Apple Hospitality REIT Q2 2026 Earnings Report

Apple Hospitality REIT EPS Results

• Actual EPS: $0.28
• Consensus EPS: $0.27
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Apple Hospitality REIT Revenue Results

• Actual Revenue: $402.55 million
• Expected Revenue: $391.88 million
• Beat/Miss: Beat by +$10.68 million
• YoY Revenue Growth: N/A

Apple Hospitality REIT Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 11:00AM ET

Apple Hospitality REIT (NYSE: APLE) is a publicly traded real estate investment trust that focuses on acquiring, owning and operating high-quality, upscale, select-service hotels. The company’s portfolio primarily consists of properties operated under premium franchise agreements with leading lodging brands such as Marriott, Hilton and Hyatt. Apple Hospitality REIT is self-managed and internally advised, overseeing property management, revenue optimization and asset-level operations through its in-house team of hospitality professionals.

The company’s holdings encompass over 200 hotels featuring more than 30,000 guest rooms across a diverse array of markets in the United States. These assets are strategically located in Sun Belt and gateway cities, with concentrations in states such as Texas, Florida, California and Georgia. Each property offers a consistent guest experience geared toward business and leisure travelers, featuring amenities like food and beverage outlets, meeting spaces and fitness centers.

Apple Hospitality REIT (NYSE:APLE) was formed in April 2016 through its initial public offering, succeeding Apple REIT Ten, Inc., which began acquiring hotels in 2007. Headquartered in Richmond, Virginia, the company has developed a track record of disciplined acquisitions and portfolio optimization. Its strategy emphasizes long-term, value-oriented growth achieved through targeted capital expenditures, selective dispositions and active under­writing of new hotel investments.

The company is led by President and Chief Executive Officer Scott M. Oaks, whose leadership is supported by a seasoned executive team with expertise in real estate finance, operations and development. Apple Hospitality REIT seeks to deliver sustained value for shareholders by maintaining high standards of property stewardship, fostering strong relationships with brand partners and pursuing growth opportunities in attractive lodging markets.

Apple Hospitality REIT Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Second-quarter performance exceeded expectations, with comparable RevPAR up 5.3%, adjusted hotel EBITDA up 9.7%, 120 basis points of margin expansion, and MFFO per share up 8.3% to $0.52.
• Positive Sentiment: Management cited broad-based strength in business and leisure travel, including improving weekday occupancy, stronger business-transient and group demand, and preliminary July RevPAR growth of more than 5.5% outside the temporary World Cup benefit.
• Positive Sentiment: The company raised its full-year comparable RevPAR growth guidance by 225 basis points to a 3.25% midpoint and increased its adjusted hotel EBITDA margin outlook by 75 basis points, while suggesting the revised forecast could remain conservative.
• Positive Sentiment: July refinancing transactions increased credit-facility capacity, extended the weighted-average debt maturity to nearly five years, lowered pricing, and left the company with no revolver balance and no significant unsecured maturity until 2029.
• Neutral Sentiment: Apple Hospitality plans to increase 2026 capital expenditures to $85 million-$95 million across 18 comprehensive renovation projects, while management said the acquisition market remains constrained by a seller-buyer valuation gap and that it has no 2026 acquisition agreements currently in place.

Presentation

[Kelly Clarke, VP of Investor Relations at Apple Hospitality REIT]

Good morning, and welcome to Apple Hospitality REIT's second quarter 2026 earnings call. Today's call is based on the earnings release in 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. 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. Speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

[Kelly Clarke, VP of Investor Relations at Apple Hospitality REIT]

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 six-month period ending June 30th, 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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 three-quarters of our hotels delivered RevPAR growth, up from two-thirds 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 an 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%.

[Justin Knight, CEO at Apple Hospitality REIT]

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. Raising our full-year comparable hotels adjusted hotel EBITDA margin guidance 75 basis points to 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. We believe it could continue to prove conservative.

[Justin Knight, CEO at Apple Hospitality REIT]

Transient demand has been stronger than anticipated. Our group business continues to build, providing strong base business at attractive rates. We also lap 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. 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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.

[Justin Knight, CEO at Apple Hospitality REIT]

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 its market. Turning to outyear commitments, we continue to have forward contracts for two 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. In each case, the developer carries the project under a fixed price forward purchase contract.

[Justin Knight, CEO at Apple Hospitality REIT]

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 two hotels in Anchorage grew RevPAR nearly 17% during the second quarter, operating at approximately 95% occupancy at an average daily rate of $346. Our SpringHill Suites in Las Vegas has grown RevPAR nearly 5% year-to-date. Development has been a consistent part of how we grow, though 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, upper mid-scale product under construction within a 5 mi radius, which limits potential downside and enhances potential upside.

[Justin Knight, CEO at Apple Hospitality REIT]

There continues to be product in the market that would be attractive to us. The primary constraint remains the gap between seller expectation 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 six months ended June 30th, capital expenditures totaled approximately $40 million.

[Justin Knight, CEO at Apple Hospitality REIT]

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 two 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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 use 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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 six 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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. 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 six months ended June 30th, Comparable Hotels' RevPAR was $125, up 3.8%, with ADR of $164, up 1.9%, and occupancy of 76.5%, up 140 basis points.

[Liz Perkins, CFO at Apple Hospitality REIT]

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 reflect continued momentum across the portfolio. July also included the balance of World Cup activity, 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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. 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're 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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.

[Liz Perkins, CFO at Apple Hospitality REIT]

That discipline in 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 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 1st, 2026, we began excluding share-based compensation expense from adjusted EBITDAre and MFFO.

[Liz Perkins, CFO at Apple Hospitality REIT]

Prior year results have been updated to conform with the current presentation. The growth rates I have referenced are on a consistent basis. Turning to our balance sheet, as of June 30th, 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 two 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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 seven 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 five years.

[Liz Perkins, CFO at Apple Hospitality REIT]

We have no outstanding revolver balance. 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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.

[Liz Perkins, CFO at Apple Hospitality REIT]

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]

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Aryeh Klein with BMO Capital Markets. Please go ahead.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thanks. Good morning. 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? 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. Thank you.

[Liz Perkins, CFO at Apple Hospitality REIT]

Good morning, Aryeh. We have been very encouraged by the business transient trends that we've seen really since March. 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. 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. 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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. Thinking about how we've assembled our portfolio, we've intentionally looked to create exposure to a variety of different industries. 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.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thanks.

[Liz Perkins, CFO at Apple Hospitality REIT]

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

[Aryeh Klein, Analyst at BMO Capital Markets]

Sorry?

[Liz Perkins, CFO at Apple Hospitality REIT]

What was the second part of your question?

[Aryeh Klein, Analyst at BMO Capital Markets]

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

[Liz Perkins, CFO at Apple Hospitality REIT]

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%-16% range. It's our second highest rated segment. 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, and market. 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 group side, remembering ours is more small group, but also on the leisure side.

[Aryeh Klein, Analyst at BMO Capital Markets]

Thanks for that. 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 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?

[Liz Perkins, CFO at Apple Hospitality REIT]

It's a little early to give definitive guidance on 2027. 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 seeing 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.

[Aryeh Klein, Analyst at BMO Capital Markets]

Appreciate it. Thanks for the color.

[Justin Knight, CEO at Apple Hospitality REIT]

Thank you.

[Operator]

Our next question is from Michael Hirsh with JPMorgan. Please go ahead.

[Michael Hirsh, Analyst at JPMorgan]

Hi there, thank you for taking my question. Could you help us further unpack the broad-based demands you're seeing? Is it more so with your higher-end travelers or also with the lower ends? Are there any segments that aren't as strong?

[Justin Knight, CEO at Apple Hospitality REIT]

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. I think can't speak based on our own experience to the performance 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 would be a market that rebounds. On the flip side, you have markets like Anchorage that have been strong for years, that continued to see outsized growth.

[Justin Knight, CEO at Apple Hospitality REIT]

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 had been conservative in our guide related to potential World Cup business. As we emerged from the quarter, we saw the majority of our markets experiencing RevPAR growth. 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.

[Michael Hirsh, Analyst at JPMorgan]

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

[Liz Perkins, CFO at Apple Hospitality REIT]

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 had 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. 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. 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

For Q4, even at the midpoint, we have some growth in the fourth quarter related to that. 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.

[Michael Hirsh, Analyst at JPMorgan]

Thank you.

[Operator]

Our next question is from Rich Hightower with Barclays. Please go ahead.

[Rich Hightower, Analyst at Barclays]

Hi, good morning, guys. 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. As an offshoot to that question, when you think about the different 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? How long do you think it would take to sort of plug that gap to see new construction again broadly?

[Justin Knight, CEO at Apple Hospitality REIT]

I appreciate the question. We are incredibly excited about the three hotels, the two 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 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 pencil like the deals we currently have under contract. While we are given regular occasion to look at potential additional development deals, a variety of factors have made them more difficult to pencil. You highlighted the primary factors there.

[Justin Knight, CEO at Apple Hospitality REIT]

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. 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 run-up afterwards. The year-over-year growth rate seems to have slowed a little bit. Talk of tariffs, increased shipping costs, and challenges with freight and things of the sort continue to plague development deals from a cost standpoint. 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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. As we think about near-term acquisitions, we're much more likely, I think, over the next six 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 two different options. I think the brands have spoken to things they're doing to try to re-accelerate or to sustain their development pipelines. 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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, 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 an ability to flow that to the bottom line. 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.

[Rich Hightower, Analyst at Barclays]

That's great. Thanks.

[Operator]

Our next question is from Michael Bellisario with Baird. Please proceed with your question.

[Michael Bellisario, Analyst at Baird]

Good morning. Thanks, everyone. Justin, first on 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?

[Justin Knight, CEO at Apple Hospitality REIT]

Yeah, 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 product coming to market that we're nearing a point where we could see meaningfully greater deal flow. 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.

[Justin Knight, CEO at Apple Hospitality REIT]

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. 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. As we think about uses of capital, our underwriting consistently weighs potential acquisitions against purchases of our shares. I think up until recently, the math clearly pointed towards share purchases. I'll tell you today, and I said in my prepared remarks, there's still a gap.

[Justin Knight, CEO at Apple Hospitality REIT]

As we think about valuation, especially on days where share price pulls back, I think we still feel that there's meaningful value and upside in our shares. The gap's shrinking. I could see us becoming more active on the acquisitions front end, 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.

[Michael Bellisario, Analyst at Baird]

Thanks. That's all 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 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 any updates here on the ground strategies would be helpful. That's all for me. Thank you.

[Liz Perkins, CFO at Apple Hospitality REIT]

Yeah. 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. We certainly attributed a good part of that to the overall uncertainty, the pullback in government and government adjacent business. 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. 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

You saw, or I highlighted in my prepared remarks, we were up to 18% in a 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, really capitalize on the pickup in that near-term transient business. 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. We're really encouraged by that. 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.

[Michael Bellisario, Analyst at Baird]

Helpful. Thank you.

[Justin Knight, CEO at Apple Hospitality REIT]

Thank you.

[Operator]

Our next question is from Floris van Dijkum with Ladenburg Thalmann. Please go ahead.

[Floris van Dijkum, Analyst at Ladenburg Thalmann]

Hey, thanks, guys. 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 had alluded to was 8% of your total EBITDA prior to the conversion. How much further upside is there ahead in your view?

[Liz Perkins, CFO at Apple Hospitality REIT]

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 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 from managing multiple assets across a given market. We're really pleased at 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 the 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 transitions.

[Liz Perkins, CFO at Apple Hospitality REIT]

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. Overall, very, very pleased. 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.

[Floris van Dijkum, Analyst at Ladenburg Thalmann]

Thanks, Liz. Maybe my other question is more on the capital market 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 things that we should expect you to allocate capital? Is it more urban markets or is it like the deals in Las Vegas and D.C. or is it more your traditional suburban markets?

[Justin Knight, CEO at Apple Hospitality REIT]

I think you'll continue to see us pursue assets that are in a mix of locations. 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. The reality is, if I look at recent acquisitions like the South Jordan Embassy, which is in a suburb of Salt Lake City, we're yielding 11% on that asset.

[Justin Knight, CEO at Apple Hospitality REIT]

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. 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.

[Floris van Dijkum, Analyst at Ladenburg Thalmann]

Thanks.

[Operator]

Our next question is from Jack Armstrong with Wells Fargo. Please go ahead.

[Jack Armstrong, Analyst at Wells Fargo]

Hey, good morning, and thanks for taking the question. 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?

[Justin Knight, CEO at Apple Hospitality REIT]

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. We've seen strength across a variety of different industries and business types. I think certainly encouraged with some improvement in consulting type business, which had been really slow to rebound, and tech business, which had also been slow to rebound. 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. Looking across markets that performed really well for us, the drivers of those markets is very diverse.

[Jack Armstrong, Analyst at Wells Fargo]

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

[Justin Knight, CEO at Apple Hospitality REIT]

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. 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. We do anticipate a ramp period for that hotel, which would be factored into next year's guidance.

[Jack Armstrong, Analyst at Wells Fargo]

Really helpful. Thank you.

[Justin Knight, CEO at Apple Hospitality REIT]

Absolutely.

[Operator]

Once again, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Thanks. Good morning. I wanted to go back to the comment around cost per occupied room, and I was just wondering 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?

[Liz Perkins, CFO at Apple Hospitality REIT]

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. 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.

[Liz Perkins, CFO at Apple Hospitality REIT]

It's an assumption across the guidance range that fixed costs will be driving the CPOR differential. The better that we do on the top line, the easier that hurdle will be. Overall, really pleased with where we've been trending from a total hotel perspective, both from a dollars 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. We continue to work, and we may see more of that as we move through the year. Do have, relative to last year, a little bit of a hurdle in Q4.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Understand. I was just wondering, Justin, 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?

[Justin Knight, CEO at Apple Hospitality REIT]

I appreciate the question. Details are still limited at this point. 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. 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. 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.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Appreciate the thoughts. Thank you.

[Operator]

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.

[Justin Knight, CEO at Apple Hospitality REIT]

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 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.

[Justin Knight, CEO at Apple Hospitality REIT]

We look forward to meeting with many of you over the coming months.

[Operator]

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

Participants

Executives

• Kelly Clarke, VP of Investor Relations
• Justin Knight, CEO
• Liz Perkins, CFO

Analysts

• Aryeh Klein, Analyst at BMO Capital Markets
• Michael Hirsh, Analyst at JPMorgan
• Rich Hightower, Analyst at Barclays
• Michael Bellisario, Analyst at Baird
• Floris van Dijkum, Analyst at Ladenburg Thalmann
• Jack Armstrong, Analyst at Wells Fargo
• Austin Wurschmidt, Analyst at KeyBanc Capital Markets