market results, you'll see there are broad disparities in terms of performance market to market. Remember, across the entire portfolio, performance for the quarter is skewed by April's performance, which is largely a calendar shift, remembering that our hotels tend to perform worse over holiday weeks than they do outside of those weeks because of the mix we generally have of business travel. When we look at some of the markets that you highlighted, the specific factors vary. Dallas, for example, was negatively impacted by convention counter and renovations at the convention center.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Phoenix was negatively impacted by a pullback in semiconductor business, impacting our portfolio of hotels. That business is expected to come back as we round out the third quarter and move into the fourth quarter of this year. Though there is some impact from a slight pullback in government in certain other areas. And then when you look through some of our other Sunbelt markets, markets like Huntsville that don't show up specifically as an individual market, as one of our Alabama markets saw a pretty significant pullback in government, which negatively impacted that market. When we look at the portfolio as a whole though, what's interesting is looking at our top performing markets, nearly half of them were positively impacted by improvement in government travel.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

And then when we look at the bottom portion of our portfolio there are a significant number of the markets that were negatively impacted by a pullback in government. Certainly not the only factor impacting our market, but we did see across the board in addition to the holiday shift in April, some pretty significant shifts in travel patterns. And as Liz highlighted earlier, are incredibly pleased with our team's ability to shift focus and to attract largely group business across the portfolio at higher rates over the course of the quarter improving our occupancy and rate positioning and by July putting us in a position to be positive. Think certainly speaks to the strength of our team, both here corporately and at the property level and also the versatility of the product that we own and the appeal that that product has with a broad consumer base. So I would love to be able to point you to a single factor that impacted all of our markets.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

But the reality is, it's a variety of factors that came together, all exacerbated during the quarter by the calendar shift impacting April.

[Ari Klein, Director - Equity Research at BMO Capital Markets]

Appreciate all the color. Thank you.

[Operator]

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

[Cooper Clark, VP - Equity Research at Wells Fargo]

Great. Thanks for taking the question. Just given some of the comments on weaker August September bookings, can you talk about what gives you confidence in the acceleration in 4Q RevPAR pickup, whether it's mix shift, acceleration in fundamentals or softer comps?

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

It's a combination of things. I'd say highlighted in your question several of them. Part is looking ahead at, booking position today. And again, it's too far out to put too much weight into that. But as we look at the fourth quarter, our booking position is positive.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Looking at calendar shifts is a piece of it benefiting from not having the election in November. And then having we started to talk about it and were more impacted in Q1, but we did have some market share opportunity beginning in November and feel like we have some opportunity as we round out the year.

[Cooper Clark, VP - Equity Research at Wells Fargo]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

I think certainly. I think moving back or looking back twelve months or so, we had hoped that there would be a more rapid recovery in our share price given how we have traded recently and the effectiveness of our team at executing I think incredibly well on sales transactions and our ability to benefit from the arbitrage between private market valuations and the implied multiple in our current share price, you could expect us to dig even deeper into that area. Incredibly pleased with both the transactions we've done to date, but also the assets that we currently have under contract. We're continuing to test the market to see if there's an appetite for larger scale transactions. And to date, have had a better ability even with more open debt markets to secure attractive pricing with smaller assets or as you saw with our most recent announcement, small portfolios still in that $20,000,000 or less kind of price range.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

But rest assured that to the extent we continue to see an arbitrage opportunity as big as the one we see now, we'll continue to pursue it. Importantly, in my prepared remarks, I highlighted the fact that it is our desire long term to grow the portfolio. And I think using proceeds from these sales to fund share repurchases, while we certainly have balance sheet capacity to do more than that, it preserves balance sheet capacity to pursue acquisitions as market conditions shift and that becomes the more attractive opportunity for us. In the meantime, in addition to the immensely positive arbitrage opportunity that we're taking advantage of, We're also offloading CapEx that would be needed over the next several years to buyers of these hotels. And we think better positioning the portfolio for the long term.

[Cooper Clark, VP - Equity Research at Wells Fargo]

Great. Thank you.

[Operator]

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

[Chris Darling, Senior Analyst at Green Street Advisors, LLC]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

It's a good question. A portion of our acquisitions activity, as you know, has always been forward commitments on new development assets. Because we're making those commitments, in many cases, two to three years in advance of the acquisition, We're taking into consideration in our analysis more of an averaged cost of capital than a spot cost of capital. I think our intent would be largely to use balance sheet capacity to fund that acquisition and proceeds from sale to fund asset or stock repurchases. Interestingly and importantly, highlighted in our press release is the ten thirty one exchange opportunity.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

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

[Chris Darling, Senior Analyst at Green Street Advisors, LLC]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

So from a cost basis standpoint, I think looking at our per key pricing relative to recent trades in the market, it's easy to see that we have cushion beyond where recent trades have happened. We anticipated in our underwriting that the market would stabilize and potentially temporarily pull back and feel good about the long term value that we will achieve on that asset. I think Colin on Ryman's call had very good commentary about the national market, and we are equally bullish long term about the potential there. When we look at the delta from a performance standpoint between the downtown markets, remembering we own assets in the Vanderbilt area, which is just outside of downtown. We also own assets in Franklin.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

The Franklin market has been a little bit more challenging recently for us. The long term prospects, we think, are good as they repurpose auto manufacturing facilities in that area, which have historically been a key driver of kind of overall demand for that market. And as the market continues to grow as a healthy suburb of the Downtown Nashville area. But near term, we have greater confidence. When I say near term, over the next six to twelve months, that the downtown area will continue to perform on a relative basis slightly better with both areas absorbing, I think, higher than the national average amounts of new supply, but continuing also to see an influx of new businesses and very strong leisure demand, which we think over time continue to make Nashville a very compelling market for us.

[Chris Darling, Senior Analyst at Green Street Advisors, LLC]

All right. Understood. Thank you.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Thank you.

[Operator]

Thank you. And the next question comes from Daniel Hogan with Baird.

[Daniel Hogan, Equity Research Associate at Robert W. Baird & Co]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

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

[Daniel Hogan, Equity Research Associate at Robert W. Baird & Co]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

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

[Daniel Hogan, Equity Research Associate at Robert W. Baird & Co]

Great. Thank you very much.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Thank you.

[Operator]

And the next question comes from Ken Belanger with Compass Point.

[Kenneth Billingsley, Senior Analyst at Compass Point Research & Trading LLC]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

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

[Kenneth Billingsley, Senior Analyst at Compass Point Research & Trading LLC]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

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

[Kenneth Billingsley, Senior Analyst at Compass Point Research & Trading LLC]

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

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Yes. So, I'm gonna touch on November specifically, and then I'm gonna kinda zoom out and talk about market share more broadly since we have highlighted it both last quarter and this quarter, and it isn't something we've typically highlighted quite as much. But for November specifically, the week of the election, given the makeup of our portfolio, and when we think about our RevPAR growth in November relative to the broader industry, we did not see the same level of performance largely because of the makeup of our portfolio, and being so significantly business transient oriented. So less about specific market share, like comp set market share in individual markets and more broadly speaking about, how the calendar did not play in our favor relative favor, given the composition of our portfolio for November specifically. But as we talk about market share, I want to ground us a little bit.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

Our overall portfolio has always had strong market yield relative to the specific markets we're in. And we've had a history of consistently gaining market share within our markets overall as a portfolio. When we reference market share, we look at it two different ways, which I've sort of highlighted already. We look at our portfolio RevPAR growth relative to the broader industry, which is influenced in part by market concentration and portfolio composition as well as property specific performance relative to its comp center market. And as I mentioned earlier, we've consistently had strong market share on an absolute basis in our individual markets.

[Liz Perkins, CFO & SVP at Apple Hospitality REIT]

That said, we also like to be gaining market share market specific market share, and we did see in both our performance to the broader industry and our individual markets some opportunity in the first quarter specifically, which again was unusual and we highlighted that. Given the abrupt market shifts driven largely by the macro, we really are and I'll say it again, we're really incredibly pleased that by the end of the second quarter and for the second quarter overall, we regained that market share within our respective markets and in June outperformed the broader industry as well. Our corporate teams, our management company teams and our property teams really did an exceptional job quickly adjusting tactical strategy with all the demand shifts and dynamics that played into the macro, but our portfolio specifically that we spent a lot of time highlighting the last call. And I'm pleased too to say that we've maintained that market share growth in the running 28 as well.

[Kenneth Billingsley, Senior Analyst at Compass Point Research & Trading LLC]

Well, you.

[Justin Knight, CEO & Director at Apple Hospitality REIT]

Thank you.

[Operator]

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

[Justin Knight, CEO & Director at Apple Hospitality REIT]

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

[Operator]

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

Participants

Executives

• Kelly Clarke, VP - IR
• Justin Knight, CEO & Director
• Liz Perkins, CFO & SVP

Analysts

• Josh Friedland, Senior Equity Research Associate at KeyBanc Capital Markets
• Ari Klein, Director - Equity Research at BMO Capital Markets
• Cooper Clark, VP - Equity Research at Wells Fargo
• Chris Darling, Senior Analyst at Green Street Advisors, LLC
• Daniel Hogan, Equity Research Associate at Robert W. Baird & Co
• Kenneth Billingsley, Senior Analyst at Compass Point Research & Trading LLC