Apple Hospitality REIT, Inc.

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, and as a result are subject to numerous risks, uncertainties, and the outcome of future events that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2025 Annual Report on Form 10-K, and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit AppleHospitalityREIT.com. This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the second quarter 2026 and an operational outlook for the remainder of the year. Unless otherwise stated, all changes in performance metrics refer to year-over-year changes for the comparable period. All references to year-to-date performance refer to the six-month period ending June 30, 2026. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our second quarter 2026 earnings call. We are pleased to report Comparable Hotels Red Park 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 Red Park 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 58 cents of each incremental revenue dollar into comparable hotels such as the Hotel Ibiza. That flow-through produced 120 basis points of margin expansion, an MFFO of 52 cents 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 rep part growth of more than 5.5%. Weekday occupancy improvement outpaced weekend occupancy improvement during the quarter, indicative of strengthening business travel across our portfolio. While the 2026 FIFA World Cup drove significant pricing power in our host markets, rep part 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 in continued strength and forward bookings, we are raising our full-year REBPAR growth guidance 225 basis points to 3.25% at the midpoint and raising our full-year comparable hotels adjusted hotel EBITDA margin guidance 75 basis points at the midpoint to an increase of 25 basis points year-over-year. Even at the revised midpoint, our outlook implies more modest growth in the second half than we delivered in the first, and we believe it could continue to prove conservative. Transient demand has been stronger than anticipated, and our group business continues to build, providing strong base business at attractive rates. We also left periods adversely affected by reduced government travel and last year's government shutdown, which represents potential upside not fully reflected at the midpoint of our outlook. To date, we have not experienced any adverse impact from the escalation of energy costs attributable to the ongoing conflict in the Middle East. However, should this begin to impact consumer spending, our hotels offer a value proposition that has historically held up well during periods of economic uncertainty. In July, we completed a series of refinancing transactions that extended our maturities, improved our pricing, and increased the capacity of our revolving credit facility, which Liz will address in more detail. Taken together, they leave us with meaningful liquidity, no near-term maturities of consequence, and the flexibility to grow when the opportunity is right. Our approach to capital allocation is comparative in nature, with each potential use of capital measured against the alternatives available to us to maximize value for shareholders. In April, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sale price represents a 5% cap rate or 14.5 times EBITDA before capital expenditures and a 4% cap rate or 19.6 times EBITDA after taking into consideration an estimated $3 million in anticipated capital improvements. Buyers for these types of assets remain active, though pricing varies meaningfully by hotel and by market. We continue to evaluate select assets where we believe a sale together with the redeployment of proceeds creates more value than continued ownership. The Motto Nashville Downtown, which recently received Hilton's New Build of the Year Award for the brand, achieved ADR of approximately $243 during the second quarter, a meaningful premium to the Nashville market with occupancy continuing to build as the hotel ramps. At the Homewood Suites Tampa Brandon, acquired last year, we recently began a comprehensive renovation that once complete, will further strengthen the hotel's competitive position in its market. Turning to out-year 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 Spring Hill Suites in Las Vegas, which we expect to be delivered in the second quarter of 2028. Construction is underway on both, and in each case, the developer carries the project under a fixed-price forward purchase contract. Our cash outlays occur only at completion, allowing us to secure newly built, well-located assets at a known cost without deploying capital until delivery. Both are markets we know well. Our two hotels in Anchorage grew REVPAR nearly 17% during the second quarter. operating at approximately 95% occupancy at an average daily rate of $346. And our Spring Hill Suites in Las Vegas has grown around 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, upscale, upper mid-scale product under construction within a five-mile radius, which limits potential downside and enhances potential upside. There continues to be a 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 is 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. For the full year, we expect to reinvest between $85 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. The scale of 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 24 cents, per common share. Based on Monday's closing stock price, our annualized regular monthly cash distribution of 96 cents 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 creative opportunities to create long-term shareholder value. Throughout our 26-year history in the lodging industry, we have refined our strategy with intention. We invest in high-quality hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets, industries, and demand generators. We maintain a strong and flexible balance sheet with low leverage. We reinvest strategically in our portfolio. And we work closely with the experienced management teams who operate our hotels. Together, those principles differentiate our portfolio from our peers. Efficient, rooms-focused hotels produce strong operating margins and require less capital to maintain, and our lower leverage leaves more of the resulting cash flow available to fund distributions, reinvest in our hotels, and pursue growth. Through the first six months of the year, MFFO per share grew more than 7% to 86 cents, reflecting both the strength of our model and the execution of our teams. While we cannot control the broader economic environment, we can control how well our hotels are operated, how prudently we allocate capital, and the integrity with which we conduct our business. Those remain our priorities, and we believe that they are what will create lasting value for our shareholders over time. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter, and outlook for the remainder of the year.

Thank you, Justin, and good morning. Last quarter, We noted that as we moved into seasonally higher occupancy months and saw greater contribution from rate growth, we would expect stronger flow-through to the bottom line. That is what the second quarter delivered. Comparable Hotels ADR grew 3.5%, driving REVPAR growth that, combined with the disciplined expense management, we converted into 120 basis points of adjusted hotel EBITDA margin expansion and MFFO of 52 cents 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. 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, but unlike June, saw minimal contribution from World Cup matches. with our non-World Cup markets performing similarly to our host markets. With the tournament concluding mid-month, we do not expect any continuing impact for the balance of the quarter. Comparable Hotels' total revenue was $402 million for the quarter and $739 million year-to-date, up 6.2% and 5.3% respectively. supported by continued strength and 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 Rev Park growth of over 7% and adjusted hotel EBITDA margin expansion of over 300 basis points, well ahead of the portfolio overall. These hotels represent approximately 8% of our adjusted hotel EBITDA. That performance reflects significant effort by our asset management team and our new operators, who manage the transition and move 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 tighter Notre Dame. Anchorage REVPAR grew 17% on strong leisure demand supplemented by military and airline crew business. Washington, T.C. grew REVPAR nearly 8% as National Guard deployment compressed the market. St. Louis grew REVPAR 13%, recovering from a softer period last year and aided by group business. And Chicago grew REVPAR 13% on strong leisure trends and continued recovery in midweek demand. Not every market shared in this growth. Phoenix saw REVPAR decrease 5% with a decline in both occupancy and rate, driven in part by a pullback and semiconductor related business. That said, we are encouraged by announcements of continued investment in the market and believe this segment's long-term fundamentals remain strong. Looking at the portfolio more broadly, same-store weekday occupancy improved 240 basis points during the quarter, outpacing weekend improvement of 120 basis points, consistent with the highlighted strength in business demand. That strength was consistent throughout the quarter, with weekday occupancy up 240 80 basis points in April, 310 basis points in May, and up 130 basis points in June. Weekday and weekend ADR each grew approximately 350 basis points in the second quarter, punctuated by 6% growth in June with the start of FIFA World Cup. Shifting to same store booking channel trends, Brand.com remained our largest channel at 40% of room nights, up 80 basis points year over year, while GDS bookings grew 100 basis points to 18%. OTA bookings were flat at 13% of mix and Property Direct declined 140 basis points to 25%. Growth in our GDS bookings reflects continued strength in business travel while gains in Brand.com support both our lowest distribution costs and some of our highest rated segments. Turning to segmentation, Bar grew 120 basis points to 33% of our occupancy mix, while negotiated declined 160 basis points to 15%. With midweek occupancy improvement outpacing weekends, that shift indicates the incremental business travel we captured came largely at retail rates rather than contracted rates, which supported our rate growth for the quarter. Group grew 60 basis points to 18% of mix, providing a base of occupancy that supported our ability to drive rate and remains our second highest rated segment. Government grew 30 basis points to nearly 5.5% and discount declined 50 basis points to 28%. Moving to expenses, with same store revenue growth of 4.7%, Operating expenses grew 3.5% while fixed expenses declined, bringing total same-store hotel expenses up 3.3% for the quarter and 3% year-to-date, increases of 1.3% and 0.6%, respectively, on a per-occupied room basis. That discipline 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 and maintenance were our primary headwinds, growing 9% and 6% respectively. The decline in fixed expenses reflected the favorable property insurance renewal that took effect in April, as well as successful real estate tax appeals. Adjusted EBITDA RE was approximately $145 million for the quarter, up 7.5%, and $245 million year-to-date, up 5.3%. MSFO was $123 million for the quarter, or 52 cents per share, up 9% and 8.3% respectively. Year-to-date, MFFO was approximately $204 million, or 86 cents per share, up 6.1% or 7.5%, respectively. As a reminder, effective January 1, 2026, we began excluding share-based compensation expense from adjusted EBITDA RE and MFFO. Prior year results have been updated to conform with the current presentation, so the growth rates I have referenced are on a consistent basis. Turning to our balance sheet, as of June 30, 2026, we had approximately $1.5 billion of total debt outstanding, approximately 3.2 times our trailing 12-month 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. 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, we have no outstanding revolver balance, and our next significant unsecured maturity is in 2029. We are grateful for the continued support of our bank group throughout this process. The strength of these relationships and the confidence our lenders have shown in our strategy and in the underlying fundamentals of our business are a real testament to the quality of our portfolio and platform. As a result, our capital structure gives us considerable flexibility to be opportunistic as we look ahead. Turning to guidance, for the full year, we now expect comparable hotels REVPAR change between 2.25% and 4.25%. comparable hotels adjusted hotel EBITDA margin between 33.7% and 34.7% adjusted EBITDA RE between 453 million and $476 million and net income between 152 million and $180 million. As a result of the improvement in REVPAR growth expectations, our guidance assumes total hotel expense growth of approximately 4% at the midpoint. On a per-occupied room basis, expense growth remains unchanged at approximately 2%, continuing to reflect the favorable property insurance renewal that took effect in April, along with continued moderation in wage growth. The revised guidance range incorporates our stronger-than-anticipated second quarter performance and an increase in our outlook for the remainder of the year, driven by improved business and leisure travel demand. We are encouraged by the setup for the remainder of the year, given the broad-based demand strength across our markets and favorable comparisons to prior periods impacted by government-related disruptions. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Growth in both occupancy and rate through the quarter along with continued strength in booking trends reflects the resilience of travel demand and the specific appeal of our hotels. Our strongest gains came midweek at a portfolio average daily rate of $170. Because rate growth carries higher flow through than occupancy, that mix contributed to margin expansion and cash flow growth we delivered for the quarter. Our capital allocation decisions have strengthened the portfolio and our July refinancing extended our maturities and increased our capacity. Together with growing cash flow from operations after capital expenditures, that leaves us with meaningful flexibility to pursue accretive opportunities as they arise. We believe that combination positions us well to navigate changing market conditions and to continue growing cash flow and creating long-term value for shareholders. That concludes our prepared remarks and we'll now open the call for questions.