Apple Hospitality REIT's Q3 2025: Contradictions Emerge on Government Demand, Labor Costs, and Recovery Timelines

Date of Call: None provided

Financials Results

• Revenue: $365.0M comparable hotels total revenue for the quarter, down ~1% YOY
• Operating Margin: Comparable Hotels adjusted hotel EBITDA margin 35.2% for the quarter, down 200 basis points YOY

Guidance:

• Net income for 2025 expected to be $162M to $175M.
• Comparable Hotels RevPAR change expected between -2% and -1% for 2025.
• Comparable Hotels adjusted hotel EBITDA margin expected between 33.9% and 34.5% for 2025.
• Adjusted EBITDA RE expected between $435M and $444M for 2025.
• Assumes total hotel expenses up ~2.1% at midpoint (3.4% CPOR); guidance excludes unannounced transactions and assumes continued government-shutdown impacts.

Business Commentary:

• Earnings and Performance Trends:
• Apple Hospitality REIT reported a RevPAR of $124 for Q3, down 1.8%, with occupancy at 76%, down 1.2%, and ADR at $163, down 0.6%.
• The decline was attributed to policy uncertainty, expense pressure, and a pullback in government travel.
• Capital Allocation and Share Repurchases:
• The company has repurchased approximately 3.8 million shares year-to-date at an average market purchase price of $12.73 per share.

• This was driven by the opportunity to take advantage of public and private market valuation discrepancies through selective asset sales and stock purchases.

• Asset Sales and Development:

• Apple Hospitality REIT completed the sale of three hotels for a total of $37 million in Q3, with another four hotels under contract for sale.
• The company is also investing in new developments, including an AC Hotel in Anchorage and a dual-branded property in Las Vegas adjacent to their existing hotel.
• These actions are part of a strategy to optimize portfolio concentration, manage CapEx, and free capital for reinvestment.
• Operational Strategies and Expense Management:
• The company achieved a comparable hotels' EBITDA margin of 35.2% for the quarter, despite a challenging operating environment.
• Cost management efforts included moderating variable expense growth and consolidating management with third-party firms to realize operational synergies.
• These efforts are part of a broader strategy to manage expenses and maximize profitability in response to various external challenges.

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management highlighted portfolio resilience and industry-leading margins (adjusted hotel EBITDA margin 35.2%) while acknowledging headwinds from policy uncertainty, expense pressure and a government shutdown that reduced October RevPAR ~3% vs prior year; guidance trimmed modestly but margin guidance was modestly raised due to cost control.

Q&A:

• Question from Cooper Clarke (Wells Fargo): How has full-time employee count shifted and how much is that driving cost improvements; outlook for labor into 2026?
  Response: Labor improvement driven by adjusting FTEs to occupancy; hotels can flex staffing quickly, producing lower hourly wage pressure and anticipated continued labor efficiency going into Q4 and 2026.

• Question from Cooper Clarke (Wells Fargo): Is the focus on AC Hotels shifting the portfolio to higher chain scale or is it driven by opportunity?
  Response: Choice of AC hotels is strategic for the brand’s efficient operating model and margins—AC competes vs higher chain scales while delivering stronger margin conversion.

• Question from Austin Wurschmidt (KeyBanc): How much of the guidance change is due to the government shutdown versus underlying fundamentals, and historically how quickly does demand return?
  Response: About two-thirds of the Q4 guidance deterioration is attributed to the government shutdown and one-third to weaker transient pickup/tough comps; historically demand has meaningfully rebounded after past shutdowns due to pent-up travel.

• Question from Austin Wurschmidt (KeyBanc): What is government demand as a percent of business and any strategy changes given volatility?
  Response: Government was ~5.5% last year, 5.2% in Q3, and dropped to slightly under 4% in October; strategy remains diversification across demand channels and markets to mitigate segment volatility.

• Question from Aryeh Klein (BMO Capital Markets): Why pursue development deals versus acquisitions; target returns and balance with share repurchases?
  Response: Development has historically been ~25–30% of acquisitions; the firm will pursue selective forward commitments to maintain portfolio relevance while primarily funding repurchases with disposition proceeds and balancing both activities.

• Question from Ken Billingsley (Compass Point): Are G&A savings sustainable or temporary; and what are expected benefits from transitioning Marriott-managed hotels to franchise?
  Response: G&A decline is largely driven by annual executive incentive resets and may fluctuate year to year; transitioning Marriott-managed hotels to franchise and consolidating management is expected to unlock near-term cash-flow and long-term operational synergies.

• Question from Michael Bellisario (Baird): Any outsized cost/disruption from the Seattle Lake Union conversion and typical disruption from management transitions?
  Response: Renovation disruption for Seattle would occur regardless of brand change; reservation-system transition could cause outsized disruption but most Marriott transitions are planned for slow periods and expected to be manageable with modest short-term impact.

• Question from Chris Darling (Green Street): Will the Las Vegas development yield revenue synergies being adjacent to the convention center and by combining brands?
  Response: Yes—co-locating three brands adjacent to the convention center creates sales versatility for larger groups and operational efficiencies that should produce revenue and margin synergies.

Contradiction Point 1

Government Demand and Shutdown Impact

It involves differing perspectives on the impact of government shutdowns on demand and the expected recovery timeline, which has significant implications for occupancy and revenue projections.

What portion of the guidance change is due to the government shutdown and how quickly does demand return after government reopening? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q3: About a third of the guidance change is due to fundamentals, and two-thirds due to government shutdown. Historically, there's been a significant pickup in business following government shutdowns. - Liz Perkins(CFO)

If the positive July booking trends continue without the holiday shift impact, would you maintain the prior RevPAR guidance midpoint? - Joshua Ben Friedland (KeyBanc Capital Markets)

2025Q2: The adjustments to guidance reflect current booking trends and could prove conservative if macroeconomic improvements drive stronger bookings. - Elizabeth S. Perkins(CFO)

Contradiction Point 2

Labor Management and Cost Improvements

It involves the company's approach to managing labor costs and expectations regarding cost improvements, which are crucial for operational efficiency and financial performance.

How has your full-time employee count changed this quarter, and how is it impacting cost improvements? Are cost improvements expected in 2026? - Cooper Clarke (Wells Fargo)

2025Q3: Full-time employee count has shifted effectively with top-line performance. Less wage pressure year-over-year in hourly associates. Efficiency in managing labor as occupancy adjusts. Expects to manage labor effectively in both increases and decreases in occupancy, maintaining flexibility. - Liz Perkins(CFO)

How have full-time employee and contract labor levels changed since pre-pandemic, and what flexibility remains? - Jack Armstrong (Wells Fargo)

2025Q1: We are going through a very interesting period here with respect to labor costs. We've been able to actually keep our full-time associates' numbers pretty much where they were pre-pandemic. But we have seen a little bit increased utilization of contract laborers, which we view as a temporary situation. - Liz Perkins(CFO)

Contradiction Point 3

Government Shutdown Impact on Demand

It involves the company's assessment of the impact of government shutdowns on demand and expectations for a recovery, which are important for forecasting and strategic planning.

How much of the guidance change is due to the government shutdown, and how quickly does demand return after reopening? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q3: About a third of the guidance change is due to fundamentals, and two-thirds due to government shutdown. Historically, there's been a significant pickup in business following government shutdowns. - Liz Perkins(CFO)

How are macro uncertainties affecting RevPAR, and is it due to booking hesitancy or transient/group cancellations? - Michael Bellisario (Baird)

2025Q1: We saw a little more softness in certain of our markets, primarily driven by some government pullback or some macro issues that we didn't really see at the end of the year. We did see sequential improvement. - Justin Knight(CEO)

Contradiction Point 4

Government Shutdown Impact

It involves differing explanations of the impact of a government shutdown on occupancy and financial guidance, which affects investor expectations and strategic planning.

To what extent did the government shutdown impact the guidance change, and how quickly does demand recover after reopening? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q3: About a third of the guidance change is due to fundamentals, and two-thirds due to government shutdown. Historically, there's been a significant pickup in business following government shutdowns. - Liz Perkins(CFO)

Is there potential to exceed your 2025 RevPAR guidance of 2%? - Jay Kornreich (Wedbush Securities)

2024Q4: We expect that to be flat to slightly negative for the quarter from an occupancy standpoint. - Liz Perkins(CFO)

Contradiction Point 5

Labor Management and Cost Improvements

It reflects varying perspectives on labor management and cost efficiency, which are critical for controlling operating expenses and maintaining financial performance.

How has your full-time employee count shifted this quarter, and how is it impacting cost improvements? Are cost improvements expected in 2026? - Cooper Clarke (Wells Fargo)

2025Q3: Full-time employee count has shifted effectively with top-line performance. Less wage pressure year-over-year in hourly associates. Efficiency in managing labor as occupancy adjusts. - Liz Perkins(CFO)

What are your expectations for wage and benefit growth this year? - Chris Darling (Green Street)

2024Q4: We expect wage growth between 3.5% and 4%, with additional benefits from reduced contract labor. - Liz Perkins(CFO)