Good day, and welcome to the Apple Hospitality REIT Second Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kelly Clark, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Apple Hospitality REIT's second quarter 2025 earnings call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2024 annual report on Form 10-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 of 2025 and an operational outlook for the rest of the year. 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 2025 earnings call. Fundamentals for our portfolio improved sequentially as we moved through the quarter with RevPAR declines moderating each month and preliminary results for July showing RevPAR growth year-over-year. As anticipated, April was the most challenging month as heightened economic uncertainty, a pullback in government travel, the shift in timing of the Easter holiday and the elongated spring break period all weighed on overall performance. During the quarter, we worked with our management companies to further optimize the mix of business at our hotels, and we're able to strengthen market share broadly across our portfolio as well as in those markets more heavily impacted by demand shifts related to government travel. Our teams have demonstrated an exceptional ability to swiftly adapt to changing demand trends within our markets, in many cases, layering on additional group business at attractive rates. Although variable expense growth has generally moderated, higher fixed costs and lower-than-expected top line growth impacted our bottom-line performance during the quarter. Though down slightly, our portfolio continues to produce industry-leading margins with comparable hotels' EBITDA margin of 37.4% for the quarter. Our hotels operate efficiently and produce strong cash flow, while simultaneously providing guests traveling for both business and leisure with a compelling value proposition. While broad economic uncertainty weighed on year-over-year growth and fueled capital market volatility during the quarter, travel demand for our portfolio remained resilient, further reinforcing the merits of our underlying strategy. The fundamentals of our business are strong with growth in our group business largely offsetting slightly softer performance in other segments. Although the booking window for our hotels remain short, we are encouraged by recent airline and hotel brand commentary related to improvements they are seeing in demand and view…

Thank you, Justin, and good morning. As we have previously messaged, a challenging macroeconomic environment and difficult calendar shifts weighed on our portfolio second quarter results. Comparable hotels total revenue was $380 million for the quarter and $706 million year-to-date through June, both down slightly to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was $142 million for the quarter and $248 million year-to-date through June, both down approximately 5% to the same period of 2024. Second quarter comparable hotels RevPAR was $129, down 1.7% as compared to the second quarter 2024. ADR was $164, down only 10 basis points, and occupancy was 79%, down 1.6% as compared to the second quarter 2024. For the 6 months ended June 30, comparable hotels RevPAR was $120, down 1.1%. ADR was $160, up 0.4% and occupancy was 75%, down 1.6% to the same period of 2024, respectively. Our portfolio continues to outperform the industry, where STAR reports RevPAR to be $100 and average occupancy for the industry to be 62% for the first 6 months of the year, highlighting the relative strength of our portfolio demand despite year-over-year declines. During the quarter, RevPAR declines steadily improved each month as we moved past a few key headwinds and our team's adjusted strategy and reoptimized the mix of business at our hotels where there were meaningful shifts in government and other demand segments, strengthening market share for our overall portfolio. Concerns related to potential policy changes and reductions in government spending as well as the shift in timing of the Easter holiday heavily impacted April results with RevPAR down 4% compared to April 2024. In May and June, clear of challenging calendar shifts, fundamentals steadily improved with RevPAR down 0.9% in May and only 0.2% in June as compared to the same…

[Operator Instructions] And today's first question comes from Austin Wurschmidt with KeyBanc.

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

It's a good question. I mean I think had -- I think it's entirely based on what we see from a guidance -- from a booking position perspective as we sit here today for August and September, if trends continue to improve, it's been 4 or 5 weeks of sequential improvement, which is encouraging. How much it would continue to improve would sort of dictate whether we feel comfortable maintaining guidance. But I do believe that there is some upside relative to the current trajectory of pick up. But again, we have seen how we materialize relative to booking position be noisy like the monthly performance we've seen year-to- date. And so felt more comfortable basing guidance on the position that we -- where the position is today.

Okay. That's helpful. And on booking strategy, do you continue to add some group onto the books in the third quarter? And at what point would you pivot away from group and look to remix into higher-rated segments? Interestingly, group has been an ADR benefit to us in the second quarter. I think it's one of the reasons that we have seen ADR hold in there despite some overall occupancy declines in the second quarter. So group hasn't negatively impacted our overall RevPAR performance. So I think as we think about layering on group, it's all about the right group at the right rate. And over the past few months, it really has been a key driver to the improvement in our RevPAR performance as you look from April through June and even into July, we've had elevated group business. We were really, really pleased with our team's ability to pivot quickly once we saw dynamics change in March and April and re- strategize and think market by market and hotel by hotel and layer on some incremental groups. So I think today, as we are approaching mix of business in each hotel, we'll be prudent and certainly not saying we would layer it in everywhere. But overall, it certainly has been a benefit, and the team has done an exceptional job of putting it in on attractive rates that have only enhanced our RevPAR position.

And the next question comes from Aryeh Klein with BMO Capital Markets.

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

Okay. I'll try to answer all those questions. But if I miss one, ask again. Thinking about July specifically and how that month materialized, we were pleased. We were pleased with performance in July. The improvement in RevPAR growth and market share that we saw really coming out of April and progressing into July, the sequential improvement in RevPAR change performance was overall encouraging. When we look at booking position in August and September, were down, and that's factored into guidance. But August booking position does not take into account, at least today, the trajectory of what we saw in July with short-term pick up in our booking position. So I think overall. So I think July, we did see improvement as we were looking at future bookings and in the month for the month bookings. But just several weeks, we needed to be somewhat cautious there. As we think about beyond August and September and sort of thinking about your cadence question, August and September are down from a booking position standpoint. October, though, is up to last year and certainly looks -- at least today, though it's very early to be looking at October, looks to offset September decline. So I think that's where we, in part, believe some of it is the shift in Rosh Hashanah into September and October just being for our portfolio, historically, a very strong business and leisure-oriented month. So when you think about Q2 and -- or Q3, I'm sorry, and Q4, we have anticipated that RevPAR because of August and September booking position today would be down and that we would see improvement in the fourth quarter, and we'd have RevPAR growth in the fourth quarter.

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

Absolutely. And actually, if you look at our market results, you'll see there are broad disparities in terms of performance market to market. Remember, across the entire portfolio, performance for the quarter is skewed by April's performance, which is largely calendar shift, remembering that our hotels tend to perform worse over holiday weeks than they do outside of those weeks because of the mix we generally have are business travel. When we look at some of the markets that you highlighted, the specific factors vary. Dallas, for example, was negatively impacted by convention calendar and renovations at the convention center. Phoenix was negatively impacted by a pullback in semiconductor business, largely impacting our portfolio of hotels. That business is expected to come back as we round out the third quarter and move into the fourth quarter of this year. There is some impact from a slight pullback in government in certain other areas. And then when you look through some of our other Sunbelt markets, markets like Huntsville that don't show up specifically as an individual market, but as one of our Alabama markets saw a pretty significant pullback in government, which negatively impacted that market. When we look at the portfolio as a whole, though, what's interesting is looking at our top-performing markets, nearly half of them were positively impacted by improvement in government travel. And then when we look at the bottom portion of our portfolio, there are a significant number of the markets that were negatively impacted by a pullback in government. Certainly not the only factor impacting our market, but we did see across the board, in addition to the holiday shift in April, some pretty significant shifts in travel patterns. And as Liz highlighted earlier, are incredibly pleased with our team's ability to shift focus and to attract largely group business across the portfolio at higher rates over the course of the quarter, improving our occupancy and rate positioning and by July, putting us in a position to be positive. I think certainly speaks to the strength of our team, both here corporately and at the property level and also the versatility of the product that we own and the appeal that that product has with a broad consumer base. So I would love to be able to point you to a single factor that impacted all of our markets, but the reality is it's a variety of factors that came together, all exacerbated during the quarter by the calendar shift impacting April.

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

Just given some of the comments on weaker August and September bookings, can you talk about what gives you confidence in the acceleration in 4Q RevPAR pick up, whether it's mix shift, acceleration in fundamentals or softer comps?

It's a combination of things. I'd say you highlighted in your question several of them. Part is looking ahead at booking position today. And again, it's too far out to put too much weight into that. But as we look at the fourth quarter, our booking position is positive. Looking at calendar shifts is a piece of it, benefiting from not having the election in November. And then having -- we started to talk about it and were more impacted in Q1, but we did have some market share opportunity beginning in November and feel like we have some opportunity as we round out the year.

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

I think certainly, I think moving back or looking back 12 months or so, we had hoped that there would be a more rapid recovery in our share price, given how we have traded recently and the effectiveness of our team at executing, I think, incredibly well on sales transactions and our ability to benefit from the arbitrage between private market valuations and the implied multiple in our current share price, you could expect us to dig even deeper into that area. Incredibly pleased with both the transactions we've done to date, but also the assets that we currently have under contract. We're continuing to test the market to see if there's an appetite for larger scale transactions. And to date, have had a better ability even with more open debt markets to secure attractive pricing with smaller assets or as you saw with our most recent announcement, small portfolios still in that $20 million or less kind of price range. But rest assured that to the extent we continue to see an arbitrage opportunity as big as the one we see now, we'll continue to pursue it. Importantly, in my prepared remarks, I highlighted the fact that it is our desire long term to grow the portfolio. And I think using proceeds from these sales to fund share repurchases, while we certainly have balance sheet capacity, to do more than that. It preserves balance sheet capacity to pursue acquisitions as market conditions shift and that becomes the more attractive opportunity for us. In the meantime, in addition to the immensely positive arbitrage opportunity that we're taking advantage of, we're also offloading CapEx that would be needed over the next several years to buyers of these hotels. And we think better positioning the portfolio for the long term.

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

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

It's a good question. A portion of our acquisitions activity, as you know, has always been forward commitments on new development assets because we're making those commitments in many cases, 2 to 3 years in advance of the acquisition, we're taking into consideration in our analysis more of an average cost of capital than a spot cost of capital. I think our intent would be largely to use balance sheet capacity to fund that acquisition and proceeds from sale to fund asset or stock repurchases. Interestingly and importantly, highlighted in our press release is the 1031 exchange opportunity. And for tax purposes, we will be utilizing that to pursue the Nashville asset. But largely, we see those as 2 separate phenomenon. And as I highlighted today, where there are limited comps that potentially make NAV analysis tricky, it's very easy for us to do the analysis from a relative value standpoint between where we're able to transact on individual assets and where we're able to buy our shares and take advantage of the large gap that we're seeing today to drive incremental value for our shareholders.

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

So from a cost basis standpoint, I think looking at our per key pricing relative to recent trades in the market, it's easy to see that we have cushion beyond where recent trades have happened. We anticipated in our underwriting that the market would stabilize and potentially temporarily pull back and feel good about the long-term value that we will achieve on that asset. I think Colin on Ryman's call had very good commentary about the Nashville market, and we are equally bullish long term about the potential there. When we look at the delta from a performance standpoint between the downtown markets, remembering we own assets in the Vanderbilt area, which is just outside of downtown. We also own assets in Franklin. The Franklin market has been a little bit more challenging recently for us. The long-term prospects, we think, are good as they repurpose auto manufacturing facilities in that area, which have historically been a key driver of kind of overall demand for that market. And as the market continues to grow as a healthy suburb of the downtown Nashville area. But near term, we have greater confidence. And when I say near term, over the next 6 to 12 months, I think that the downtown area will continue to perform on a relative basis, slightly better with both areas absorbing, I think, higher than the national average amounts of new supply, but continuing also to see an influx of new businesses and very strong leisure demand, which we think, over time, continue to make Nashville a very compelling market for us.

And the next question comes from Daniel Hogan with Baird.

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

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

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

Our CapEx is a driver, but not the only driver of our dispositions activity. Certainly, we're looking to maximize the value of the trade and we would be willing to sell assets where we could maximize current price and where we felt we could further improve the trajectory and quality of our overall portfolio, even where near-term CapEx is not an issue. And in fact, as we move forward over the next 12 to 24 months, you're likely to see us renovating assets in advance of sale in some instances because of our ability to perform renovations more efficiently than potential buyers and seeing that as a way as well to potentially maximize the value on sale.

[Operator Instructions] And the next question comes from Ken Billingsley with Compass Point.

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

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

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

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

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

Yes. So I'm going to touch on November specifically, and then I'm going to kind of zoom out and talk about market share more broadly since we have highlighted it both last quarter and this quarter, and it isn't something we've typically highlighted quite as much. But for November specifically, the week of the election, given the makeup of our portfolio and when we think about our RevPAR growth in November relative to the broader industry, we did not see the same level of performance largely because of the makeup of our portfolio and being so significantly business transient oriented. So less about specific market share, like comp set market share in individual markets and more broadly speaking about how the calendar did not play in our favor -- relative favor given the composition of our portfolio for November specifically. But as we talk about market share, I want to ground us a little bit. Our overall portfolio has always had strong market yield relative to the specific markets we're in. And we've had a history of consistently gaining market share within our markets overall as a portfolio. When we reference market share, we look at it 2 different ways, which I've sort of highlighted already. We look at our portfolio RevPAR growth relative to the broader industry, which is influenced in part by market concentration and portfolio composition as well as property-specific performance relative to its comp set or market. And as I mentioned earlier, we've consistently had strong market share on an absolute basis in our individual markets. That said, we also like to be gaining market-specific market share, and we did see in both our performance to the broader industry and our individual markets, some opportunity in the first quarter specifically, which again was unusual, and we highlighted that. Given the abrupt market shifts driven largely by the macro, we really are -- and I'll say it again, we're really incredibly pleased that by the end of the second quarter and for the second quarter overall, we regained that market share within our respective markets and in June, outperformed the broader industry as well. Our corporate teams, our management company teams and our property teams really did an exceptional job quickly adjusting tactical strategy with all the demand shifts and dynamics that played into the macro, but our portfolio specifically that we spent a lot of time highlighting the last call. And I'm pleased too, to say that we've maintained that market share growth in the running 28 days as well.

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

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

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