アップル・ホスピタリティREIT 2026年第3四半期決算説明会：RevPARは7.3%上昇、業績予想を引き上げ

主要ポイント

• アップル・ホスピタリティ・リート（NYSE: APLE）が発表した2026年第3四半期決算は、ADR（客室平均単価）が4.3%上昇し、稼働率が210ベーシスポイント（bp）上昇したことで、既存ホテルRevPAR（客室平均売上高）が前年同期比7.3%増の134ドルとなった。
• 既存ホテルの調整後ホテルEBITDAは14.7%増の1億4,600万ドルとなった。増収率が費用の伸びを上回ったことから、マージンは210bp拡大して37.1%に達した。
• 調整後EBITDAは13.3%増の約1億4,000万ドルとなり、MFFOは16%増の1億1,800万ドルに達した。1株当たりMFFOは16.3%増の0.50ドルとなった。
• 10月の既存ホテルRevPAR速報値は約10%増となった。前年の政府機関閉鎖に伴う比較基準の低さを保守的に調整した後の基調的な伸びについて、経営陣は7%〜8%と試算している。
• APLEは2026年通期の既存ホテルRevPAR成長率見通しを5.1%〜6.1%に、調整後ホテルEBITDAマージン見通しを35.0%〜35.5%にそれぞれ引き上げた。
• 経営陣は、営業キャッシュフロー、資産売却収入、EBITDAの約3倍というレバレッジ水準、および7億ドルのリボルビング信用枠の利用余力を背景に、買収活動が活発化すると見込んでいる。

主要財務データ

APLEは、増加した売上高1ドルにつき約0.63ドルを既存ホテル調整後ホテルEBITDAに転換した。既存ホテル売上高が7.1%増加した一方、既存ホテル総費用の増加は3.7%にとどまった。

事業および営業実績

当四半期のRevPARはすべての月で増加し、7月は6.2%増、8月は4.6%増、9月は11.2%増となった。経営陣はこの好業績の要因として、ビジネスおよびレジャー需要の幅広い堅調さ、週半ば（平日）の稼働率上昇、高単価な一般個人客（リテール）需要、および魅力的な単価での団体（グループ）予約を挙げた。

平日の稼働率は3%上昇し、週末の2.6%上昇を小幅に上回った。平日のADRは3.9%上昇、週末のADRは約4.6%上昇した。経営陣は、火曜日と水曜日の宿泊で最も顕著な稼働率の伸びが見られたと述べ、個人出張需要の回復傾向を裏付ける結果となった。

予約チャネルの構成も改善した。直販サイト（Brand.com）経由が宿泊数の40%を占めて80bp上昇し、GDSは20bp上昇の18%となった。一方、オンライン旅行代理店（OTA）の比率は100bp低下して13%となった。APLEは、直接予約チャネルへのシフトにより、限界コストベースで流通コストが抑制されたと説明した。

客室稼働構成比では、公表最適料金（BAR）による需要が210bp上昇して35%となり、団体需要は120bp上昇して16%超となった。同社が高単価なリテール料金へのシフトを進めた結果、割引需要は210bp低下して27%となり、法人契約向けも140bp低下して16%となった。

主要市場別では、アンカレッジのRevPARが23%増、ワシントンD.C.が16.5%増、シカゴが16%増、サンディエゴが12%増、メイン州ポートランドが7%増となった。フェニックスはほぼ横ばいだったが、経営陣は半導体製造関連の需要が回復基調に入っており、第4四半期を通じて好調を維持する見通しであると述べた。

マリオットによる直営運営からフランチャイズ契約へと移行した13棟のホテルは、RevPARが10%近く成長し、調整後ホテルEBITDAマージンが260bp拡大した。これらの物件はAPLEの調整後ホテルEBITDAの約7%を占めている。

資本配分とバランスシート

第3四半期以降、APLEはホテル5棟を約7,200万ドルで売却する契約を締結した。4月に売却されたロチェスターの「ハンプトン・イン＆スイーツ」を含めると、取引総額は約8,100万ドルに達し、計画設備投資前の還元利回り（キャップレート）は6.8%となる。

2025年初頭以降、同社は13棟のホテルを約1億5,400万ドルで売却、または売却契約を締結した。経営陣は、売却資金をより築浅の物件や、長期的な成長見通しがより高いバリューアッド型物件の取得に再配分する方針である。

9月30日時点におけるAPLEの有利子負債は約15億ドルで、過去12カ月間のEBITDAの約3倍に相当する。加重平均金利は4.9%、加重平均残存期間は約4.5年であった。同社は4,300万ドルの現金を保有し、リボルビング信用枠には7億ドルの借入余力があり、リボルビング枠の利用残高はなく、2029年まで大規模な無担保債務の満期到来はない。

1〜9月期（9カ月累計）の設備投資額は約5,800万ドルとなった。ホテル18棟での全面改装を含め、通期の投資額は8,500万ドル〜9,500万ドルとなる見通しである。

経営陣の見通し

調整後EBITDA予想の中央値は、従来の見通しから2,300万ドル引き上げられた。このうち約1,200万ドルは経営陣の予想を上回った第3四半期実績を反映したものであり、1,100万ドルは第4四半期の見通し引き上げによるものである。

本ガイダンスは、中央値で既存ホテル総費用の増加率を4.9%（販売客室1室当たりでは約1.6%）と想定している。未公表の物件取得や売却は含まれておらず、事業環境の予期せぬ変化も織り込まれていない。

2027年について経営陣は、出張需要の改善と新規ホテル供給の限定的な伸びが継続的な成長を支えると見込んでいる。ただし、同社は2027年の正式なガイダンスを発表していない。経営陣は2026年ワールドカップによる押し上げ効果を通期RevPARの約15bpと試算しており、2027年にその反動減が生じても大きな直接的逆風にはならないとの見解を示した。

リスク要因と注視すべき点

• 経営陣は、需要および旅行動向を取り巻く主な不確実性として、マクロ経済環境全般を挙げた。
• 第3四半期中、光熱費は7.1%増、修繕維持費は6.5%増となった。光熱費については、同社が2027年に向けて注視を続ける項目となっている。
• 固定費は、物件保険の有利な更新や不動産税の減額申し立ての成功による恩恵を受けた。ただし、経営陣はポートフォリオ全体で前年比の固定費減少が今後も続くとは想定していない。
• 改修工事やレイクユニオンの「レジデンス・イン」のブランド転換に伴い、一時的な客室稼働の制約（ディスプレイスメント）が生じる可能性がある。同社は第4四半期に予想される混乱をガイダンスに織り込んでいるが、2027年への影響は引き続き精査中である。
• APLEにおける新規競合供給へのエクスポージャーはコロナ禍前の水準を下回ったままであるが、ポートフォリオをより成長性の高い市場へとシフトさせたこともあり、足元では増加している。

アナリスト質疑応答の要点

買収活動：経営陣は、余剰資本の最も有力な使途は買収であると述べた。現在の市場環境が継続すれば、APLEは買収を一段と活発化させる見通しであり、再調達原価を下回る価格で取得可能な築浅ホテルやバリューアッド型ホテルを優先する方針である。

資金調達戦略：営業キャッシュフローを最も優先度の高い資金調達源とし、次いで資産売却収入、追加レバレッジを活用する。経営陣は、買収活動を増やすために現時点でAPLEが株式を発行（増資）する必要はないと述べた。

2027年の需要見通し：供給の伸びが限定的であることに支えられ、個人出張需要の勢いと安定したレジャー需要が継続すると経営陣は見込んでいる。ただし、物件ごとの正式な予算策定はまだ進行中であると注意を促した。

マージン見通し：宿泊単価の継続的な上昇と安定した稼働率は、さらなる営業レバレッジを後押しすると見られる。経営陣は、注視すべき項目として光熱費や前年比での比較条件が厳しくなる固定費を挙げた。

マリオット直営からの移行：APLEは、マリオット直営の13ホテルをフランチャイズ契約へと移行したことによる運営上のメリットは持続可能であると見込んでいる。また経営陣は、これらのホテルを運営委託契約（マネジメント契約）なしで売却できることが資産価値の向上につながる可能性があると述べた。

決算説明会トランスクリプト全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Greetings, and welcome to the Apple Hospitality Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clarke, Vice President, Investor Relations. Thank you. You may begin.

Kelly Clarke

Good morning, and welcome to Apple Hospitality REIT's Third Quarter 2026 Earnings Call. Today's call is 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 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.

Justin Knight

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 RevPAR 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 $0.63 of each incremental revenue dollar into comparable hotels adjusted hotel EBITDA, producing approximately 210 basis points of margin expansion, adjusted EBITDA 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 RevPAR 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 RevPAR 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 totaled approximately $81 million and represent a 6.8% cap rate or 12.2x EBITDA before capital expenditures and a 5.7% cap rate or 14.6x EBITDA after taking into consideration an estimated $16 million in planned capital improvement.

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 3x 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 SpringHill 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 million 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 $0.24 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 $0.96 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 entered 2027 with improving demand, limited new supply, a well-covered distribution and the capacity to pursue accretive 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.

Liz Perkins

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 30, 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 remained 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 was $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 biannual 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 GDS 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 rate. 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% in the quarter. 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 EBITDA 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 $0.50 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 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 3x our trailing 12 months EBITDA with a weighted average interest rate of 4.9% and a weighted average maturity of approximately 4.5 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 our 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 31, 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 between $482 million and $493 million, and net income between $177 million and $192 million. At the midpoint, our adjusted EBITDA 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, rate-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.

Operator

[Operator Instructions]

Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets.

質疑応答

Austin Wurschmidt

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?

Justin Knight

So 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. I think in addition to proceeds from those dispositions, we are currently generating meaningful cash 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-to-EBITDA falling below 3x by the end of the year, assuming we hit the midpoint of our guidance. So thinking about the next several months, I think assuming no change in our share price, it would be reasonable to assume and I think expected based on the opportunity set that we're looking at today that we would be meaningfully more acquisitive than we have been recently.

Austin Wurschmidt

And when you kind of look at the active potential deals that are out there, I mean, what kind 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?

Justin Knight

Sure. Yes. It will be a mix of all of those. I highlighted in my prepared remarks our recent acquisitions, which included the Motto, a newly constructed hotel in Downtown Nashville and the Home of 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 we're 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?

Austin Wurschmidt

Yes. 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 just the magnitude of that discount for what you're seeing in the market today?

Justin Knight

Yes. No, absolutely. I highlighted in our prepared remarks that we continue to see low supply growth. 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 cost. 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.

Operator

Our next question comes from Connor Peeks with Wells Fargo.

Unknown Analyst

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?

Justin Knight

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 we will have significant free cash flow above and beyond our needs for CapEx and distributions. 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 a 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.

Unknown Analyst

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 the 4Q guide? And how should we think about the net 27 impact, first quarter disruption and kind of versus that Seattle ramp?

Liz Perkins

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. We're working through the budgeting process now on a property-by-property level basis and rolling displacement analysis around otherwise projected performance. And so on a net basis and thinking through what we expect once opened in acreage 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 Inn 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.

Operator

Our next question comes from Jay Kornreich with Cantor Fitzgerald.

Jay Kornreich

Just going back to the comments on 2027, which you mentioned anticipating having sustained demand momentum, especially by business transient 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 what the potential could be for another year of mid-single-digit RevPAR growth?

Justin Knight

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, 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.

Liz Perkins

And as we think about 2027, the only thing that I'll add is 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 said in the prepared remarks, it was about a 12 basis point impact to July. And so for the quarter, 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, it's not necessarily a direct meaningful headwind to next year.

Jay Kornreich

Got it. That's helpful. And then just moving to the fourth quarter, 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 could mean for how the rest of the fourth quarter shapes up?

Liz Perkins

So as we talked about the government impact last year, 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 continued outsized growth, if you assume last year, the impact where we were down roughly 3% looking at it on a same-store basis, and where we performed this year, your underlying strength or performance is between 7% and 8% still.

And that's if you assume everything was government related. And so conservatively, I'd say -- and this is factored in at the high end of our guidance range that the fourth quarter would continue to see that strength. But certainly encouraging and the comps were beneficial during September and October, but the broad-based fundamental demand remains strong outside of government-specific business.

Operator

Our next question comes from Aryeh Klein with BMO Capital Markets.

Aryeh Klein

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?

Liz Perkins

Business Transient has been interesting to track from a data standpoint and a segmentation standpoint this year because of the overall strength in 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 discounts discount provided we're not available on compression nights.

And so really, we're triangulating a few things, while our segmentation shows a decline in corporate negotiated when we look at GBS from a channel perspective, that's up and ADRs are strong there. Our Tuesday, Wednesday night occupancy growth is the highest across the week, and we're seeing 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 were both leisure and corporate driven, but we're also seeing local accounts producing, government coming back in 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.

Aryeh Klein

Appreciate that. And then maybe just on the OTA shift you saw in 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?

Liz Perkins

I think seeing -- going back to the last question around 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 is not as significant as it once was, but still our lowest channel. So there is, on the margin, some benefit. I would say, in general, we have seen the rates negotiated with the OTAs put us in a position where, in some cases, the margin differs or the commission differs based on need and based on occupancy level. And so in general, we feel like the commissions the conditions are reasonable, but we do prefer direct business where overall distribution costs are the lowest.

Operator

Our next question comes from Michael Bellisario with Baird.

Michael Bellisario

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?

Justin Knight

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 three years, which given the fact we have capital immediately available, would not be a priority for us.

Michael Bellisario

Got it. Just wanted to clarify that because you referenced Nashville. So I guess they're both newer vintage, but...

Justin Knight

Absolutely. Different starting point.

Michael Bellisario

On 27, maybe just help us understand what are the risks you're thinking about and sort of discussing internally other than the obvious macro uncertainties? Is there 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 ahead?

Justin Knight

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 margin 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 incremental top line for us and I think can contribute to our overall profitability in that way. So in terms of our interaction with the brand, much brands much more likely to be positive contributors to profitability in the near term than detrimental to that.

Operator

Our next question comes from Sean Kelley with Bank of America.

Unknown Analyst

Justin or Liz, just 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? 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 breakeven point as you roll into next year? What are you keeping an eye on? And like what do you think RevPAR would need to grow at to see sustained margin growth in '27?

Liz Perkins

As we are shifting to 2027, 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 variable costs and even in an environment where there has been sort of reasonable like -- or you mentioned benign wage pressure relative to 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.

As 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. We're watching utility costs. That's been trending higher, as you would expect with the macro. And so I think we're thinking about that as we look at next year. fixed costs have been relatively favorable or very favorable this year.

Certainly, as we think about next year, that wouldn't -- continued year-over-year declines wouldn't necessarily holistically for fixed cost be a going-in assumption. So we'll anticipate something different, but we'll continue to work really hard where we have 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 cost and control what they can control and allow some of the rate growth that we've experienced as of late flow to the bottom line in a pretty meaningful way. I think that type of backdrop, 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 from a flow-through and continued margin growth. That helps from that standpoint.

Unknown Analyst

Great. And then sort of you were kind of getting to my second question, which is on rate. It's been a theme across, I think, a lot of the sector this quarter, better rate growth, confidence in rate. But could you help us split out or just how you're seeing your portfolio play out in terms of how much of the rate is mix, right, coming back in your favor versus how much is aggregate price increase, right? Like where are you actually taking rate 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.

Liz Perkins

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 rate of 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 in incremental group at very attractive rates.

And so that's less -- it involves mix 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 where we're seeing the most rate growth is coming from greater compression and mix management overall. And again, the fact that we're able to yield out lower-rated contracted rates and push people to bar in retail, I think -- and seeing that in both our segmentation and our channel mix numbers, I think, supports that.

Operator

Our next question comes from Michael Hirsh with JPMorgan.

Michael Hirsh

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%. 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?

Justin Knight

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 in 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.

Historically, 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.

Michael Hirsh

And then for my follow-up, on 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 6 to 12 months ago?

Liz Perkins

On the leisure side, the trend has actually been fairly consistent. So leisure tends to book shorter term, except for around major events. So 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 in midweek business.

Kelly Clarke

Yes. And I mentioned in the prepared remarks, too, that we also saw weekend growth in occupancy. And so while those occupancy levels are over 2019 levels and leisure has been a consistent point of growth and stability, it continues to push forward, which is just really encouraging overall and 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.

Operator

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

Chris Darling

Just 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 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 would be helpful to frame the current environment.

Justin Knight

Yes, 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 pre-COVID, we were running in the 70s in terms of exposure, I believe. 70%. And 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.

Chris Darling

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

Justin Knight

Our expectation when we originally underwrote kind of the transition and began conversations with both Marriott 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 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.

Operator

Our next question comes from Ken Billingsley with Compass Point.

Kenneth Billingsley

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

Liz Perkins

As I mentioned, if you took a conservative view, I think without the government shutdown comp in October, you would assume 8% -- 7% to 8% RevPAR growth in October. So that's assuming a majority of the impact last year was government or government adjacent, TSA impacts, travel disruption just related to the government shutdown broadly.

Kenneth Billingsley

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.

Justin Knight

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 pleased for the month of October and moving into November with how things have played out and the continuation of strength we're seeing in bookings and actual stays at our hotels and continue to be very optimistic about how things might play out next year.

Kenneth Billingsley

If I could maybe expand on that just a little is the -- I mean, the market made a bet yesterday. I mean they had an opinion. And so 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?

Justin Knight

No, that's a good clarification. And really, when you look at our portfolio, we have intentionally avoided overconcentrating 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. And I think that's part of the reason that going into next year, we continue to have confidence.

Operator

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.

Justin Knight

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

Operator

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