Apple Hospitality REIT, Inc. (APLE) Q3 2026 Earnings Call Transcript

Operator: Greetings and welcome to the Apple Hospitality Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Campbell Clarke, vice president. Investor relations.

Kelly Campbell Clarke: Thank you.

Operator: You may begin.

Kelly Campbell Clarke: Good morning, and welcome to Apple Hospitality REIT's Third Quarter 26 Earnings Call. Today's call is based on the earnings release and Form 10 Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward looking statements as defined by federal securities laws. These forward looking statements are based on current views and assumptions and, as a result, are subject to numerous risks, uncertainties, and the outcome of future events, that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied. Any such forward looking statements are qualified by the risk factors described in our filings with the SEC including in our 2025 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward looking statements. Except as required by law. In addition, non GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin G. Knight, our chief executive officer, and Liz Perkins, our chief Financial Officer, will provide an overview of our results for the third quarter 26 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 9 month period ending September 30, 2026. Following the overview, we will open the call for Q&A.

Justin G. Knight: Good morning, and thank you for joining us today for our third quarter 26 earnings call. Momentum continued to build during the third quarter with broad based demand from both business and leisure travelers driving comparable hotels RevPAR growth of more than 7%. up from 5.4% in the second quarter, We shifted our mix towards higher rated business as retail demand grew. Discount business declined, and our teams layered in group at attractive rates. That shift, together with active asset management and hotel level adjustments to pricing strategy, enabled our hotels to gain market share, primarily through rate. We converted $0.63 of each incremental revenue dollar into comparable hotels adjusted hotel EBITDA, producing approximately 210 basis points of margin expansion, adjusted EBITDAre growth of more than 13%, and growth in MFFO per share of more than 16%. That momentum carried into October with preliminary results indicating comparable hotels RevPAR growth of approximately 10% well beyond the benefit of the easier comparison to last year's government shutdown. Based on our year to date results and October performance, we are raising the midpoint of our full year comparable hotels RevPAR growth guidance 35 basis points to 5.6% at the midpoint. And our comparable hotels adjusted hotel EBITDA margin guidance 105 basis points to 35.25% at the midpoint. An increase of 115 basis points year over year Transient demand, particularly mid week business travel, has exceeded our expectations. And bookings for the remainder of the year support our increased outlook. Looking to 2027, business travel, a core segment for our hotels, is leading the improvement in industry demand. And new supply remains limited. At quarter end, half of our hotels had no upper upscale, upscale or upper midscale product under construction within a 5 mile radius. We will lap the benefit of World Cup in our host markets primarily in the second quarter, but we expect it to be a modest headwind. And we anticipate underlying demand and muted near term supply to support continued growth. Since the start of the third quarter, we have entered into contracts to sell 3 hotels in Santa Clarita, 1 hotel in Davenport, and 1 hotel in Sacramento for combined gross sales price of $72 million We anticipate these sales will close by year end. Together with the Rochester Hampton Inn Suites we sold in April, these transactions total $81 million and represent a 6.8% cap rate or 12.2x EBITDA before capital expenditures and a 5.7% cap rate or 14.6x EBITDA after taking into consideration an estimated $16 million in planned capital improvements. Including these hotels, we have sold or contracted to sell 13 hotels for $154 million since the beginning of 2025. Recycling capital out of older assets with lower growth prospects. We weigh each use of capital against the alternatives available to us. Including reinvestment in our existing hotels, acquisitions, and share repurchases, and prioritize those we expect to create the most value for shareholders. Pricing for the hotels we target has moved closer to our underwriting. And we are actively evaluating both newer properties and value add opportunities that complement our existing hotels and offer stronger long term growth. Similar to our recent acquisitions, of the modern Motto Nashville Downtown and the Homewood Suites Tampa Brandon. We expect redeployment of these proceeds to be accretive to earnings and to further enhance the overall composition of our portfolio. With leverage of approximately 3x EBITDA, $700 million available on our revolving credit facility and a cost of capital that has improved significantly this year, we see a meaningful opportunity to grow our platform. We continue to have forward purchase contracts for 2 hotel developments, an AC Hotel in Anchorage, which we expect to be delivered in late 27, and a dual branded AC Hotel and residence inn adjacent to our existing Spring Hill Suites in Las Vegas which we expect to be delivered in the third quarter of 28. Construction is underway on both, In each case, the developer funds the project under a fixed price contract, and Occurs only at completion. Allowing us to secure newly built well located hotels at a known cost without deploying capital until delivery Within our existing portfolio, strategic reinvestment keeps our hotels competitive in their markets. And maintains a strong value proposition for our guests. Capital expenditures totaled $58 million for the first 9 months of the year, And for the full year, we expect to invest between $85 million and $95 million including comprehensive renovations at 18 hotels. At the midpoint of that range, our reinvestment represents 6% of revenues, which is consistent with our historical average. The efficient design of our rooms focused hotels our scale, and our in house project management team allow us to reinvest efficiently. Leaving more cash flow available for distributions and growth. During the quarter, we paid distributions totaling $57 million or $0.24 per share. Year to date, distributions represent approximately 65% of MFFO after capital expenditures, with the remaining cash flow available to invest in our portfolio and pursue acquisitions. Based on Tuesday's closing stock price, our annualized regular monthly distribution of $0.96 per share represents a yield of approximately 5.1%. Together with our Board of Directors, we will continue to evaluate distributions in the context of portfolio performance, capital needs, and other opportunities to create long term value for shareholders. Our results through the first 9 months of the year reflect both the strength of our operating model and the efforts of our teams. With MFFO per share up nearly 11% over the same period last year. We enter 2027 with improving demand limited new supply, a well covered distribution, and the capacity to pursue accretive growth. While we cannot control the broader economic environment, we can control how well our hotels are operated, How prudently we allocate capital, the integrity with which we conduct our business. Those remain our priorities, and we believe they will continue to create lasting value for our shareholders. With that, I will turn the call over to Liz to discuss our financial performance, balance sheet and outlook in more detail.

Elizabeth S. Perkins: Thank you, Justin, and good morning. The third quarter demonstrated the operating leverage in our portfolio. With earnings meaningfully outpacing revenue as top line growth accelerated. For the quarter, comparable hotels RevPAR was $134, up 7.3%. With ADR of $171, up 4.3% and occupancy of 78.3%, up 210 basis points. For the 9 months ended September 30, comparable hotels RevPAR was $128 up 5.1%, with ADR of $166, up 2.8% and occupancy of 77.1% up 170 basis points. Underlying demand remained strong throughout the quarter, with RevPAR up in every month and growth strongest in September. As event and calendar timing shaped the monthly results. Comparable hotels RevPAR grew 6.2% in July 4.6% in August, and 11.2% in September. World Cup events in our host markets contributed only 12 basis points to July RevPAR growth. Following solid growth in August, September benefited from a more favorable calendar and from lapping softer demand ahead of last year's government shutdown. Comparable hotel's total revenue was $394 million for the quarter and $1.1 billion year to date. Up 8.2%, 6.4%, respectively. Supported by continued growth in other revenues which were up 8% for the quarter and 9% year to date. For the quarter, comparable hotels adjusted hotel EBITDA was $146 million, up 14.7%, with an adjusted hotel EBITDA margin of 37.1% up 210 basis points. Year to date comparable hotels adjusted hotel EBITDA was $405 million, up 9.9%. With a margin of 36.1%, up 120 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, already operated hotels for us in those markets. Third quarter results for this group were encouraging. With RevPAR growth of nearly 10% and adjusted hotel EBITDA margin expansion of 260 basis points. Both ahead of the portfolio overall. These hotels represent approximately 7% of our adjusted hotel EBITDA, and their performance reflects the work of our asset management team and our new operators to integrate them quickly into existing platforms and market clusters. Several markets stood out, Portland, Maine, our largest market by adjusted hotel EBITDA in the third quarter, grew RevPAR 7%, driven entirely by rate with ADR up 9% at occupancy above 93%. Reflecting improvements in our retail pricing strategy during the peak summer months. San Diego, another 1 of our largest markets, grew RevPAR 12% during the quarter. On a rebound in government travel and strong summer leisure demand. Anchorage RevPAR grew 23% on strong leisure demand supplemented by military and airline crew business. Washington DC grew RevPAR 16.5% as citywide events, including America 250 celebration and the IndyCar race, along with National Guard related business, compressed the market. And Chicago grew RevPAR 16% due to leisure, convention, and citywide demand. Including the return of the biennial IMTS manufacturing show in September. Performance was softer in a few markets. Phoenix, our largest market by hotel count, was roughly flat after declining 5% in the second quarter. However, business tied to semiconductor manufacturing has already begun to pick up and is expected to remain strong throughout the fourth quarter. Looking at the portfolio more broadly, same store weekday occupancy improved 3% during the quarter, moderately outpacing weekend improvement of 2.6%. Consistent with strengthening business demand and continued healthy leisure demand. Weekday occupancy grew in each month of the quarter. Up a 140 basis points in July, 380 basis points in August, and 150 basis points in September. For the quarter, weekday ADR grew 3.9% and weekend ADR grew approximately 4.6%. 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. Property direct was 25%, up 40 basis points GDS was 18%, up 20 basis points. and OTA was 13%, down 100 basis points. Brand.com is not our lowest-cost channel and a source of some of our highest rated business, and the shift away from OTA lowers our distribution costs. Improving GDS volume reflects continued growth in business transient demand. Turning to segmentation, BAR grew 210 basis points to 35% of our occupancy mix. While negotiated declined 140 basis points to 16%. With midweek occupancy gains outpacing weekends, that shift indicates the incremental business travel we captured came largely at retail rather than contracted rate. Supporting our rate growth for the quarter. Group, our second highest rated segment, grew 120 basis points to over 16% of mix, providing a base of occupancy that helped us drive rate. Government grew 20 basis points to 5.4% and discount declined 210 basis points to 27%. Moving to expenses, with same store revenue growth of 7.1%, and operating expenses grew 4%, while fixed expenses declined. Bringing total same store hotel expenses up 3.7% for the quarter and 3.2% year to date. Or up just 0.6% per occupied room in both periods. This disciplined expense management supported revenue growing nearly twice as fast as expenses, driving our margin expansion for the quarter. Rooms wages grew 4.5% or 1.4% per occupied room largely reflecting higher occupancy. Utilities and repairs and maintenance were our primary headwinds growing 7.1%, 6.5%, respectively. The decline in fixed expenses reflected the favorable property insurance renewal that took effect in April and successful real estate tax appeals. Adjusted EBITDAre was approximately $140 million for the quarter, up 13.3%. and $385 million year to date, up 8%. MFFO was $118 million for the quarter or $0.50 per share, up 16%, 16.3%, respectively. Year to date, MFFO was approximately $322 million or $1.36 per share, up 9.5%, 10.6%, respectively. As a reminder, effective January 1, 2026, we began excluding share based compensation expense from adjusted EBITDAre and MFFO. Prior year results have been updated to conform with the current presentation. So the growth rates I have referenced are on a consistent basis. Turning to our balance sheet. As of September 30, 2026, we had approximately $1.5 billion of total debt outstanding. Approximately 3 times our trailing 12 months EBITDA. With a weighted average interest rate of 4.9%, and a weighted average maturity of approximately 4.5 years. 60% of our total debt was fixed or hedged, We had approximately $43 million of cash on hand and $700 million of availability under our revolving credit facility. After quarter end, we repaid in full 1 mortgage loan secured by 3 properties for a total of approximately $49.6 million, bringing the number of unencumbered hotels in our portfolio as of October 31, 2026, to 210. In July, we completed a series of refinancing transactions that increased the of our main unsecured credit facility to approximately $1.3 billion. Upsized our 7 year term loan to $160 million, extended maturities, and improved pricing across our term loan. We have no outstanding revolver balance, and no significant unsecured maturities until 2029. We are grateful for the partnership and the continued support of our bank group. Turning to guidance. For the full year 26, we now expect comparable hotels RevPAR growth between 5.1% and 6.1%. Comparable hotels adjusted hotel EBITDA margin between 35% and 35.5%, adjusted EBITDAre between $482 million and $493 million and net income between $177 million and $192 million. At the midpoint, our adjusted EBITDAre guidance increased $23 million from our prior outlook. With approximately $12 million reflecting third quarter results ahead of our expectations and approximately $11 million reflecting a stronger fourth quarter outlook. Our comparable guidance assumes total hotel expense growth of 4.9% at the midpoint, or approximately 1.6% on a per occupied room basis. We are encouraged by the setup for the fourth quarter, given continued demand strength and an easier comparison to last year's government shutdown. 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 account for any unannounced hotel acquisitions or dispositions. Taken together, rate led revenue growth and disciplined expense management produced earnings growth well ahead of the increase in revenue this quarter. With growing cash flow after capital expenditures, extended maturities, and significant available capacity, we have considerable flexibility to pursue the accretive opportunities Justin described. We believe that combination positions us well to navigate changing market conditions and create long term value for our shareholders. That concludes our prepared remarks, and we will 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 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. 1 moment please while we poll for questions. Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. please proceed with your question.

Austin Wurschmidt: Thanks. Good morning, everyone. Justin, with the additional proceeds coming from the sales you highlighted later this year, I guess which capital allocation option is most attractive today? As you kind of weigh the various alternatives?

Justin G. Knight: Good morning. So, as has always been the case, we evaluate, potential acquisitions relative to other capital allocation opportunities. In today's environment, I think the most likely deployment of that capital will be into potential acquisitions. And as I highlighted in my prepared remarks that we are active on a number of potential deals. You know, I think in addition to proceeds from those dispositions, we are currently generating meaningful cash above and beyond our needs from a CapEx and distribution standpoint and our balance sheet is in meaningfully better shape, although it is always been good. With projected debt to EBITDA falling below 3 times by the end of the year. Assuming we hit the mid point of our guidance. So thinking about the next several months, I think assuming no change in our share price. It would be reasonable to assume. And I think expected based on the opportunity set that we are looking at today that we would be meaningfully more acquisitive than we have been recently.

Austin Wurschmidt: And when you kind of look at the active, you know, potential deals that are out there, I mean, what kinds of locations are you seeing these opportunities? Are they more urban? Are they suburban? Are these recent vintage you know, opportunities? And can you discuss the competition, in the transaction market as well? Thank you.

Justin G. Knight: Sure. Yeah. It will be a mix of all of those. I highlighted in my prepared remarks our recent acquisitions, which included the motto, a newly constructed hotel in Downtown Nashville and the Homewood Suites in Tampa Brandom, which is more of a suburban area. Those 2 assets are also distinct in that 1 is brand new and the other was a value add. Opportunity where we, this year, performed significant renovation of a hotel and were able to change management. As part of that acquisition. You know, over you know, over our 25 plus years in the industry, we have been successful in executing against both. And in the current environment, I think what you should anticipate is that, we will be deploying capital into assets where we see meaningful long term upside and where the strength of our platform adds significant value. Does that answer your question, Justin?

Austin Wurschmidt: Yeah. No. That covers a lot of it. And then just the last 1 kind of in a similar theme. You know, where are you seeing deals you know, versus where replacement costs is today? Just to give us a sense, and I am sure it is a little bit all over depending on vintage, but can you give us a sense of, just the magnitude of that discount for what you are seeing in the market today. Thank you.

Justin G. Knight: Yeah. No. Absolutely. I highlighted in our prepared remarks that we continue to see low supply growth. You know, that is a result of rising construction costs. Outpacing growth in underlying performance in many markets. In our prepared remarks, I highlighted that we still have roughly 50% of our portfolio that does not have any exposure to new supply within a 5 mile radius, which is you know, a continuation of recent trends. For that reason, much of what we are looking at you know, we believe we can buy below replacement cost. And, you know, I think adding to that, our ability to perform renovations more efficiently than most because of the scale of our operation and the number of renovations we have done, over our history. You know, I think I think we have good expectations for how we will be able to execute. Okay. Thanks for the time this morning.

Operator: Our next question comes from Shaun Kelley with Bank of America. please proceed with your question.

Analyst: Hi, thank you for taking my question. Maybe as a follow-up on capital allocation. Some of this comes together, what is your preferred source of funds? Is it the sales the revolver, or something else? And how are you thinking about the ATM with the stock where it is at?

Justin G. Knight: A good question. Our preferred source is cash from operations. And as I highlighted, in response to Justin's question, given the strength in operations, we anticipate that we will have significant free cash flow above and beyond our needs for CapEx and distribution. After that, you know, certainly looking to redeploy in an accretive fashion proceeds from sales. And then as I highlighted, our projected balance sheet strength based on our current guidance gives us tremendous flexibility to add incremental leverage without shifting the risk profile of the overall portfolio. In terms of equity issuance, we have demonstrated an ability to execute on equity raises where and I should be clear on this only where we have clear line of sight to a target use of proceeds where we can deploy equity raised at a meaningful spread to the implied multiple at that point in time. And I think when you look at the deal we did in Las Vegas, for example, and the equity raise, that we did around that particular transaction. You know, that. that is a good example of where we would where we would potentially use equity as an additional source. But the reality is, you know, where we are today, we do not have an immediate need to tap the equity markets in order to meaningfully ramp our acquisitions activity. Thank you.

Analyst: Really appreciate the color. And maybe rotating over, with Alaska up 23% in the quarter, a question Anchorage Embassy and the Lake Union rebrand. How much displacement is baked into the Q4 guide? And how should we think about the net 2027 impact, first quarter disruption and kind of versus that Seattle ramp?

Elizabeth S. Perkins: You know, as we think about displacement for 2027, we will be in a better position to speak to that when we give guidance for the full year. You know, we are working through the budgeting process now on a property by property level basis and roll into placement analysis around, you know, per otherwise projected performance. And so on a net basis, and thinking through what we expect once open in Anchorage, you know, and with the embassy complete, we will be able to shed better light on that. As we think about the fourth quarter, That said, we have factored in displacement for not only those 2 assets, but. So the Lake Union Residence Inn conversion and, the Embassy. But we always assume displacement from renovated properties. And while we are renovating 18 properties this year with 2 that are larger, we renovated, you know, 21 properties last year. And so as we think about displacement and as we think about guidance, that is factored in. We will have a better idea with Lake Union because it is a conversion to a new brand family, the impact of that. You know, this is our first conversion of that type. And so, again, we will get a sense for any incremental displacement that we may have and be able to factor that in as we look at 2027. Thank you. Appreciate the color.

Operator: Our next question comes from Jay Kornreich with Cantor Fitzgerald. please proceed with your question.

Jay Kornreich: Just going back to the comments on 2027. Which you mentioned anticipating having sustained demand momentum, especially by business trends picking up. Along with muted new supply. Maybe can you just provide some additional thoughts as to how the setup for next year looks at this point and what the potential could be for another year of mid single digit RevPAR growth?

Justin G. Knight: Sure. And Liz highlighted that it is still early. We are deep in the process of finalizing budgets with our managers. But encouraged, I think, by the setup that you referenced and that we talked about. In our prepared remarks and beyond that, I am confident you have listened to or read transcripts from the major brand families within which they provided some high level guidance for how things might lay out next year. Our experience has been that travel tends to be a momentum play. And, you know, we are encouraged by the continued strength in leisure consumers. And the meaningful rebound that we saw this year in terms of business travel. Our expectation is that those trends will continue. And while we will not necessarily have some of the tailwinds, that fueled the higher growth rates this year, that the underlying fundamentals should continue to produce growth as we move into next year. Remembering again that at these levels, we are also producing higher margins than we were before and have demonstrated an ability to flow a lot of the incremental top line revenues to the bottom line.

Elizabeth S. Perkins: And as we think about, you know, as we think about 2027, the only thing that I will add is you know, we communicated in the second quarter that we thought that the World Cup had about a 50 basis point impact to the quarter. There was less of an impact in the third quarter for the July matches. As I stated in the prepared remarks, it was about a 12-basis-point impact to July. And so for the quarter, single digits. Overall, for the full year, if you of apply the same methodology for sort of backing into an impact estimate you are around 15 basis points. Of RevPAR impact. So while it did help this year, you know, it is not necessarily a direct meaningful headwind to next year.

Jay Kornreich: Got it. that is helpful. Thank you. Then just moving to the fourth quarter, October RevPAR up a very strong 10% with some of the benefit from the easier government comps from last year. Are you able to somewhat parse out how much upside there was in October without the government benefit? And guess what that can mean for how the rest of the fourth quarter shapes up?

Elizabeth S. Perkins: So as we talked about the government impact last year, you know, we talked about it in the context of both direct government business, but also government adjacent business. I think that on the conservative side, if you assume that, where we performed in both September leading up to the shutdown and October where we have seen, you know, continued outsized growth. If you assume last year, the impact where we were down roughly 3%, looking at it on a same store basis. And where we performed this year. You know, your underlying strength or performance is between 7% and 8% still. And that is if you assume everything was government related. And so conservatively, I would say, and this is factored in at the high end of our guidance range. That the fourth quarter would continue to see you know, that strength. But certainly encouraging, and the comps were beneficial. During September and October. But the broad based fundamental demand remained strong outside of government specific business. Got it. it is helpful. Thank you.

Operator: Our next question comes from Ari Klein with BMO Capital Markets. please proceed with your question.

Ari Klein: Thanks and good morning. Hoping you could elaborate a little bit on just what you are seeing from BT. Maybe the diversity of the strength there and how you see that continuing to trend?

Elizabeth S. Perkins: Yeah. Business transient has been interesting to track from a data standpoint and a segmentation standpoint this year because of the overall strength and occupancy and the ability to really revenue manage in a way where we are shifting out of lower rated contracted business, so your corporate and local negotiated where they do not have last room availability, into retail rates, meaning it is harder to track because it is not booking through the discount--the discount provided were not available on compression nights. And so, really, we are triangulating a few things while our segmentation shows a decline in corporate negotiated, When we look at GDS from a channel perspective, that is up and ADRs are strong there. Our Tuesday, Wednesday night, occupancy growth you know, is the highest across the week, and we are seeing increases in ADR there. And, you know, for the make up of our portfolio, we attribute most of that to business transient. You know, as we look at market drivers across our portfolio, we are seeing improvements in you know, citywide events, groups. We are you know, both leisure and corporate driven, but we are also seeing local accounts producing, government coming back, in some markets, and we are able to see some larger corporate negotiated improvement. So it is really broad based, which is what we find most encouraging and what continues to give us optimism as we move past some of the comps year over year.

Ari Klein: Appreciate that. And then maybe just on the OTA shift you saw in the quarter, what do you think drove that? And how should we think about cost differential between the different channels and what it might mean for margins, if that continues?

Elizabeth S. Perkins: You know, I think seeing. You know, going back to the last question around you know, seeing good growth overall coming through BAR rates, and brand.com direct business. And that being corporate driven, and that tending not to book through OTA channels. I think, is what is providing the opportunity for. As a mix of business, OTA declining. Those tend to be not our lowest-cost channel. The margin between that and OTA, is not as significant as it once was, But still our lowest-cost channel. So there is, on the margin, some benefit I would say, in general, we have seen the rates negotiated with the OTAs put us in a position where you know, in some cases, the margin differs. Or the commission differs based on need and based on occupancy level. And so you know, in general, we feel like the commissions are you know, the conditions are reasonable, but we do prefer direct business where overall distribution costs are the lowest. Thank you. Appreciate the detail.

Operator: Our next question comes from Michael Bellisario with Baird. please proceed with your question.

Michael Bellisario: Thanks. Good morning, everyone. Just first a clarification question. You referenced newer deals in terms of what you are looking at. Are you referring to more development takeouts or just newer vintage existing properties?

Justin G. Knight: I appreciate the question. Newer vintage properties. At this point, anything that we would look at from a new development standpoint would be delivery you know, in 3 years, which given the fact we have capital immediately available would not be a priority for us.

Michael Bellisario: Got it. Just wanted to clarify that because you referenced Nashville. So I get they are both newer vintage, but yeah, Absolutely. Different starting point. on 2027. Maybe just help us understand some of the. what are the risks you are thinking about sort of discussing internally other than the obvious macro uncertainties? Is there any on the expense side with the brands?

Analyst: Or maybe it is year over year comparisons that, you are more focused on today looking at I think, you know, I think certainly, ruling out macro concerns takes a lot of concern off the table.

Justin G. Knight: it is specific to brand related expenses. I think you have heard on the various brand calls, and it is consistent with the conversations we have had directly with them. That, you know, brands across the board, are intently focused on enhancing owner operating metrics, specifically profitability. And, you know, I think that is brought a level of discipline to looking at the overall model that is been incredibly appreciated. By us and by others within the owner. Community. I do not see increased brand related costs as a meaningful threat. On a margin standpoint. And certainly, looking at the opposite side, there is been significant investment within the brand families where we are most heavily concentrated. On technology and you know, programs that have the potential to generate incremental top line. For us. And I think it can contribute to our overall profitability in that way. So, you know, in terms of our interaction with the brand, much more. Brands much more likely to be positive contributors to profitability in the near term. than detrimental to that. Helpful. Thank you.

Operator: Our next question comes from Shaun Kelley with Bank of America. please proceed with your question.

Analyst: Hi, good morning, everyone. Thanks for taking my question. Justin or Liz, just I think we can all run our own macro scenarios. Justin, I think you alluded to, you can look at what some of the brand companies have laid out. For next year on the top line. But I am curious to get your thoughts on the operating expense environment. it is been extremely benign, and I think it is you know, obviously a nice tailwind relative to a lot of other consumer subsectors out there. So just what is on the horizon there on the expense side? You know, what are you able to. What do you think the controllables are? And I think the real question is sort of what is that operating leverage kinda breakeven point as you roll into next year? What are you keeping an eye on? And, like, what do you think, RevPAR would need to grow at to see, you know, sustained margin growth in 2027? Thanks.

Elizabeth S. Perkins: You know, as we are shifting to 2027, you know, in general, we have some recency bias as we think about what the most likely scenario is. And so where the team has done an exceptional job managing variable costs. And even in an environment where there has been you know, sort of reasonable. You mentioned benign wage pressure relative to, you know, earlier years coming out of the pandemic. You know, that has really been managed well and offset by productivity, and improving occupancy certainly helped from you know, an efficiency standpoint. If we think about an environment on the top line where you are seeing continued growth into 2027, think the variable cost side, particularly around you know, how our teams have been able to manage costs. You know, I think we are we are encouraged that they would be able to continue to maintain that. Now certainly, that would mean that things look very similar to what they do today. You know, we are watching utility costs. that is been trending higher as you would expect with the macro. And so I think you know, we are we are thinking about that as we look at next year You know, fixed costs have been favorable or very favorable this year. Certainly, as we think about next year, that would not--continued year over year declines would not necessarily holistically for fixed costs, be a going-in assumption. So, we will anticipate something different, but we will continue to you know, work really hard where we have an ability to, whether it be appeal on the property tax side or you know, think through structure and format of our insurance program to continue just to maintain competitive rates there. So I think, holistically, we like I mentioned, we have some recency bias. And what you see in the portfolio today, is our starting point. And then, you know, we will start looking at the roll up of individual properties to see where there may be things that we need to dig into and look at closer. But we have been really, really pleased with how the teams, both our asset management teams and the hotel teams, have been able to really focus in on variable cost and, you know, control what they can control and allow some of the rate growth that we have experienced as of late flow to the bottom line, you know, in a in a pretty meaningful way. I think, you know, that type of backdrop, you know, to the extent we continue to see improvement, and that does not involve a pullback in occupancy. And we can continue to see rate expansion. That certainly helps from a flow through continued margin. You know, growth. So, So that helps from that standpoint. Great. Thanks. And then sort of you are kind of getting to my second question, which is on rate. Just it was it is been a theme across, I think, a lot of the sector this quarter, better rate growth, confidence in rate. But could you help us split out or just how you are seeing your portfolio play out in terms of how much of the rate is mix, right, coming back, in your favor, versus how much is aggregate price increases versus. where are you actually taking rate versus how much you just, you know, you are getting the right, you know, the right mix this year, and it was probably, you know, a bit off kilter last year. Help us think about those 2 dynamics at least directionally. Directionally, I think mix management is a huge piece of it. And they are intertwined in the sense that, you know, as we have more compression nights and higher occupancy on more nights of the week, And you are seeing that growth in demand, there is overall confidence in pricing. But also an ability to preference higher rated business. I would also say that the team. And we have been reporting on this for several quarters now. The team has done a very, very good job layering in group at very attractive rates. And so you know, that is less. It involves mixed management. It is not necessarily a direct revenue management you know, consideration. it is really what the teams are doing and how they are looking at overall rate opportunity and making sense of the group that they layer on to drive better rate on the incremental rooms. And they have done a very, very good job. So it is a hard question to parse out. I would say where we are seeing the most rate growth, it is coming from crater compression and mix management overall. And, again, the fact that we are able to yield out lower rated rates and push people to bar and retail. I think, and, you know, seeing that in both our segmentation and our channel mix numbers, I think, supports that. Great. Thank you very much.

Operator: Our next question comes from Michael Hirsch with JPMorgan. please proceed with your question.

Analyst: Hi. Thank you for taking my questions. In the back of your press release, only 2 or 3 of your top 30 markets showed negative RevPAR growth in the quarter, and even those were just down 1 or 2%. So do you think this widespread demand can continue showing up in your top 30 markets? And are there any markets in particular that you are excited or concerned about heading into next year?

Justin G. Knight: I can start, and Liz can chime in. I think what you are seeing is consistent with what we have observed across our broader portfolio, and that is that the recovery in business transient specifically and continued strength in leisure travel has, you know, propelled meaningful growth across the vast majority of our markets. And, you know, I think it is interesting, especially given the diversification of our portfolio, to see that happening across market types. And really, across segments of the overall economy. Historically, supply has been the biggest governor on growth. Specific to our portfolio, but for the industry overall. And with supply relatively muted because of higher construction costs, I think our expectation is that current trends barring a negative catalyst at the macro level, could--it could and are actually likely to continue. And I think for that reason, you likely sense our optimism as we look to 2027 and optimism from other players in the hotel space. The dynamics this year have been meaningfully better than we have seen in some time. And, you know, as I highlighted in response to 1 of the earlier questions we received, travel tends to pick up momentum. You know? And momentum works against travel, when people are not traveling. You know? There is friction to beginning to see growth in travel. But once those trends continue, they tend to build on each other. And absent the governor of increased supply in most of our markets, we are incredibly optimistic about how that might play out. Thank you. And then for my follow-up, on the consumer question with know, with leisure travel, a material portion of your business. What have you seen in length of stays booking windows, and cancellation rates today versus, you know, 6 to 12 months ago. On the leisure side, the trend has actually been fairly consistent. So, you know, leisure tends to book shorter term except for around major events. So, you know, football games, major concerts, things of that sort that are announced well in advance will attract you know, the longer booking windows type bookings. But really, overall, the trends have been relatively consistent with the meaningful differentiator this year being a significant pickup in midweek business.

Elizabeth S. Perkins: Yeah. And, you know, I mentioned in my prepared remarks too that we also saw weekend growth in occupancy. And so while those occupancy levels are over 39 levels, and leisure has been a consistent you know, point of growth and stability, it continues to push forward, which is just, you know, really encouraging overall and, you know, continuing to see rate growth there as well. Think we are not seeing you know, a change in that behavior in any of the data that we are looking at.

Operator: As a reminder, if you would like to ask a question, please press 0 on your telephone keypad. Our next question comes from Chris Darling with Green Street please proceed with your question.

Chris Darling: Thanks. Good morning. This is a bit of a follow-up. Justin, you mentioned about 50% of your portfolio has no competitive supply within a 5 mile radius. That figure has trended downwards in recent quarters. Is that more a function of your portfolio composition changing as you bought and sold assets? Anything further to call out, you know, around the development landscape? And then could you also maybe give a flavor of where that figure is trended historically, maybe on a pre COVID basis? I think that would be helpful to frame the current environment.

Justin G. Knight: Yeah. Certainly. And I appreciate the question. In I will answer the second part first. In terms of where we were pre COVID, we are meaningfully below that. So, you know, pre COVID, we are running in the 70s, in terms of exposure, I believe. 70 percent. And, you know, in current environment, roughly 50%. The recent uptick is a combination of things. But is meaningfully impacted as you probably suspected, by adjustments to our portfolio where we have moved out of some slower growth markets which would, you know, by their very nature, be more difficult to develop in, and into stronger markets. That has, on the margin, contributed to the adjustment you know, in exposure to new supply. You know, as we look across our portfolio, you know, not all supply is equal. And we are more focused on demand relative to supply and how that is likely to shape up over the next several years. Understood. Appreciate the insight there.

Chris Darling: And, you know, going back to the Marriott transition, it is obviously been sort of an immediate positive impact to the portfolio. How should we think about that in terms of maybe a lagged positive impact over several years? Do you see tailwinds around this into 2027 and possibly 2028 to some extent?

Justin G. Knight: Our expectation when we originally underwrote kind of the transition and began conversations with both Marriott and our other management partners. Was that we would see meaningful improvement over time. And, you know, that would be sustainable. You know, our expectations and we have been pleased, broadly speaking, with how those transitions have played out. Beyond that, an important to this discussion specifically and we highlighted it when we initially pursued the transition. We believe that you know, having assets that can be sold free and clear of management with longer term franchise agreements unlocks incremental value And so beyond kind of the near term gains, as we think about portfolio management. We believe the transition will be meaningfully additive to the extent we were to sell any of those assets. Makes sense. Appreciate the time.

Operator: Thank you. Our next question comes from Kenneth Billingsley with Compass Point. please proceed with your question.

Kenneth Billingsley: Hi. Good morning. Couple of questions. Just on the 10% October RevPAR, a lot of it, I know you mentioned, was related to government shutdown. What percentage would you say is related to that?

Elizabeth S. Perkins: As I mentioned, if you took a conservative view I think without the government shutdown comp in October, you would assume 8% -- 7% to 8% RevPAR growth in October. So that is, you know, that is assuming you know, a majority of the impact last year was government or government adjacent. You have TSA impacts, travel, disruption just related to the government shutdown broadly. Okay.

Kenneth Billingsley: And then on business travel in general, and you are talking about the increase that you are you are seeing, and it seems to be broad based across the board. For the space. Do you see the midterm elections having any effect on the type of business traveler that was coming to your properties? And I am looking more as we are going into 2027.

Justin G. Knight: I think it would be early for us to given that results just barely came in, to have a definitive opinion on how the election might impact travel for next year. You know, I think our current view is that, you know, we are likely to see a continuation of current trends in most of our markets for the reasons that we highlighted You know, I think, pleased for the month of October and moving into November, with how things have played out and the continuation of strength we are seeing in bookings and, you know, actual stay stays at our hotels and, you know, we continue to be very optimistic. About how things might play out next year.

Kenneth Billingsley: If I could maybe expand on that just a little. Is the I mean, the market made a bet yesterday. I mean, they had an opinion. And so I guess. Well, I guess my question is more of if it is focused more on tech for you, or is it a pretty broad based business traveler that is getting back out on the road?

Justin G. Knight: that is a good clarification. And, really, when you look at our--we have intentionally avoided over concentrating our exposure. With any 1 segment of the overall economy You know? And over time, that has allowed our portfolio to be stable and to consistently produce strong cash flows, which has supported dividends and overall returns for our investors. I think certainly we have benefited, as have others. From the strength in you know, tech. But in an environment in a post COVID environment, tech travel is by and large been a smaller percentage of our overall business travel or business demand. And our portfolio does not significant exposure to markets like San Francisco, that may have been a bigger player. I think when you look at you know, performance across our markets in recent months, it is indicative in our minds that economic strength specifically driving business travel, has been broad based and not, you know, isolated to any 1 segment of the overall economy or any 1 industry. And, you know, that. I think that is part of the reason that going into next year, we continue to have confidence. that is great to hear. Thank you for answering my questions. Absolutely.

Operator: We have reached the end of our question-and-answer session. We would now like to turn the floor back over to Knight for closing comments.

Justin G. Knight: We really appreciate you taking time, to be with us this morning and for the questions and attention. We hope, as always, that as you travel, you will take an opportunity to stay with us in 1 of our hotels, and we look forward to meeting with many of you here in the not too distant future.

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