Greetings, and welcome to the Apple Hospitality REIT's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kelly Clarke, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning. Welcome to Apple Hospitality REIT's Third 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 third quarter 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 third quarter 2025 earnings call. While the fundamentals of our business remains strong with supply growth continuing to be well below historical norms and overall demand proving resilient, policy uncertainty, expense pressure and a continued pullback in government travel all weighed on operating performance during the quarter for our portfolio and for the industry broadly. With many of these factors outside of our control, we have focused with our management teams on ensuring that we are growing market share and managing expenses to maximize the profitability of our hotels. From a capital allocation standpoint, we continue to see an opportunity to take advantage of the current disconnect between public and private market valuations by selectively selling assets and redeploying proceeds to buy our own stock. At the same time, we are leaning into future investments that we feel will ensure our portfolio's continued relevancy and allow us to achieve strong results for years to come. Together with our management companies, our asset and revenue management teams have done a tremendous job shifting the mix of business at our hotels to strengthen market share and tactically adjust to changing demand trends, driven in part by the pullback in government travel. Transient leisure demand for our portfolio remained resilient during the quarter, and our property teams have successfully targeted group business, which has helped to offset slightly softer midweek business transient. For the quarter, we achieved comparable hotels occupancy of 76%, down 1.2%; ADR of $163, down only 0.6%; and RevPAR of $124, down 1.8%. Impacted by the recent government shutdown, comparable hotels RevPAR was approximately 3% lower in October 2025 versus October 2024 based on preliminary performance data. The hotel teams have also been diligent in their efforts to mitigate…

Thank you, Justin, and good morning. While the travel industry has faced macroeconomic headwinds this year, we are generally pleased with the overall performance and resilience of our portfolio. Comparable hotels total revenue was $365 million for the quarter and $1.1 billion year-to-date through September, both down approximately 1% to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was approximately $129 million for the quarter and $375 million year-to-date through September, down approximately 7% and 6% as compared to the same periods of 2024, respectively. Third quarter comparable hotels RevPAR was $124, down 1.8%. ADR was $163, down only 60 basis points, and occupancy was 76%, down 1.2% as compared to the third quarter 2024. For the 9 months ended September 30, comparable hotels RevPAR was $122, down 1.4%. ADR was $161, up 10 basis points, and occupancy was 75%, down 1.4% to the same period of 2024. Our portfolio continues to outperform the industry where STR reports RevPAR of $102, ADR of $160 and average occupancy of 63% for the first 9 months of the year, highlighting the relative strength of our portfolio demand despite year-over-year declines. Our teams have done a tremendous job adjusting strategy to reoptimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio. July was the strongest month of the quarter with comparable hotels RevPAR growth of 1%, while August and September turned negative as anticipated, with September impacted by the unfavorable calendar shift of Rosh Hashanah from October into September. Even with the pullback in August and September, we are generally pleased with the performance of our portfolio and the resilience of travel broadly despite…

[Operator Instructions] First question comes from Cooper Clark with Wells Fargo.

On expense reductions, curious how your full-time employee count has shifted over the quarter and how much of that is driving some of the cost improvements? And then any color on some of the momentum and cost improvements into 2026 would also be great.

Absolutely. So for wages and payroll overall, in my prepared remarks, I shared some improvement for the quarter, and that is largely driven by managing labor in a way where we are adjusting to the top line from an occupancy decline perspective. And so while we have seen less wage pressure year-over-year in hourly associates, really, it is an improvement from an FTE perspective relative to top line performance. And as we think about that relative to both Q4 and going forward, I think we just want to emphasize the efficiency of our hotels in general. A select service asset can be managed with very few FTEs. And as the top line adjust both up and down, we have some flexibility with FTE counts. And so we were able to materialize some of that benefit in the third quarter and anticipate that whether we're seeing increases or decreases in occupancy that we'll be able to manage overall labor expenses well going forward.

Great. And then on the acquisition front, it seems like some of the newer additions you're making to the portfolio with the 2 new AC hotels are shifting your portfolio on a relative basis to a higher chain scale. Wondering if this is just where you're seeing the best opportunity or if this represents a slight shift in portfolio strategy longer term?

Technically, from a chain scale standpoint, AC sits squarely in the upscale segment. And from an operating model it is comparable to other hotels that we have within that same space. Our leaning into the AC brand specifically, both from an acquisitions and development standpoint is really driven in large part by the efficiency of the model and our ability to drive incredibly strong margins with that brand. We've found an ability, especially in markets that have higher -- an ability -- where we have an ability to drive higher rates that, that particular hotel brand competes incredibly effectively with higher chain scale product with an operating model that's meaningfully more efficient and that allows us to bring much more of the top line dollars to the bottom line.

Next question, Austin Wurschmidt with KeyBanc Capital Markets.

I just was curious, Liz, going back to the guidance change, how much of the change would you attribute to the government shutdown directly or indirectly? And historically, how quickly does that demand typically return once the government reopens and things are operating a little bit more normal course?

Yes, absolutely. Happy to give some additional color. And I'll first give you some background as to how we're thinking about quantifying the government impact on October specifically relative to what we saw as we rounded out the third quarter. So first, I want to ground everyone in the fact that Q4 was our strongest RevPAR growth quarter of last year. We were up 2.8% on a comparable basis. That was in part benefited by Hurricanes Helene and Milton. So October -- and October specifically was up 4% last year. So we've got some tough comps we have to overcome. As we think about what actualized in September and -- August and September, it's important to remember that some of that is likely due to the comps I mentioned, specifically in September and that non-repeat business. But also as we rounded out August and September, we do see -- we did see some transient pickup sort of soften as we ended the third quarter. So while it's hard to quantify specifically, we do believe there was some softening in transient pickup before we even entered the government shutdown. Had -- we had assumed in guidance for August and September that we would be down about 2%. We actualized down a little over 3% on deteriorating transient pickup. And so that was roughly 120 basis points of deterioration from our prior expectations for August and September relative to where we finished. And if you apply that to the 330 basis point adjustment we made to the fourth quarter at the midpoint, about 1/3 of that change to expectations is driven by fundamentals coming into the fourth quarter and 2/3 of that change is related to the government shutdown. But again, when we talk about the fundamental -- the fundamentals or even the government shutdown, there is just a backdrop of tough comps year-over-year as we're comparing what we're seeing real time.

And then the second part of your question, historically, so going back and fortunately or unfortunately, we do have a comparison time period. As we look at the last government shutdown, we did see a meaningful pickup in business following the shutdown, implying, we think that there was some business pent-up during that period of time that didn't materialize upon coming out of the shutdown.

That's helpful. I guess where is the government segment as a percent of your business over the last month or so when you saw the disruption versus, I think you were in the 5% to 7% range historically? And any changes in terms of your exposure or strategy around government business, just given the volatility that you've seen over the past year?

That's an interesting question. When you think about government over the long term and over as long as we've been in the space, it's historically been stabilizing to the portfolio. This is unique, what we've been experiencing this year. So the latter part of your question, I think, goes to one of the reasons that we believe in diversification broadly, both from a geographic perspective, but within individual markets, making sure that there's a broad range of demand so that we don't see meaningful fluctuations with one segment of demand falling off. I -- when you mentioned the 5% to 7% historic range, last year for government, we were 5.5% of our occupancy mix. We have been trending, and I said in my prepared remarks for the third quarter, we were still at 5.2% of our occupancy mix for last quarter. It did drop in October to slightly under 4%. So you definitely saw the impact of the shutdown.

Next question, Aryeh Klein with BMO Capital Markets.

Justin, I was hoping you could talk a little bit more about the strategy of doing more of these development deals versus maybe acquisitions where there's a bit more of a track record. And what type of returns are you targeting? And maybe how you're balancing the acquisitions with share repurchases, which were maybe a little lighter in the quarter?

Absolutely. And there's a lot to unpack there. So have a little bit of patience with me. But as I highlighted in my prepared remarks, we have been working to balance a desire to take advantage of the short-term arbitrage between where we can sell assets and where we're able to buy our stock with a desire to maintain the long-term relevance of our portfolio, which includes factors such as age, market positioning and product type. What we -- and part of your question spoke to experience that we have with development deals. Historically, development has represented roughly 25% to 30% of our total acquisitions. And so we do have extensive experience with that particular type of acquisition. As we think about capital allocation and target yields for future development deals, we use an average weighted cost of capital, which takes into consideration a longer period of time. And certainly, our expectation is between now and delivery of those assets, which would be 2 to 3 years from now, that we will be in a better position from a cost of capital standpoint. Those acquisitions, again, because they're some time off, do not preclude us from being active in acquiring our own stock. From a balance sheet preservation standpoint, I've highlighted on past calls that it is our intent to fund share repurchases largely with proceeds from sale. To date, our share repurchases have exceeded closed sale transactions. And we do, as I highlighted, have 4 more assets under contract. They have not yet sold. And our expectation would be as those transactions close to use proceeds, especially to the extent we're trading at values at or around where we're currently trading to make additional share repurchases. So to clarify, it is our intent to be active in both spaces, both to take advantage of the near-term opportunity to drive incremental value for our shareholders through these selective sales and share repurchases and to use forward commitments on development deals to ensure that the long term -- that over a longer period of time, our portfolio remains relevant and positioned to drive strong returns for investors.

And maybe if I could just follow up. Is there a limit to how many of these deals you're willing to take on at any given time? You're nearing the completion of the Motto. Now you'll have these 3. Is -- should we expect more over the next year or 2 ahead of these deliveries? Or is this kind of it, I suppose, for the near term?

Given the scale of these developments, it's generally been our intent to have no more than 1 or 2 close in any given year. I think from our perspective, that gives us the maximum amount of flexibility from an ability to close on those assets. And barring a really exceptional deal, I would anticipate that as we look at out years with '27 and '28, this would represent the entirety of the forward commitments we were likely to make. Any additional commitments would likely be for assets anticipated to be delivered further out.

Next question, Ken Billingsley with Compass Point. Ken, your line is live. We'll move on to Jay Kornreich with Cantor Fitzgerald.

I guess just first, I wanted to follow up on one of the previous government-related questions. As we look towards 2026, if government demand does remain soft, are there any, I guess, initiatives or maybe new strategies you can employ to fill some of the gap in the government and related travel should it continue to be slow, just having this past year of experience and more maybe visibility into what could transpire next year?

I think the team has done an exceptional job pivoting very quickly to build additional base business through group, which is both represented by leisure and corporate group business. I think the team will continue to lean into that as well as exploring other demand opportunities within those respective markets. The team, again, we felt the incremental burden of the pullback in March and April. And certainly, from a market share perspective, realized that. And very, very quickly, the team has been able to pivot and maximize based on what's available in market to regain share and be back in a market share growth position. So I think we'll continue to lean into that. And each market is different, but the team is certainly mobilized and working very hard to maximize in the current environment.

Okay. And then just as a follow-up, any [ curious ] -- or what are, I guess, the updated thoughts as to how we should think about the mix shift going forward with some of the corporate occupancy potential lift and some potential deceleration on the leisure side?

So we're actually seeing the opposite in our portfolio. So when we look at recent performance, in part driven by the pullback in government. We've seen greater strength in leisure for our portfolio than we have in midweek corporate, where we saw some weakness, partially offset, as I highlighted in my earlier comments by improvement in group. I think to the comments that Liz just made, every market is a little bit different, and we will work in each market to maximize on the opportunities that are available to us. And I think continue in many markets to see potential, especially as the government shutdown resolves, which has impact both on government travel directly, but also adjacent businesses to begin to build back some of the corporate demand that has softened for us.

Which we were asked earlier about -- Jay, just as a follow-up, we were asked earlier about the rebound when the government reopens and what we've seen in the past. We believe that part of the negotiated pullback from a corporate standpoint is related to just general uncertainty or potential travel implications with the government shutdown. And that if we saw the government reopen and we did see a return of some of that pent-up demand, but that would not only benefit us from a government perspective, but also from a corporate transient perspective.

Ken Billingsley with Compass Point.

All right. Hopefully, I got the mute button working this time. Can you hear me?

We can hear you.

Excellent. Two questions. One on the expense side, and it was a clarification of something you said earlier. So G&A expense savings has been pretty significant in '25. Is some of this temporary due to management decisions and we'll see this tick back up? Or is this something we can expect to continue? And with that, on the expense side, can you talk about the -- maybe I didn't quite understand. You're talking about the Marriott shift plan and expected expense savings? Or did I hear that incorrectly?

Okay. I'll start with G&A, and then we can pivot to the Marriott transitions. So from a G&A expense perspective, that is really tied primarily to the executive compensation incentive plan. And as such, it's really correlated to how we're performing from an operating metrics perspective, but largely relative and total shareholder return driven. So it resets every year. So it will fluctuate every year. This year, the way we've been trending year-to-date, that's what's providing the decline as we look to the revised guidance and as you look year-over-year.

So it's all aligned with shareholders?

Yes, very aligned with shareholders.

And then from a Marriott managed transition standpoint, as I highlighted in my prepared remarks, it is our intent over the coming months to transition our Marriott managed hotels to franchise, entering into long-term franchise agreements with Marriott for those hotels and consolidating management with existing third-party management partners that we're working with already in those same markets. That consolidation is anticipated to unlock incremental value, both in terms of near-term cash flow from the individual assets and over the longer term, to the extent we pursue a sales transaction with any of those assets. As I highlighted, that the transition aligns with Marriott's strategy to improve and enhance the efficiency of their organization, and we think provides us with an excellent opportunity to further drive operating performance for those hotels.

And then lastly, on the Las Vegas market, I mean I know this is a few years out, but I mean, some talk about it being weaker. Can you discuss the decision to put 2 more there at this time?

Certainly. I think important to highlight in the beginning that despite the pullback in that market, we're currently yielding 10% on a trailing 12-month basis on the SpringHill Suites that we purchased in market. Our hotel has outperformed the market more broadly in part because we target a slightly different piece of business. We have historically owned hotels in the Vegas market and understand that because of the demand drivers in that market, it tends to be slightly more volatile than other markets where we have ownership in our portfolio. That said, we believe, as I highlighted in my prepared remarks, in the long-term trajectory of the market based on continued investment in meaningful demand drivers, which are more diverse than they have been historically. And given our location in market immediately adjacent to the recently expanded convention center, we see that being a meaningful driver for long-term value in this complex of hotels. I think when we purchased the SpringHill Suites, we acquired with it adjacent land, which is where these hotels will be built. They will be connected to the SpringHill Suites. And so when we think about operating efficiencies, we will have an ability using the same manager for all 3 hotels to drive really strong bottom line numbers for the hotels. And again, I think as we think about both additions and subtractions from our portfolio and look to prune and plan, we're taking a long-term view and see our presence in Vegas as a meaningful differentiator from our publicly traded peers and a potential driver for -- of long-term value.

Next question, Michael Bellisario with Baird.

Just a -- first question for you, just in terms of CapEx and disruption, sort of 2 parts here. Just on the Seattle Lake Union project, any outsized cost there? And then how should we think about earnings disruption next year? I think that hotel is pretty large and significant in terms of earnings contribution. And then the 13 Marriott-managed hotels, just help us understand what's sort of the typical disruption like when you do transition a management company?

Both very good questions. When we think about the Residence Inn, because it was coming up on end of franchise, we anticipated that we would be renovating the hotel regardless of whether or not we transition brand. And so the renovation-related disruption, I think, would have been the same regardless of whether or not we had kept it within that same brand family. I think as we looked at options in that market, and I highlighted this in my prepared remarks, we looked at competitive supply and recognized quickly that Marriott had significantly greater presence in the market than Hilton, more than double. And given the strength of both reward systems, we saw value in repositioning the hotel to another flag. Certainly, there should not be a read-through as to our feelings related to the Residence Inn brand or other Marriott brands as indicated by the recently signed development deals. We continue to feel very strongly that those are incredibly powerful brands. Our decision in this market was driven largely by the competitive supply picture and facilitated, frankly, by brand incentives, which helped to sweeten the deal. As we think about disruption for that particular property, we anticipate some outsized disruption as we transition from one reservation system to another, because it's an extended state property with a higher percentage of direct sales than a typical hotel, we hope to mitigate a portion of that. And I think certainly, we'll be in a position to report back as we work through that process, remembering again that we've given a lot of advance notice to this group and that, that transaction still happens sometime in the future. Speaking to the other properties, the transition we anticipate there will be much less disruptive. And in fact, we have, from time to time,…

Good. Understood. And then a follow-up for Liz. I think you mentioned 3.4% cost per occupied room this year at the midpoint. Just early look into next year, how should we think about cost per occupied room, at least the growth rate relative to this year? Any puts or takes to consider? That's it for me.

So I think it's a little bit early for us to give definitive guidance from an expense growth perspective given where we are in the budgeting process. And as Justin mentioned, we have several things we're working through, which we ultimately believe will go smoothly and will put us in a better position, but could have some short-term impact. So if we remove that from the equation, I think we have seen in many areas, expenses moderate as we've moved through the year and feel like the team has done a very, very good job given the top line flexing and maximizing cost savings and maximizing profitability as we think about the bottom line. We've outperformed our expectations, and we certainly hope that we'll be able to carry some of that through as we think about next year.

[Operator Instructions] Next question comes from Chris Darling with Green Street.

So just a quick follow-up on the Las Vegas development deal. Would you expect any revenue synergies just being next to the convention center with a larger footprint over time?

Absolutely. And especially, I think our team was incredibly thoughtful in the selection of brands such that we could, from a sales perspective, present a very versatile total product with an ability to house larger groups spread among the 3 brands in ways that drive their overall stay experience. But certainly believe that having the combined assets there meaningfully better positions us from a sales standpoint as well as providing us with incremental ability to drive operational efficiencies on brands that, quite frankly, are already leading brands from a margin production standpoint.

All right. Understood. That's helpful. And then maybe more broadly, just taking a step back, as you think about the past few years of transaction activity, hoping you can discuss how you think about market selection. When you're buying into new markets, maybe selling out of others, just curious what are the driving factors behind those decisions? Is it supply? Is it the ability to densify with the same operators? What are the main factors you think about?

A good question. I think zooming out, we're mindful to start with the portfolio profile we're looking to create overall with an emphasis on creating exposure to a broad variety of demand segments and balancing that exposure in a way that creates overall stability from a performance standpoint in the portfolio overall. And then as we zoom in and look at individual markets, and hopefully, this is apparent as you look at our recent acquisition and disposition activity. Generally, we're looking to lean into markets that are business-friendly where the overall demand trends are expected to be positive and are supported by demographic trends, both in terms of the movement of people and in most cases, large businesses to those [ same ] markets. And so if we look at pending transactions and start with Nashville, which we anticipate closing on later this year, certainly, Nashville from a hotel performance standpoint has been negatively impacted near term by supply growth and the absorption of that supply. When you zoom out and look at the overarching trends from a demand standpoint in that market, they continue to be very strong, both from a leisure standpoint and as we look at continued movement of large and small businesses into that market and thinking specifically of the announced movement of Oracle's headquarters to the market as one example, but also expansion of electric vehicle battery plant facility as a joint venture in that same market, combining with expansion of sporting venues, which will have an ability to drive incremental concert-related business, all with the overarching kind of demand for that market continuing to be very strong leisure filling in the gaps. Moving to Vegas, similar, as we think about overall demographic trends, a largely growing market, they continue to see meaningful investment in…

I would like to turn the floor over to Justin for closing remarks.

Thank you for joining us today. We continue to be excited about near- and long-term opportunities for our portfolio and hope, as always, that as you have an opportunity to travel, you'll take the opportunity to stay with us in one of our hotels. I know over the coming weeks and months, we'll have an opportunity to meet with many of you, and we look forward to seeing you in person and answering any further questions you might have.

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