Apple Hospitality REIT, Inc. Q2 FY2026 earnings call

• Overall Demand & Operating Performance

  • Comparable Hotels RevPAR grew 5.3% year-over-year in Q2 2026, reaching $136, with ADR up 3.5% to $170 and occupancy up 130 basis points to 80.1%. 75% of hotels delivered RevPAR growth, up from two-thirds in Q1 2026.
  • Broad-based growth was seen across the portfolio: top 30 markets grew RevPAR 5%, all other markets grew 5.9%. The 2026 FIFA World Cup added 50 basis points of Q2 RevPAR growth, while non-host markets still grew nearly 5% on a broad-based basis. Weekday occupancy improved 240 basis points, outpacing weekend occupancy improvement of 120 basis points, indicating strengthening business travel demand.
  • Preliminary July 2026 data shows continued momentum, with comparable RevPAR growth exceeding 5.5% with minimal World Cup contribution, as non-host markets performed similarly to host markets.
  • 58 cents of every incremental revenue dollar was converted to adjusted hotel EBITDA, delivering 120 basis points of total margin expansion. MFFO was 52 cents per share, up more than 8% year-over-year.

• Portfolio Strategy & Capital Allocation

  • Completed a sale of the Hampton Inn & Suites in Rochester, Minnesota for ~$9 million in April 2026 at a 5% going-in cap rate. Management continues to evaluate select non-core assets for sale to redeploy proceeds into higher-value opportunities.
  • Two fixed-price forward purchase development projects are underway: an AC Hotel in Anchorage, Alaska (expected delivery late 2027) and a dual-branded AC/Residence Inn in Las Vegas adjacent to an existing SpringHill Suites (expected delivery Q2 2028). Developers carry construction risk, and Apple Hospitality REIT only deploys capital at completion. 55% of existing portfolio hotels have no new competing upper-upscale/upscale construction within a 5-mile radius, limiting supply risk.
  • Capital expenditures year-to-date through June 30 2026 totaled ~$40 million, with full-year capex expected between $85 million and $95 million (a $5 million upward revision to the prior range) to fund comprehensive renovations at 18 hotels, including the high-performing Embassy Suites Anchorage and the rebranding of the Seattle Residence Inn.
  • In July 2026, completed a series of balance sheet refinancing transactions that extended debt maturities, improved borrowing pricing, and increased revolving credit facility capacity to $1.3 billion. Post-refinancing, weighted average debt maturity is nearly 5 years, with no significant near-term maturities, and total leverage is 3.2x trailing 12-month EBITDA.

• Balance Sheet & Shareholder Returns

  • As of quarter-end, total debt outstanding was ~$1.5 billion, with a 4.8% weighted average interest rate and 60% of debt fixed or hedged. Total available liquidity was ~$612 million ($10 million cash + $602 million revolving credit capacity).
  • Q2 2026 distributions totaled $57 million (24 cents per common share), with an annualized distribution yield of ~5.8% based on the recent closing stock price.

For the second quarter of 2026, Comparable Hotels reported total revenue of $402 million (up 6.2% year-over-year), contributing 100% of core hotel revenue. Comparable Hotels adjusted hotel EBITDA was $153 million (up 9.7% year-over-year), with an adjusted hotel EBITDA margin of 38.1% (up 120 basis points year-over-year). The 13 transitioned Marriott-managed hotels (now converted to franchise management) represent approximately 8% of total adjusted hotel EBITDA, and delivered over 7% RevPAR growth and over 300 basis points of adjusted hotel EBITDA margin expansion in Q2 2026, outperforming the broader portfolio. Year-to-date through June 30 2026, Comparable Hotels total revenue was $739 million (up 5.3% year-over-year), and Comparable Hotels adjusted hotel EBITDA was $262 million (up 7.1% year-over-year), with a margin of 35.4% (up 60 basis points year-over-year).

• Full-year 2026 comparable hotels RevPAR growth guidance was raised 225 basis points, to a range of 2.25% to 4.25% (3.25% at the midpoint).
• Full-year 2026 comparable hotels adjusted hotel EBITDA margin guidance was raised 75 basis points at the midpoint, to a range of 33.7% to 34.7% (25 basis points of year-over-year expansion at the midpoint).
• Full-year 2026 adjusted EBITDARE guidance is set to a range of $453 million to $476 million, and net income guidance is set to a range of $152 million to $180 million.
• Management maintains that even at the revised guidance midpoint, the outlook is conservative, and upside potential exists from lapping easy comparisons to 2025 periods impacted by the federal government shutdown, which is not fully reflected in the midpoint forecast.
• Per-occupied-room expense growth guidance remains unchanged at approximately 2% for full-year 2026, reflecting the favorable April 2026 property insurance renewal and moderating wage growth.

• The ongoing Middle East conflict has escalated energy costs, though the company has not experienced any adverse impact to date. A potential secondary impact via reduced consumer spending remains a risk, though management notes the company's value-oriented hotel offering has historically performed well during periods of economic uncertainty.
• The gap between seller price expectations for existing hotel assets and what Apple Hospitality REIT is willing to pay remains a barrier to accretive acquisitions in the current market. While the gap has narrowed, it has not closed enough to support acquisitions that meet the company's return hurdles relative to its cost of capital.
• Elevated construction costs, driven by pre-COVID increases and accelerated post-COVID growth, plus ongoing risks from potential new tariffs and higher shipping/freight costs, make it difficult to pencil in new development deals at attractive returns.
• Phoenix experienced a 5% RevPAR decline in Q2 2026, driven in part by a pullback in semiconductor-related business travel, though management believes long-term fundamentals for the market remain strong.

Q: What is driving business transient (BT) and group demand trends, and what should we expect for 2027 expense trends?

A: BT demand has strengthened broadly across industries and geographies since March 2026, with growth in GDS (predominantly BT) bookings and higher-rated retail bar business reflecting widespread improvement. Group demand also reached 18% of occupancy mix (a multi-year high for the company), with strong rates from a mix of small corporate and leisure groups. Management expects 2027 expense trends to remain similar to the well-controlled performance seen in 2026 year-to-date barring unexpected broader macro changes.

Q: Is the current demand broad across customer segments, and how is government travel pacing heading into the second half, given the easy 2025 comparisons post-government shutdown?

A: Apple Hospitality REIT only owns upscale/upper upscale hotels with an average portfolio ADR near $200, so it cannot speak to lower-end segments, but growth is broad across its own customer base. Phoenix is the only notable outlier with a slight RevPAR decline, but long-term fundamentals remain solid. Government travel has improved year-to-date, and while the easy Q4 2025 comparison is mostly baked into the high end of guidance, it is not fully reflected at the guidance midpoint, creating incremental upside potential.

Q: Will the company accelerate new forward purchase development deals, and what is the largest barrier to getting more deals done today?

A: Management is happy with the two current contracted development projects, which are in high-performing markets and well underwritten. It is difficult to find additional new development deals that pencil, as rapid construction cost increases outpace operating fundamental improvements. Elevated interest rates also add pressure. Over the next 6-12 months, the company is much more likely to pursue existing hotel acquisitions than new development commitments. Limited new supply broadly reduces downside risk for the existing portfolio, which management views as a long-term positive.

Q: How wide is the current acquisition bid-ask spread, and what needs to happen for it to close? When spreads close, what types of assets will the company target?

A: The cap rate spread is currently 200-300 basis points depending on the market and asset, but it has narrowed recently as improving operating performance lifts yields on available properties. If current demand trends continue, more deals will pencil, and the company could become more active in acquisitions by the end of 2026. Future acquisitions will look similar to the company's existing portfolio: a mix of urban and high-density suburban upscale select-service hotels with diverse business and leisure demand, which matches the company's historical yield and risk profile.

Q: How much further upside is there for the 13 recently transitioned franchise hotels that were previously Marriott-managed?

A: The transition was completed quickly, and the new managers have already delivered 300 basis points of margin expansion (a 15 basis point boost to the portfolio's overall same-store margin) from cost synergies and top-line improvements. Management expects further long-term margin upside from ongoing economies of scale and market expertise, and remains very pleased with the results of the transition so far.