Apple Hospitality REIT's Q3 2025 Earnings Call: Contradictions Emerge on Government Business Impact, Share Repurchase Strategy, and Development Deals

Date of Call: November 4, 2025

Financials Results

• Revenue: $365M for the quarter and $1.1B year-to-date, both down ~1% YOY
• EPS: MFFO $0.42 per share for the quarter, down ~7% YOY (per share)
• Operating Margin: Comparable hotels adjusted hotel EBITDA margin 35.2%, down 200 bps YOY

Guidance:

• Net income for full year 2025 expected between $162M and $175M.
• Comparable hotels RevPAR change expected between -2% and -1% for full year 2025.
• Comparable hotels adjusted hotel EBITDA margin expected between 33.9% and 34.5%.
• Adjusted EBITDAre expected between $435M and $444M; total hotel expenses assumed to increase ~2.1% at midpoint (3.4% CPOR).

Business Commentary:

* Revenue and Performance Trends: - Apple Hospitality REIT reported comparable hotels occupancy of 76% for Q3, down 1.2%, and RevPAR of $124, down 1.8%. - This was primarily due to policy uncertainty, expense pressure, and a pullback in government travel, although transient leisure demand remained resilient.

• Capital Allocation and Share Repurchases:
• The company completed the sale of 3 hotels for a total combined sales price of $37 million and has 4 hotels under contract for sale with a combined sales price of approximately $36 million.
• Proceeds were used primarily for share repurchases, buying 3.8 million shares at an average market purchase price of $12.73 per share.

• This strategy was driven by near-term opportunities where the stock was trading at a discount to private market transaction values.

• Development and Acquisition Strategy:

• Apple Hospitality REIT entered into several fixed price forward purchase contracts for hotel developments, including an AC hotel in Anchorage and a dual-branded property in Las Vegas.

• These developments are aligned with the company's strategy to enhance portfolio positioning and take advantage of market growth opportunities.

• Operational Efficiencies and Cost Management:

• The company achieved a comparable hotels EBITDA margin of 35.2% for the quarter, despite a decline in occupancy and RevPAR.
• This was due to strategic cost management, including reductions in contract labor and efficiency gains from adjusting staff levels proportionally with occupancy fluctuations.

Sentiment Analysis:

Overall Tone: Neutral

• Justin: 'fundamentals of our business remains strong... demand proving resilient.' Liz: 'we are generally pleased with the overall performance and resilience of our portfolio.' Company highlights industry-leading margins: comparable hotels EBITDA margin 35.2% despite RevPAR declines.

Q&A:

• Question from Cooper Clark (Wells Fargo Securities, LLC, Research Division): 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.
  Response: Labor improvement driven by adjusting FTEs to current occupancy; select-service hotels require few FTEs, giving flexibility to manage labor costs going forward.

• Question from Cooper Clark (Wells Fargo Securities, LLC, Research Division): On the acquisition front, the newer additions (the AC hotels) seem to shift your portfolio to a higher chain scale — is this where you're seeing the best opportunity or a longer-term strategic shift?
  Response: AC is being prioritized for its efficient operating model and ability to deliver higher margins; choice driven by profitability and fit, not a wholesale chain-scale strategy change.

• Question from Austin Wurschmidt (KeyBanc Capital Markets Inc., Research Division): How much of the guidance change do you attribute to the government shutdown directly or indirectly? Historically, how quickly does demand typically return once the government reopens?
  Response: About two-thirds of the Q4 downward revision is due to the government shutdown and one-third due to weaker transient pickup; historically we saw meaningful pent-up demand and a material rebound after prior shutdowns.

• Question from Austin Wurschmidt (KeyBanc Capital Markets Inc., Research Division): Where is the government segment as a percent of business recently versus historical 5%–7% range, and any strategy changes around government exposure given volatility?
  Response: Government was ~5.5% in 2024, 5.2% in Q3 2025 and fell to just under 4% in October; strategy is diversification across markets and demand segments to mitigate segment volatility.

• Question from Aryeh Klein (BMO Capital Markets Equity Research): Talk about the strategy of doing development deals vs. acquisitions, target returns, and how you balance that with share repurchases (which were lighter this quarter).
  Response: Development historically ~25–30% of acquisitions; we have experience with development, target returns based on weighted cost of capital over delivery, and will pursue both development commitments and opportunistic share repurchases funded largely with sale proceeds.

• Question from Aryeh Klein (BMO Capital Markets Equity Research): Is there a limit to how many development deals you'll take on at a time; should we expect more over the next 1–2 years?
  Response: Intent is to limit closings to ~1–2 per year; current 2027–28 forward commitments likely represent the near-term pipeline unless an exceptional opportunity arises.

• Question from Jay Kornreich (Cantor Fitzgerald & Co., Research Division): If government demand remains soft into 2026, are there initiatives to fill that gap given this year's experience?
  Response: Teams are pivoting to grow group business—both leisure and corporate groups—market-by-market to offset government demand weakness.

• Question from Jay Kornreich (Cantor Fitzgerald & Co., Research Division): How should we think about mix shifts going forward with potential corporate occupancy lift vs. leisure deceleration?
  Response: Currently leisure (and group) is stronger while midweek corporate is softer; corporate demand is expected to recover as the government reopens, varying by market.

• Question from Kenneth Billingsley (Compass Point Research & Trading, LLC, Research Division): G&A expense savings in 2025 — is some of this temporary due to management decisions and will it tick back up? And what are the expected savings from the Marriott shift plan?
  Response: G&A decline is largely from lower incentive compensation tied to TSR and operating metrics and can fluctuate annually; transitioning Marriott-managed hotels to franchise and consolidating management is expected to unlock near-term cash flow and longer-term transactional flexibility.

• Question from Kenneth Billingsley (Compass Point Research & Trading, LLC, Research Division): On Las Vegas — given near-term weakness, why add two hotels there now?
  Response: Vegas investment justified by strong trailing returns (SpringHill yielding ~10% TTM), valuable adjacent land by the convention center, and expected operational synergies across the clustered hotels.

• Question from Michael Bellisario (Robert W. Baird & Co. Incorporated, Research Division): For the Seattle Lake Union project, any outsized cost or earnings disruption next year? And what's typical disruption when transitioning a management company?
  Response: Seattle renovation would have occurred regardless; expect some disruption from reservation-system migration but manageable; other management transitions are less disruptive and timed in slower periods to minimize impact.

• Question from Michael Bellisario (Robert W. Baird & Co. Incorporated, Research Division): Early look into next year on cost-per-occupied-room growth relative to this year's ~3.4% CPOR expectation?
  Response: Too early to provide definitive expense guidance for 2026; expenses moderated through 2025 and management aims to carry cost-control gains forward.

• Question from Chris Darling (Green Street Advisors, LLC, Research Division): On the Las Vegas development, would you expect revenue synergies being next to the convention center with a larger footprint?
  Response: Yes — combined footprint and complementary brands will enable hosting larger groups, enhance sales versatility and deliver operational efficiencies across the properties.

• Question from Chris Darling (Green Street Advisors, LLC, Research Division): Broadly, how do you think about market selection when buying into new markets vs. selling out of others?
  Response: Market selection prioritizes business-friendly markets with positive demand/demographics, margin potential, supply dynamics and portfolio age; sell non-strategic assets and redeploy proceeds into higher-return uses including share repurchases and targeted acquisitions.

Contradiction Point 1

Government Business Impact

It highlights differing perspectives on the impact and strategic response to changes in government business, which could affect occupancy levels and revenue.

How much of the guidance change is due to the government shutdown, and how quickly does demand typically recover after a government shutdown historically? - Austin Wurschmidt (KeyBanc Capital Markets Inc.)

2025Q3: About one-third of the Q4 guidance change is attributed to fundamentals ahead of the shutdown, with two-thirds related to the shutdown. - Elizabeth S. Perkins(CFO)

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

2025Q2: Government bookings have been weaker than we had anticipated going into July. - Justin Knight(CEO)

Contradiction Point 2

Share Repurchase Strategy

It involves differing statements regarding the company's approach to share repurchases and their funding sources, impacting investor expectations on capital allocation.

How do you balance development deals with share repurchases? - Aryeh Klein (BMO Capital Markets Equity Research)

2025Q3: Share repurchases are primarily funded by sale proceeds, aligning with strategic asset sales and acquisitions. - Justin Knight(CEO)

Will buybacks align with asset sales, or is there opportunity for opportunistic balance sheet use? - Daniel Hogan (Baird)

2025Q2: We expect that share repurchases will primarily be funded by sales proceeds. - Justin Knight(CEO)

Contradiction Point 3

Strategy on Development Deals

It highlights a shift in the company's strategic approach to development deals, which can impact future growth and capital allocation.

Can you explain the development deals strategy and how it balances with share repurchase plans? - Aryeh Klein (BMO Capital Markets Equity Research)

2025Q3: We aim to have no more than 1 or 2 development deals close per year, focusing on maintaining flexibility for future closings. Additional commitments will be for assets anticipated further out. - Justin Knight(CEO & Director)

What are operators doing differently or better in 2025 to offset the above inflationary growth? - Michael Bellisario (Baird)

2024Q4: Historically, development deals have represented about 25% of our acquisitions. We anticipate maintaining this balance as we plan for future asset acquisitions. - Justin Knight(CEO)

Contradiction Point 4

ADR and Occupancy Trends

It involves differing expectations regarding the performance of Average Daily Rate (ADR) and occupancy trends, which are critical indicators for revenue forecasts and strategic planning.

Can you discuss the shift in occupancy mix between corporate and leisure segments? - Jay Kornreich (Cantor Fitzgerald & Co., Research Division)

2025Q3: We're currently seeing stronger leisure demand than corporate midweek. - Justin Knight(CEO)

How to assess ADR occupancy post-business restructuring? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q1: We anticipate that as we grow occupancy, we should be able to grow rate as well. - Elizabeth S. Perkins(CFO)

Contradiction Point 5

Occupancy and Demand Recovery

It involves the company's expectations regarding occupancy levels and demand recovery, which are critical for revenue projections and market positioning.

Can you discuss the mix shift between corporate and leisure occupancy? - Jay Kornreich (Cantor Fitzgerald & Co., Research Division)

2025Q3: Midweek occupancy continues to improve, but we still have 5% to go relative to prepandemic levels for significant rate growth. We are working on achieving that balance. - Elizabeth S. Perkins(CFO)

Can you provide guidance on the expected quarterly RevPAR trends for the year? - Jay Kornreich (Wedbush Securities)

2024Q4: We expect a slow start to the year, with January impacted by weather-related events, but we believe we'll benefit from increased occupancy and rate growth throughout the year. - Elizabeth S. Perkins(CFO)