Greetings and welcome to the Apple Hospitality Third Quarter 2026 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clark, Vice President, Investor Relations. Thank you. You may begin.

Good morning and welcome to Apple Hospitality REIT's third quarter 2026 earnings call. Today's call is based on the earnings release in Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions 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 Knight, our Chief Executive Officer, and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the third quarter 2026 and an operational outlook for the remainder of the year. Unless otherwise stated, all changes in performance metrics refer to year-over-year changes for the comparable period. All references to year-to-date performance refer to the nine-month period ending September 30, 2026. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today for our third quarter 2026 earnings call. Momentum continued to build during the third quarter with broad-based demand from both business and leisure travelers, driving comparable hotels rep part 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 approximately 63 cents of each incremental revenue dollar into Comparable Hotels adjusted hotel EBITDA, producing approximately 210 basis points of margin expansion, adjusted EBITDA RE 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 Rep Park 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 Rep Park growth guidance 235 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 midweek 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 mid-scale product under construction within a five-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 three hotels in Santa Clarita, one hotel in Davenport and one hotel in Sacramento for a combined gross sales price of approximately $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 approximately $81 million and represent a 6.8% cap rate, or 12.2 times EBITDA before capital expenditures, and a 5.7% cap rate, or 14.6 times 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 approximately $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 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 three times 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 two hotel developments, an AC Hotel in Anchorage, which we expect to be delivered in late 2027, 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 2028. Construction is underway on both. In each case, the developer funds the project under a fixed price contract, and our cash outlay 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 approximately $58 million for the first nine months of the year. And for the full year, we expect to invest between $85 and $95 million, including comprehensive renovations at 18 hotels. At the midpoint of that range, our reinvestment represents approximately 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 approximately $57 million, or 24 cents 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 96 cents 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 nine 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 news supply, a well-covered distribution, and the capacity to pursue a creative growth. While we cannot control the broader economic environment, we can control how well our hotels are operated, how prudently we allocate capital, and the integrity with which we conduct our business. Those remain our priorities, and we believe they will continue to create lasting value for our shareholders. With that, I'll turn the call over to Liz to discuss our financial performance balance sheet and outlook in more detail.

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 nine months ended September 30th, 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 remains 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 Hotels' total revenue was $394 million for the quarter and $1.1 billion year-to-date, up 8.2% and 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 with $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 one 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, D.C. grew REVPAR 16.5% as citywide events, including America 250th celebrations 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 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 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 GES 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 rates, 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 REIT. 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%, 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% and 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 EBITRE 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 50 cents per share, up 16% and 16.3% respectively. Year-to-date, MFFO was approximately $322 million, or $1.36 per share, up 9.5% and 10.6% respectively. As a reminder, effective January 1, 2026, we began excluding share-based compensation expense from adjusted EBITDA RE 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 three times our trailing 12-month EBITDA. with a weighted average interest rate of 4.9% and a weighted average maturity of approximately four and a half 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 a revolving credit facility. After quarter end, we repaid in full one mortgage loan secured by three properties for a total of approximately $49.6 million. bringing the number of unencumbered hotels in our portfolio as of October 31st, 2026 to 210. In July, we completed a series of refinancing transactions that increased the capacity of our main unsecured credit facility to approximately $1.3 billion, upsized our seven-year term loan to $160 million, extended maturities and improved pricing across our term loans. 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 2026, 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 EBITDA RE between $482 million and $493 million, and net income between $177 million and $192 million. At the midpoint, our adjusted EBITDA RE 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 easier comparisons 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, REIT-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'll now open the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Austin Werschmitt with KeyBank Capital Markets. Please proceed with your question.

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?

Good morning. So, you know, 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 I highlighted in my prepared remarks that we're active on a number of potential deals. You know, I think in addition to proceeds from those dispositions, we are currently generating meaningful cash, you know, above and beyond our needs from a CapEx and distribution standpoint. and our balance sheet is in meaningfully better shape, although it's always been good, with projected debt divot falling below three times by the end of the year, assuming we hit the midpoint of our guidance. So thinking about, you know, the next several months, I think assuming no change in our share price, It would be reasonable to assume, and I think expect it based on the opportunity set that we're looking at today, that we would be meaningfully more acquisitive than we have been recently.

And when you kind of look at the active 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 opportunities, and can you discuss the competition in the transaction market as well? Thank you. Sure.

Yeah, it will be a mix of all of those. I highlighted my prepared remarks, our recent acquisitions, which included the motto, a newly constructed hotel in downtown Nashville, and the Homewood Suites in Tampa, Brandon, which is more of a suburban area. Those two assets are also distinct in that one is brand new and the other was a value-add opportunity where we this year performed a significant renovation of the hotel and were able to change management as part of that acquisition. Over our 25-plus years in the industry, we've 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, Austin?

Yeah, no, that covers a lot of it. And then just the last one kind of in a similar kind of theme, where are you seeing deals – versus where replacement cost is today, just to give us a sense. And I'm sure it's a little bit all over depending on vintage, but can you give us a sense of, you know, just the magnitude of that discount for what you're seeing in the market today? Thank you.

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 doesn't have any exposure to new supply within a five-mile radius, which is a continuation of recent trends. For that reason, much of what we're looking at, we believe we can buy below replacement costs. And 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've done over our history. I think we have good expectations for how we'll be able to execute.

Thanks for the time this morning.

Our next question comes from Connor Peeks with Wells Fargo. Please proceed with your question.

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

A good question. Our preferred source is cash from operations. And as I highlighted in response to Austin's question, given the strength in operations, we anticipate that that we will have significant free cash flow above and beyond our needs for CapEx and distribution. After that, 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've 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 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, that's a good example of where we would potentially use equity as an additional source. But the reality is where we are today, we don't have an immediate need to tap the equity markets in order to meaningfully ramp our acquisitions activity.

Thank you. Really appreciate the color. And maybe rotating over with Alaska up 23% in the quarter, a question around Anchorage Embassy and the Lake Union rebrand. How much displacement is baked into 4Q Guide, and how should we think about the net 27 impact, first quarter disruption, and kind of versus that Seattle ramp?

You know, as we think about displacement for 2027, we'll be in a better position to speak to that when we give guidance for the full year. You know, we're working through the budgeting process now on a property-by-property level basis and rolling displacement analyses around, you know, 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'll be able to shed better light on that. As we think about the fourth quarter, we have factored in displacement for not only those two assets, so the Lake Union residence and conversion and the embassy, but we always assume displacement from our renovated properties. And while we're renovating 18 properties this year with two that are larger, we renovated 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 This is our first conversion of that type. And so, again, we'll 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 call.

Our next question comes from Jay Kornrick with Cantor Fitzgerald. Please proceed with your question.

Hi, thanks. Good morning. Just going back to the comments on 2027, which you mentioned anticipating having, you know, sustained demand momentum, especially by business trends in pickup, 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, you know, what the potential could be for another year of mid-single-digit rep part growth?

Sure. And Liz highlighted that it's 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, you know, I'm confident you've 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 we're 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 won't 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're 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.

And as we think about, you know, as we think about 2027, the only thing that I'll 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, you know, single digits. Overall, for the full year, if you sort of apply the same methodology for sort of backing into an impact estimate, you're around 15 basis points of REVPAR impact. So while it did help this year, you know, it's not necessarily a direct meaningful headwind to next year.

Got it. That's helpful. Thank you. And then just moving to the fourth quarter, you know, October REVPAR up 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 I guess what that can mean for how the rest of the fourth quarter shapes up?

So, you know, 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've 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, you know, and where we performed this year, you know, your underlying strength or performance is, you know, between 7 and 8% still. and that's if you assume everything was government related. And so, you know, conservatively, I say, you know, 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, you know, certainly encouraging and the comps were beneficial during September and October, but the broad-based fundamental demand remains strong outside of government-specific business.

Got it. Temple, thank you.

Our next question comes from Ari Klein with BMO Capital Markets. Please proceed with your question.

Thanks, and good morning. I'm hoping you could elaborate a little bit on just what you're seeing from BT, maybe the diversity of the strength there and how you see that continuing to trend.

You know, we, 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 don't have classroom availability into retail rates, meaning it's harder to track because it's not booking through the discount provided were not available on compression nights. And so, you know, really we're triangulating a few things while our segmentation shows a decline in corporate negotiated. When we look at GDS from a channel perspective, that's up and ADRs are strong there. Our Tuesday, Wednesday night occupancy growth, you know, is the highest across the week and we're seeing growth increases in ADR there. And for the makeup of our portfolio, we attribute most of that to business transient. As we look at market drivers across our portfolio, we're seeing improvements in citywide events, groups, both leisure and corporate driven, but we're also seeing local accounts producing, government coming back, and some markets, and we're able to see some larger corporate negotiated improvements. So it's 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.

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

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 our lowest cost channels. The margin between that and OTA It's not as significant as it once was, but still our lowest channel. So there is, you know, on the margin some benefit. I would say in general, you know, 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, you know, occupancy level. You know, in general, we feel like the commissions are, you know, the conditions are reasonable, but we do prefer direct business where, you know, overall distribution costs are the lowest.

Thank you. Appreciate the detail.

Our next question comes from Michael Bellisaro with Baird. Please proceed with your question.

Good morning, everyone. Justin, just first a clarification question. You referenced newer deals in terms of what you're looking at. Are you referring to more development takeouts or just newer vintage existing properties?

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

Got it. Just wanted to clarify that because you referenced Nashville. So I get they're both newer vintage, but absolutely different starting point. I'm 27. Maybe just help us understand. So what are the risks you're thinking about and sort of discussing internally other than the obvious macro uncertainties? Is there a Anything on the expense side with the brands or maybe it's just year-over-year comparisons that you're more focused on today looking at?

I think certainly ruling out macro concerns takes a lot of concern off the table. Specific to brand-related expenses, I think you've heard on the various brand calls and it's consistent with the conversations we've had directly with them. that brands across the board are intently focused on enhancing owner operating metrics, specifically profitability. And I think that's brought a level of discipline to looking at the overall model that's been incredibly appreciated by us and by others within the owner community. I don't see increased brand-related costs as a meaningful threat on a margins standpoint. And certainly, looking at the opposite side, there's been significant investment within the brand families where we're most heavily concentrated on technology and programs that have the potential to generate Helpful. Thank you.

Our next question comes from Sean Kelly with Bank of America. Please proceed with your question.

Hi, good morning, everyone. Thanks for taking my question. Justin or Liz, I think we can all run our own macro scenarios. Justin, I think you alluded to we can look at what some of the brand companies have laid out for next year on the top line, but I'm curious to get your thoughts on the operating expense environment. It's been extremely benign, and I think it's obviously a nice tailwind relative to a lot of other consumer subsectors out there. So just what's 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's that operating leverage kind of break even point as you roll into next year? What are you keeping an eye on and like what what do you think REVPAR would need to grow at to see, you know, sustained margin growth in twenty seven? Thanks.

You know, as we are shifting to twenty twenty seven, 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, you know, variable costs and even in an environment where there has been, you know, sort of reasonable, like, or you mentioned benign wage pressure relative to, you know, earlier years coming out of the pandemic. that has really been managed well and offset by productivity and improving occupancy certainly helps from an efficiency standpoint. If we think about an environment on the top line where you are seeing continued growth into 2027, I think the variable cost side, particularly around how our teams have been able to manage costs, I think we're 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're watching utility costs. That's been trending higher, as you would expect with the macro. And so I think, you know, we're thinking about that as we look at next year. You know, fixed costs have been relatively favorable or very favorable this year. certainly as we think about next year that wouldn't you know your continued year-over-year declines wouldn't necessarily holistically for fixed costs you know be a going-in assumption so you know we'll anticipate something different but we'll continue to you know work really hard where we have you know an ability to whether it be appeal on the property tax side, or think through structure and format of our insurance programs to continue just to maintain competitive rates there. So I think holistically, like I mentioned, we have some recency bias. And what you see in the portfolio today, I think, is our starting point. And then we'll 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've 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 costs. and, you know, control what they can control and allow some of the rate growth that we've experienced as of late flow to the bottom line, you know, 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 to flow through and continued margin, you know, growth, you know. that helps from that standpoint.

Great, thanks. And then sort of you were kind of getting to my second question, which is on rate. Just, you know, it's been a theme across, I think, a lot of the sector this quarter, you know, better rate growth, confidence in rate. But could you help us split out or just how you're seeing, you know, your portfolio play out in terms of how much of the rate is mixed, right, coming back in your favor versus, How much is aggregate price increase? Where are you actually taking REIT versus how much is just, hey, you're getting the right mix this year and it was probably a bit off kilter last year. So just help us think about those two dynamics, at least directionally.

Directionally, I think mix management is a huge piece of it. but they're intertwined in the sense that as we have more compression nights and higher occupancies on more nights of the week and you're seeing that growth in demand, there's overall confidence in pricing but also an ability to preference higher rated business. I'd also say that the team, and we've been reporting on this for several quarters now, The team has done a very, very good job layering an incremental group at very attractive rates. And so that's less, it involves mixed management. It is not necessarily a direct revenue management consideration. It's really what the teams are doing and how they're 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've done a very, very good job. So it's a hard question to parse out. I'd say, you know, where we're seeing the most rate growth, it's coming from greater compression and mismanagement overall. And again, the fact that we're able to yield out lower rated contracted 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.

Our next question comes from Michael Hirsch with JPMorgan. Please proceed with your question.

Hi. Thank you for taking my questions. In the back of your press release, only two or three of your top 30 markets showed negative REVPAR growth in the quarter, and even those were just down 1 or 2 percent. 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?

I can start and Liz can chime in. I think what you're seeing is consistent with what we have observed across our broader portfolio, and that's that the recovery in business transient specifically and continued strength and leisure travel has propelled meaningful growth across the vast majority of our markets. And I think it's interesting, especially given the diversification of our portfolio, to see that happening across market types and really across segments of the overall economy. 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 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've seen in some time. And as I highlighted in response to one of the earlier questions we received, travel tends to pick up momentum and momentum works against travel when people aren't traveling. 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're incredibly optimistic about how that might play out.

Thank you. And then for my follow-up on the What's the consumer question with leisure travel, a material portion of your business? What have you seen in length of stays, booking windows, and cancellation rates today versus six to 12 months ago?

On the leisure side, the trend has actually been fairly consistent. So leisure tends to book shorter term except for around major events. Football games, major concerts, and things of that sort that are announced well in advance will attract longer booking windows type bookings. But really, overall, the trends have been relatively consistent with the meaningful differentiator this year being a significant pickup and midweek business.

Yeah, you know, I mentioned in my prepared remarks, too, that we also saw weekend, you know, weekend growth and occupancy. And so while those occupancy levels are over 2019 levels and leisure has been a consistent, you know, point of growth and stability, it continues to push for, you know, forward, which is just, you know, really encouraging overall, you know, continuing to see rate growth there as well. I think We are not seeing a change in that behavior in any of the data that we're looking at.

As a reminder, if you'd like to ask a question, please press star zero on your telephone keypad. Our next question comes from Chris Darling with Green Street. Please proceed with your question.

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

Yeah, certainly. And I appreciate the question. In terms of, I'll answer the second part first. In terms of where we were pre-COVID, we're meaningfully below that. So, you know, pre-COVID, we're running in the 70s in terms of exposure, I believe. 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 in our portfolio where we've moved out of some slower growth markets, which would, by their very nature, be more difficult to develop in, and into stronger markets. That has, on the margin, contributed to the adjustment. in exposure to new supply. As we look across our portfolio, not all supply is equal, and we're more focused on demand relative to supply and how that's likely to shape up over the next several years.

Understood. Appreciate the insight there. And, you know, going back to the Marriott transitions, it's obviously been sort of an immediate positive impact for the portfolio. How should we think about that in terms of maybe a lagged positive impact over several years? You know, do you see tailwinds around this into 2027 and possibly 28 to some extent?

Our expectation when we originally underwrote the transition and began conversations with both Merat and our other management partners was that we would see meaningful improvement over time and that that would be sustainable. Our expectations continue, and we've been pleased, broadly speaking, with how those transitions have played out. Beyond that, and important to this discussion specifically, and we highlighted it when we initially pursued the transition, we believe that 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. Thank you.

Our next question comes from Ken Billingsley with CompassPoint. Please proceed with your question.

Good morning. A couple questions. Just on the 10% October rev par, a lot of it, I know you mentioned, was related to government shutdown. What percentage would you say is related to that?

As I mentioned, you know, if you took a conservative view, I think, you know, without the government shutdown comp in October, you would assume, you know, you know, eight percent, seven to eight percent REVPAR growth in October. So that's, you know, that's assuming, you know, a majority of the impact last year was government or government adjacent, you know, TSA impacts, travel disruption just related to the government shutdown broadly.

Okay. And then on business travel in general, You're talking about the increase that you're 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'm looking more as we're going into 2027.

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. I think our current view is that we're likely to see a continuation of current trends in most of our markets for the reasons that we highlighted. I think, please, for the month of October and moving into November with with how things have played out and the continuation of strength we're seeing in bookings and, you know, actual stays at our hotels and, you know, continue to be very optimistic about how things might play out next year.

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

Now, that that's a good clarification. And really, when you look at our portfolio, we have intentionally avoided over concentrating our exposure with any one segment of the overall economy. 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 tech but in a post-COVID environment Tech Travel has, by and large, been a smaller percentage of our overall business travel or business demand. And our portfolio does not have significant exposure to markets like San Francisco, where that may have been a bigger player. I think when you look at performance across our markets in recent months, it's indicative In our minds, that economic strength, specifically driving business travel, has been broad-based and not isolated to any one segment of the overall economy or any one industry. I think that's part of the reason that going into next year, we continue to have confidence.

That's great to hear. Thank you for answering my question.

Absolutely.

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

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

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