Apple Hospitality REIT, Inc. 2026 Q2 Earnings Call

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.

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.

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%.

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.

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.

Taken together, they leave us with meaningful liquidity, no near-term maturities of consequence, and the flexibility to grow when the opportunity is right. Our approach to capital allocation is comparative in nature, with each potential use of capital measured against the alternatives available to us to maximize value for shareholders. In April, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota, for approximately $9 million. The sale price represents a 5% cap rate or 14.5x EBITDA before capital expenditures and a 4% cap rate or 19.6x EBITDA after taking into consideration an estimated $3 million in anticipated capital improvements. Buyers for these types of assets remain active, though pricing varies meaningfully by hotel and by market. We continue to evaluate select assets where we believe a sale together with the redeployment of proceeds creates more value than continued ownership.

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

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 five-mile radius, which limits potential downside and enhances potential upside.

There continues to be product in the market that would be attractive to us. The primary constraint remains the gap between seller 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.

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.

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.

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.

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. MFFO of $0.52 per share. For the quarter, comparable hotels' RevPAR was $136, up 5.3%, with ADR of $170, up 3.5%, and occupancy of 80.1%, up 130 basis points. For the 6 months ended June 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.