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Good morning, and welcome to Apple Hospitality REIT's Second 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 G. Knight, our Chief Executive Officer, and Elizabeth S. Perkins, our Chief Financial Officer, will provide an overview of our results for the second 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 six-month period ending 06/30/2026. 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 second quarter 2026 earnings call. We are pleased to report comparable hotels RevPAR growth of more than 5% for the second quarter, driven by broad-based improvements in both business and leisure travel demand. Approximately three-quarters of our hotels delivered RevPAR growth, up from two-thirds in the first quarter. The efficient operating model of our hotels combined with prudent management of expenses enabled us to convert approximately $0.58 of each incremental revenue dollar into comparable hotels adjusted hotel EBITDA. That flow-through produced 120 basis points of margin expansion and NFFO of $0.52 per share, an increase of more than 8%. Demand momentum has continued into the third quarter with preliminary reports for the month of July indicating comparable hotels RevPAR growth of more than 5.5%. Weekday occupancy improvement outpaced weekend occupancy improvement during the quarter, indicative of strengthening business travel across our portfolio. While the 2026 FIFA World Cup drove significant pricing power in our host markets, RevPAR excluding those markets grew nearly 5%, demonstrating that the improvement we are seeing is broad-based and not tied to a temporary catalyst. Reflecting our year-to-date outperformance and continued strength in forward bookings, we are raising our full year RevPAR growth guidance 25 basis points to 3.25% at the midpoint and raising our full year comparable hotels adjusted hotel EBITDA margin guidance 75 basis points at the midpoint, to an increase of 25 basis points year over year. Even at the revised midpoint, our outlook implies more modest growth in the second half than we delivered in the first, and we believe it could continue to prove conservative. Transient demand has been stronger than anticipated, and our group business continues to build, providing strong base business at attractive rates. We also lap periods adversely affected by reduced government travel and last year's government shutdown, which represents potential upside not fully reflected at the midpoint of our outlook. To date, we have not experienced any adverse impact from the escalation of energy attributable to the ongoing conflict in the Middle East. However, should this begin to impact consumer spending, our hotels offer a value proposition that has historically held up well during periods of economic uncertainty. In July, we completed a series of refinancings that extended our maturities, improved our pricing, and increased the capacity of our revolving credit facility, which Liz will address in more detail. Taken together, they leave us with meaningful liquidity, no near-term maturities of consequence, and the flexibility to grow when the opportunity is right. Our approach to capital allocation is comparative in nature, with each potential use of capital measured against the alternatives available to us to maximize value for shareholders. In April, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sale price represents a 5% cap rate or 14.5x EBITDA before capital expenditures, and a 4% cap rate or 19.6x EBITDA after taking into consideration an estimated $3 million in anticipated capital improvements. Buyers for these types of assets remain active, though pricing varies meaningfully by hotel and by market. We continue to evaluate select assets where we believe a sale with the redeployment of proceeds creates more value than continued ownership. The Motto Nashville Downtown, which recently received Hilton's "Build of the Year" award for the brand, achieved ADR of approximately $243 during the second quarter — a meaningful premium to the Nashville market with occupancy continuing to build as the hotel ramps. At the Homewood Suites Tampa Brandon acquired last year, we recently began a comprehensive renovation that, once complete, will further strengthen the hotel's competitive position in its market. Turning to our year commitments, we continue to have forward contracts for two projects under development: an AC Hotel in Anchorage, Alaska, which we expect to be delivered in late 2027, and a dual-branded AC and Residence Inn adjacent to our existing SpringHill Suites in Las Vegas, which we expect to be delivered in the second quarter of 2028. Construction is underway on both, and in each case the developer carries the project under a fixed-price forward purchase contract. Our cash outlays occur only at completion, allowing us to secure newly built, well-located assets at a known cost without deploying capital until delivery. Both are markets we know well. Our two hotels in Anchorage grew RevPAR nearly 17% during the second quarter, operating at approximately 95% occupancy at an average daily rate of $346, and our SpringHill Suites in Las Vegas has grown RevPAR nearly 5% year to date. Development has been a consistent part of how we grow, though in most markets construction costs continue to rise faster than hotel fundamentals, limiting new projects and keeping industry supply growth near historic lows — to the benefit of the hotels we already own. At quarter end, 55% of our hotels had no new upper-upscale, upscale, or upper-midscale product under construction within a five-mile radius, which limits potential downside and enhances potential upside. There continues to be product in the market that would be attractive to us. The primary constraint remains the gap between seller expectations and what we are willing to pay. While the gap has narrowed, the current transaction environment does not yet support accretive opportunities relative to our cost of capital. We do not currently have any agreements for acquisitions in 2026. We remain actively engaged, and the flexibility of our balance sheet and our reputation for execution position us to act quickly as conditions change. We also continue to strategically reinvest in our portfolio, ensuring that our hotels remain competitive within their respective markets and maintain a strong value proposition for our guests. For the six months ended June 30, capital expenditures totaled $40 million. For the full year, we expect to reinvest between $85 million and $95 million, a $5 million increase to our earlier range with comprehensive renovations now planned at 18 hotels. As we refined our plan, we prioritized two larger projects: the renovation of our Embassy Suites in Anchorage — one of our strongest performing hotels in a market where demand has been exceptional — and the rebranding of our Seattle Residence Inn, which we expect to meaningfully improve its competitive position in that market. We continue to invest across the portfolio at levels that keep our hotels competitive, while weighing our larger investments toward the highest returning assets. At the midpoint of our revised range, reinvestment represents approximately 6% of revenues, consistent with our historical average and supported by the stronger operating performance we have seen this year. The efficient design of our rooms-focused hotels and our experienced in-house project management team allow us to renovate and maintain our hotels for meaningfully less than full-service portfolios. Combined with stronger operating margins, this efficiency translates into exceptional free cash flow from operations, which we use to fund shareholder distributions and strategic investments. During the second quarter, we paid distributions totaling $57 million, or $0.24 per common share. Based on Monday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 5.8%. Together with our Board of Directors, we will continue to evaluate these distributions in the context of portfolio performance, capital needs, and other accretive opportunities to create long-term shareholder value. Throughout our 26-year history in the lodging industry, we have refined our strategy with intention. We invest in high-quality hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets, industries, and demand generators. We maintain a strong and flexible balance sheet with low leverage. We reinvest strategically in our portfolio. And we work closely with the experienced management teams who operate our hotels. Together, those principles differentiate our portfolio from our peers. Efficient, rooms-focused hotels produce strong operating margins and require less capital to maintain, and our lower leverage leaves more of the resulting cash flow available to fund distributions, reinvest in our hotels, and pursue growth. Through the first six months of the year, NFFO per share grew more than 7% to $0.86, reflecting both the strength of our model and the execution of our teams. 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 that they are what will create lasting value for our shareholders over time. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter, and outlook for the remainder of the year.
You, Justin, and good morning. Last quarter, we noted that as we moved into seasonally higher occupancy months and saw greater contribution from rate growth, we would expect stronger flow-through to the bottom line. That is what the second quarter delivered. Comparable hotels ADR grew 3.5%, driving RevPAR growth that combined with disciplined expense management we converted into 120 basis points of hotel EBITDA margin expansion and NFFO of $0.52 per share. For the quarter, comparable hotels RevPAR was $136, up 5.3%, with ADR of $170, up 3.5%, and occupancy of 80.1%, up 130 basis points. For the six months ended June 30, comparable hotels RevPAR was $125, up 3.8%, with ADR of $164, up 1.9%, and occupancy of 76.5%, up 140 basis points. Comparable hotels' RevPAR grew 4.8% in April, 4% in May, and 7% in June, with results for the quarter well ahead of our expectations. World Cup events in our host markets contributed approximately 150 basis points to June RevPAR growth and approximately 50 basis points to the quarter. Preliminary results for July of more than 5.5% RevPAR growth reflect continued momentum across the portfolio. July also included the balance of World Cup activity, but unlike June saw minimal contribution from World Cup matches; with our non-World Cup markets performing similarly to our host markets. With the tournament concluding mid-month, we do not expect any continuing impact for the balance of the quarter. Comparable hotels total revenue was $402 million for the quarter and $739 million year-to-date, up 6.2% and 5.3% respectively, supported by continued strength in other revenues, which were up 8% for the quarter and 9% year-to-date. For the quarter, comparable hotels adjusted hotel EBITDA was $153 million, up 9.7%, with an adjusted hotel EBITDA margin of 38.1%, up 120 basis points. Year-to-date, comparable hotels adjusted hotel EBITDA was $262 million, up 7.1%, with margin of 35.4%, up 60 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, were already running hotels for us in those markets. Second quarter results for this group were encouraging with RevPAR growth of over 7% and adjusted hotel EBITDA margin expansion of over 300 basis points — well ahead of the portfolio overall. These hotels represent approximately 8% of our adjusted hotel EBITDA. That performance reflects significant effort by our asset management team and our new operators, who managed the transition and moved quickly to integrate these hotels into their existing platforms and market clusters. Performance was broad-based across the portfolio, with our top 30 markets growing RevPAR 5% and all other markets growing 5.9%. Several markets stood out. In our World Cup host markets, RevPAR growth came almost entirely from rate. For example, Kansas City RevPAR grew 17% on ADR growth of 16%, and Fort Worth/Arlington RevPAR grew 16% on ADR growth of 14%. Elsewhere, we continue to see healthy demand fundamentals with occupancy leading RevPAR growth in a number of markets. South Bend RevPAR grew 24% on midweek group demand tied to Notre Dame. Anchorage RevPAR grew 17% on strong leisure demand supplemented by military and airline crew business. Washington, D.C. grew RevPAR nearly 8% as National Guard deployment compressed the market. St. Louis grew RevPAR 13%, recovering from a softer period last year and aided by group business. And Chicago grew RevPAR 13% on strong leisure trends and continued recovery in midweek demand. Not every market shared in this growth; Phoenix saw RevPAR decrease 5%, with a decline in both occupancy and rate, driven in part by a pullback in semiconductor-related business. That said, we are encouraged by announcements of continued investment in the market and believe this segment's long-term fundamentals remain strong. Looking at the portfolio more broadly, same-store weekday occupancy improved 240 basis points during the quarter, outpacing weekend improvement of 120 basis points, consistent with the highlighted strength in business demand. That strength was consistent throughout the quarter with weekday occupancy up 280 basis points in April, 310 basis points in May, and up 130 basis points in June. Weekday and weekend ADR each grew approximately 350 basis points in the second quarter, punctuated by 6% growth in June with the start of the FIFA World Cup. 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, while GDS bookings grew 100 basis points to 18%. OTA bookings were flat at 13% of mix and property direct declined 140 basis points to 25%. Growth in our GDS bookings reflects continued strength in business travel, while gains in Brand.com support both our lowest distribution cost and some of our highest-rated segments. Turning to segmentation, BAR grew 120 basis points to 33% of our occupancy mix while negotiated declined 160 basis points to 15%. With midweek occupancy improvement outpacing weekends, that shift indicates the incremental business travel we captured came largely at retail rates rather than contracted rates, which supported our rate growth for the quarter. Group grew 60 basis points to 18% of mix, providing a base of occupancy that supported our ability to drive rate, and remains our second-highest-rated segment. Government grew 30 basis points to nearly 5.5% and discount declined 50 basis points to 28%. Moving to expenses, with same-store revenue growth of 4.7%, operating expenses grew 3.5%. While fixed expenses declined, bringing total same-store hotel expenses up 3.3% for the quarter and 3% year-to-date — increases of 1.3% and 0.6% respectively on a per occupied room basis. That discipline and expense control delivered 80 basis points of adjusted hotel EBITDA margin expansion. Wage growth continued to moderate, with rooms wages up less than 3% or less than 1% per occupied room. Utilities and repair and maintenance were our primary headwinds, growing 9% and 6%, respectively. The decline in fixed expenses reflected the favorable property insurance renewal that took effect in April as well as successful real estate tax appeals. Adjusted EBITDAre was approximately $145 million for the quarter, up 7.5%, and $245 million year-to-date, up 5.3%. NFFO was $123 million for the quarter or $0.52 per share, up 9% and 8.3% respectively. Year-to-date, NFFO was approximately $204 million or $0.86 per share, up 6.1% and 7.5% respectively. As a reminder, effective January 1, 2026, we began excluding share-based compensation expense from adjusted EBITDAre and NFFO. 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 06/30/2026, we had approximately $1.5 billion of total debt outstanding, approximately 3.2x our trailing 12 months EBITDA, with a weighted average interest rate of 4.8% and a weighted average maturity of approximately two years. Nearly 60% of our total debt was fixed or hedged, and we had approximately $10 million of cash on hand and $602 million of availability under our revolving credit facility. During the quarter, we repaid one secured mortgage loan for a total of approximately $19 million, bringing the number of unencumbered hotels in our portfolio to 207. In July, subsequent to quarter end, we completed a series of refinancing transactions that further strengthen our balance sheet and position us well for the years ahead. We amended and restated our primary unsecured credit facility, increasing total capacity from $1.2 billion to approximately $1.3 billion, extending maturities, and generally improving the pricing grid. The facility now consists of a $700 million revolving credit facility maturing in 2030, a $275 million term loan maturing in 2031, and a $300 million term loan maturing in 2032. We also amended and restated our $130 million term loan, increasing it to $160 million and extending the maturity by seven years. We conformed the improved pricing on an additional $470 million of term loans, extending those benefits across our capital structure. Taken together, these transactions enhance our financial flexibility. Our weighted average debt maturity is nearly five years; we have no outstanding revolver balance; and our next significant unsecured maturity is in 2029. We are grateful for the continued support of our bank group throughout this process. The strength of these relationships and the confidence our lenders have shown in our strategy and in the underlying fundamentals of our business are a real testament to the quality of our portfolio and platform. As a result, our capital structure gives us considerable flexibility to be opportunistic as we look ahead. Turning to guidance, for the full year we now expect comparable hotels RevPAR change between 2.25% to 4.25%, comparable hotels adjusted hotel EBITDA margin between 33.7% to 34.7%, adjusted EBITDAre between $453 million and $476 million, and net income between $152 million and $180 million. As a result of the improvement in RevPAR growth expectations, our guidance assumes total hotel expense growth of approximately 4% at the midpoint. On a per occupied room basis, expense growth remains unchanged at 2%, continuing to reflect the favorable property insurance renewal that took effect in April along with continued moderation in wage growth. The revised guidance range incorporates our stronger-than-anticipated second quarter performance and an increase in our outlook for the remainder of the year, driven by improved business and leisure travel demand. We are encouraged by the setup for the remainder of the year given the broad-based demand strength across our markets and favorable comparisons to prior periods impacted by government-related disruptions. 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 take into account any unannounced hotel acquisitions or dispositions. Growth in both occupancy and rate through the quarter, along with continued strength in booking trends, reflects the resilience of travel demand and the specific appeal of our hotels. Our strongest gains came midweek at a portfolio average daily rate of $170. Because rate growth carries higher flow-through than occupancy, that mix contributed to margin expansion and cash flow growth that we delivered for the quarter. Our capital allocation decisions have strengthened the portfolio, and our July refinancing extended our maturities and increased our capacity. Together with growing cash flow from operations after capital expenditures, that leaves us with meaningful flexibility to pursue accretive opportunities as they arise. We believe that combination positions us well to navigate changing market conditions and to continue growing cash flow and creating long-term value for shareholders. That concludes our prepared remarks, and we will now open the call for questions.
分析師問答
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press 2 if you would like to remove yourself before pressing the star keys. One moment please while we poll for questions. Our first question is from Ari Klein with BMO Capital Markets. Please go ahead.
Thanks, and good morning. Hoping you could elaborate a little bit on what you are seeing from business transient and how that continues to trend. It seems like it has been doing pretty well. What are some of the drivers behind that? Is it SMB-driven or broader than that? And then you also highlighted group — it is not, I guess, a huge driver for you — just curious what you have been seeing there and what has been driving that. Thank you.
Good morning, Ari. We have been very encouraged by the business transient trends that we have seen really since March. While we began to see in Q1 some ability to shift the mix of our business outside of negotiated corporate rates, we really started to see that continue to amplify in Q2. If you look at both Brand.com and BAR-related business, you can see the improvement there. As I mentioned in my prepared remarks, and through GDS — a channel that is predominantly driven by business travel — we saw an increase there, which is the first time we have seen meaningful change in many years. So both of those are clear indications that we are seeing both overall demand strength on peak nights where we can compress the hotel and drive business transient into our highest-rated segments, and also that we are seeing sheer improvement in demand overall.
And I would add to that: one of the things that we are most excited about is as you look across our portfolio, the growth is widespread. Thinking about how we have assembled our portfolio, we have intentionally looked to create exposure to a variety of different industries. To see multiple industries contributing to business transient across multiple geographies indicates a trend that we feel good about and continue to feel good about moving into the back half of the year.
Thanks. Was the next part of my question on group? Oh, just on group — what have you been seeing there?
Group, similar to business transient, has seen really strong trends. We were at 18% of our occupancy mix for the quarter, which is one of our strongest quarters. Historically, we have run more in the 15% to 16% range. It is our second-highest-rated segment. So not only are we seeing strength there, we see an ability to capture high rates in that segment, which is driving overall RevPAR growth. It is a mix between corporate and leisure depending on day of week, stay pattern, and market. As Justin mentioned, the demand is broad-based across segments, and group also is benefiting with both business groups and leisure groups. Regarding expense trends, they seem to be pretty encouraging. I realize it is early looking ahead to 2027, but how should we think about the level you are growing at right now from an expense standpoint — what you would expect next year? Any reason to think it would be higher or lower at this point? It is a little early to give definitive guidance on 2027, but we have seen fairly consistent performance on the expense side and feel comfortable that, barring any meaningful changes to the environment that would impact things more broadly than just our portfolio, we would expect similar trends to what we have seen year-to-date. We have seen things especially on the variable cost side really well controlled over the past couple years.
Thank you. Our next question is from Michael Bellisario with JPMorgan. Please go ahead.
Hi there, and thank you for taking my question. Could you help us further unpack the broad-based demand you are seeing? Is it more so with your higher-end travelers or also with the lower end? And then are there any segments that are not as strong?
I will take that. Looking across our portfolio, it has been broad-based. An important point of clarification is we do not own economy or even midscale hotels, so I cannot speak from our own experience to the performance and behavior of lower-end travelers. Average daily rate was nearly $200 for our portfolio, which speaks to the type of travelers staying at our hotels. Looking across markets that seemed to be the more prominent drivers we have highlighted. Phoenix was down slightly; in terms of industries driving that market, we continue to feel good about what is happening there and believe it will rebound. On the flip side, you have markets like Anchorage that have been strong for years and continued to see outsized growth. What pleased us most about the quarter is we came into it thinking that the World Cup would be the primary driver of growth during the quarter. As the quarter emerged, the majority of our markets experienced RevPAR growth. Given the diversity of our exposure, we see that as a broad-based positive indicator for the type of business that we attract to our hotels, both business travel and leisure.
As a quick follow-up, you mentioned that upside from lapping the easier government comparisons is not baked into the midpoint of the guide. How is that pacing in the third quarter and the second half? What are your expectations for government travel? We do expect that we would see an improvement in RevPAR relative to the government shutdown in the fourth quarter. Our third-quarter comp relative to last year is not as significant because we had started to improve and not be down quite as much in government in Q3 as we were in Q2 and obviously Q4 of last year. We have seen year-to-date improvement in the government segment. With the demand across segments that we have seen, we've been able to prioritize higher-rated business. To quantify precisely what government would be if we did not have other demand to supplement or replace higher-rated demand is difficult. For Q4, even at the midpoint, you have some growth in the fourth quarter related to that, but when you combine current trends with the lapse in government comps, you see that more baked in at the high end of our range.
We do expect improvement in government-related demand to contribute, particularly in Q4, but the broader strength across segments has allowed us to capture higher-rated business as it emerges. That dynamic is part of why our midpoint may be conservative and why we see upside if current trends persist.
Our next question is from Rich Hightower with Barclays. Please go ahead.
Hey. Good morning, guys. So, Justin, I know you talked about this a little bit in the prepared comments, but I am wondering about the prospect to accelerate or increase some of these development and forward purchase deals? And as an offshoot to that question, when you think about the different moving parts to getting a development deal done — whether it is the equity part of the capital stack, the debt part, or simply operating fundamentals keeping up with construction costs — where do you see the biggest gap today? And how long do you think it would take to plug that gap to see new construction broadly?
I appreciate the question. We are incredibly excited about the two development projects we currently have under contract, especially in Anchorage, which will be the first to come online. The market has done incredibly well, and we feel exceptionally good about our underwriting there. We have seen increased strength in Las Vegas as well, which gives us incremental confidence. The SpringHill Suites we purchased, where we will be building additional hotels, is yielding 11% right now on our acquisition price, which feels very good. The reality is it is difficult to underwrite and to find deals that pencil like the deals we currently have under contract. A variety of factors have made them more difficult to pencil, and you highlighted the primary factors. Certainly, interest rates are elevated relative to where they once were, even if they are closer to historical averages when you zoom out. But the primary driver of the disconnect has been a rapid increase in overall construction costs, some of which started before COVID and accelerated afterward. The year-over-year growth rate seems to have slowed a little bit, but talk of tariffs, increased shipping costs, and challenges with freight continue to plague development deals from a cost standpoint. Many markets have been slower to rebound from an operating performance standpoint relative to the meaningful increases in construction costs. When we look across markets, we continue to have very limited exposure to new construction across markets where we have ownership. In the near term, we are much more likely over the next six to 12 months to be signing up existing deals than entering new forward commitments, given where we see values for the two different options. The brands have spoken to things they are doing to try to reaccelerate development pipelines, and we have experienced that in the form of key money and other incentives. For the foreseeable future, that is likely to continue. For our portfolio, where we are heavily invested in select-service assets, the meaningful pullback in supply shifts the risk profile in our favor, decreasing downside risk and increasing upside potential. This past quarter, we began to see that with strong performance across markets and the ability to flow that to the bottom line. Given forward booking pace through the remainder of the year, we think we will continue to benefit.
Our next question is from Michael Bellisario with Baird. Please proceed with your question.
Good morning. Thanks, everyone. Justin, I want to first discuss capital allocation as a follow-up. Could you dig into the bid-ask spread that you mentioned in your prepared remarks? Maybe help us understand how wide it is, what looks more or less interesting today from an investment perspective, and what needs to happen for that spread to reach parity?
Yeah, sure. My expectations were that at this point in the cycle, especially given the recent strength, we would be seeing more activity in our space. I think we are more optimistic based on products we are underwriting today; we are nearing a point where we could see greater deal flow. The reality is the bid-ask spread has been fairly wide, varying by market — in some cases as much as 200 to 300 basis points from a cap rate standpoint depending on market and product. We have observed product that has been on the market for an extended period of time starting to look more reasonable given the recent run-up in operating performance, which is making yields more attractive. If current trends continue, I think that alone gets us to a point where more deals pencil and we become more active on the acquisitions front. Aligned with that is improvement in our share price over the past several months. As we think about uses of capital, our underwriting consistently weighs potential acquisitions against purchases of our shares, and up until recently that map pointed toward share purchases. Today, the gap is shrinking. I could see us becoming more active on the acquisitions front and the market in total becoming more active toward the end of the year, especially if we continue to see positive indicators for how 2027 might shape up.
I also want to ask on some revenue management topics. Maybe for Liz: how have operators shifted their approach? Are they holding out for more short-term high-rated business? Any updates on on-the-ground strategies would be helpful.
I think a combination of our revenue management systems and our revenue management teams have focused efforts on maximizing total RevPAR through segmentation, really capitalizing on the pickup in near-term demand where we had some opportunity last year. Last year, transient was not picking up last minute the way it had historically, which we attributed to overall uncertainty and pullback in government and government-adjacent business. That scenario required thinking through other forms of base business. Base business is typically a good idea; it depends on the rate you put it on the books for. One strategy our teams have taken in markets where we are seeing strength — which is more often than not right now — is putting on good group-based business at strong rates, further compressing the hotel without taking business at rates that would diminish our overall ADR or index penetration. We have capitalized on pickup in near-term transient business and seen good success. Part of our performance was based on World Cup markets, but we saw that phenomenon outside those markets too. We are encouraged by that and by the consistency across markets and time periods where near-term transient pickup has been positive.
Our next question is from Floris Van Dykum with Ladenburg Thalmann. Please go ahead.
Hey. Thanks, guys. I am encouraged by the improvement in your conversion assets — obviously it's only a quarter. What kind of impact do you think putting new management teams on those assets could do to the EBITDA? I think you had alluded these were about 8% of total EBITDA prior to the conversion — how much further upside is there ahead in your view?
We are really pleased with the transitions and how quickly the teams have integrated them into the new management organizations and market clusters. In many cases, we transitioned to managers that already had presence in those markets, leveraging economies of scale and market expertise to help drive the top line and cost synergies for managing multiple assets across a given market. We are very pleased with the near-term margin expansion we have seen. There was some transition-related impact from moving contracts to new managers — such as open positions — but we expect to end up in a very favorable place from a margin-gain perspective for those assets long term. We anticipated this when we made the transition and believe that between cost synergies and top-line benefit we will continue to see margin and EBITDA contribution in excess of what we would have seen had we stayed with the prior arrangements. In the quarter, those assets had 300 basis points of margin gain, which was about a 15 basis point impact on same-store margin. Hopefully we continue to see some of that, but there were some transition-related impacts that helped drive it. Overall, very pleased with how quickly we integrated and started driving the top line.
And on the capital markets side, you talked about the disconnect. Are there specific areas where you would like more exposure if markets move in your favor and that pricing disconnect narrows? Urban markets, Las Vegas, D.C., or more traditional suburban markets?
You should expect us to pursue assets that are a mix of locations. Recent acquisitions are indicative of the types of hotels and markets we would like to be in, a combination of urban locations and high-density suburban markets. For us, the key is adequate density and demand on both the business and leisure side to enable premium rates and operating efficiencies. Recent acquisitions like the South Jordan Embassy in the Salt Lake City suburbs are yielding 11% on that asset, and Downtown Salt Lake acquisitions are yielding just under 11% on the Courtyard and Hyatt House we bought most recently. So expect the makeup of our portfolio to be relatively similar to what we have now, with continued investments that resemble recent acquisitions.
Our next question is from Jack Armstrong with Wells Fargo. Please go ahead.
Hey. Good morning, and thanks for taking the question. We have spent a lot of time talking about the BT strength you saw in the quarter, even outside of your larger markets. Do you have a sense of the specific industries driving that strength? Is it related at all to the higher infrastructure spend around the country, or maybe an uptick in consulting businesses that have historically been impactful for your portfolio, or anything else you would highlight?
I would say yes to all of that. Our portfolio is intentionally diversified across geographies and industries, and we have seen strength across a variety of industries and business types. We are encouraged by improvement in consulting-type business, which had been slow to rebound, and by tech business, which had also been slow. We have benefited from a broad variety of sectors. On the margin, whether directly or indirectly through compression, I believe we are benefiting from incremental infrastructure spending, but not exclusively. Looking across markets that performed really well, the drivers are diverse.
Is there any meaningful change in renovation disruption you expect this year as you shift to the projects in Alaska and Seattle?
Those are larger assets and high-EBITDA producing assets. We intentionally timed the renovations to minimize disruption and they will be spread over fourth quarter and first quarter of next year so the impact will be felt across both. Relative to past years, we work to manage renovations to minimize overall disruption, so you don't hear us speak to it regularly. We do not anticipate disruption to be out of the ordinary. One comment: the work in Seattle Lake Union is different in that beyond renovation we are rebranding that hotel, so we do anticipate a ramp period for that hotel which would be factored into next year's guidance.
Once again, if you would like to ask a question, please press 1 on your telephone keypad. Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Thanks. Good morning. I wanted to go back to the comment around cost per occupied room, and I was wondering if the back half increase in cost per occupied room relative to the first half is driven by something specific given the mix-shift benefits and opportunities you discussed?
Good question. On a cost-per-occupied-room basis related to variable costs, it is very similar across the guidance range and relative to how we performed in the first half. The back-half difference is primarily a fixed cost phenomenon. We had a favorable real estate tax appeal that hit in the fourth quarter of last year — our largest of last year — so we have that hurdle baked in. We also assumed an increase beginning in November related to an insurance renewal; that may prove conservative, but it is baked in. So fixed costs will drive the CPOR differential. The better we do on the top line, the easier that hurdle will be. Overall, we are pleased with where we've been trending from a total hotel perspective both in dollars and growth and on a CPOR basis. We are proud of the team and how they have managed our variable costs and worked on appeals. We had a credit in the second quarter that was helpful and impacted April flow-through positively. We continue to work and may see more of that as we move through the year, but we do have a bit of a hurdle in Q4 relative to last year.
And Justin, any preliminary thoughts given your exposure to Marriott properties around the intent-to-recommend initiative and how you think your portfolio might stack up within a relative scoring system versus other hotels?
Details are still limited at this point, so we do not yet know where Marriott intends to set thresholds. We have a high-quality portfolio of hotels, and assuming reasonable thresholds we would anticipate benefiting from it. More importantly, we have seen increased effort from the brands to work with owners to find ways to drive incremental profitability. Marriott's initiative to implement an incentive program designed to drive "intent to recommend" and to reward owners for investment to that end improves the consumer experience and provides owners with a pathway toward incremental profitability — which for us is a win.
We have reached the end of the question-and-answer session. I would like to turn the floor back over to Justin G. Knight for closing remarks.
Thank you. I am going to end today on a bit of a personal note. We recently lost our Chief Accounting Officer, Rachel Labrecque, to cancer. Rachel was one of the most exceptional individuals I have ever known, and her loss has been felt across the entire company. I wanted specifically to express my appreciation to her team, who has really stepped up in amazing ways — ways that I am confident would make Rachel incredibly proud. We own amazing real estate; at the end of the day, it is our people who differentiate us, and Rachel was one of our best. She will be deeply missed. I also want to thank you for joining us today. We are pleased with our strong results for the quarter and appreciate your continued interest. As always, I hope that as you travel, you take the opportunity to stay with us at one of our hotels, and we look forward to meeting with many of you over the coming months.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.