Apple Hospitality REIT (APLE) Q4 2025 earnings call transcript

Thank you. You may begin. Thank you, and good morning. Welcome to Apple Hospitality Read 4th Quarter and Full Year 2025 Earnings Call. Today's call will be based on the earnings release and Form 10K, 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 our 2025 annual report on Form 10K, 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-GAT measures of performance will be discussed during this call. Reconciliations of those measures to GAT 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 applehospitalityread. 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 fourth quarter and full year 2025 and an operational outlook for 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 fourth quarter and full year 2025 earnings call. Against the challenging backdrop in 2025, our corporate management and hotel teams skillfully executed against strategic initiatives to maximize operating performance, manage expenses, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the company to maximize shareholder value throughout performance in the years ahead.

Our portfolio of efficient high quality hotels is broadly diversified across the 84 markets, with the exposure to a variety of demand generators.

During the year, leisure travel remains strong across our hotel portfolio while policy uncertainty and a pullback in government travel impacted midweek demand, temporarily disrupting the steady improvement in midweek occupancy that characterized much of 2024. Our asset management and hotel teams adjusted strategy to optimize the mix of business at our hotels as demand trend shifted. In many cases, layering on additional group business to bolster market share and strengthen overall portfolio performance.

Through the successful navigation of changes in government dependent demand, combined with continued strength in leisure travel, we achieved comparable hotels redpar of $118 for the full year 2025, down 1.6% to the prior year.

Based on preliminary results, comparable hotels redpar declined by approximately 1.5% in January 26 as compared to January 2025. Primarily as a result of challenging comps related to wildfire recovery related business, which benefited a number of our California hotels last year, and the presidential inauguration which benefited our hotels in the Washington, D. C. area. Winter storms also weighed on January and early February results, but occupancy have improved meaningfully with recent weeks showing significant year over year growth.

Together with our management teams, we remained focused on ensuring that we are growing market share and prudently managing expenses to maximize the profitability of our hotels.

Variable expense growth for our portfolio has moderated, with higher growth in fixed costs during 2025, largely coming as a result of challenging year over year comparisons.

We achieved comparable hotels EBITDA of $99 million for the quarter and $474 million for the year, resulting in an industry leading comparable hotels EBITDA margin of 31.1% for the quarter and 34.3% for the year.

In January, we successfully completed the transition of our 13 Marriott managed hotels to franchise, consolidated management with third-party management companies who were in most instances already operating in hotels for us in market in order to realize incremental operational synergies. We are confident these transitions together with a select number of additional market-level management consolidations will further drive operating performance at our hotels.

In the case of the Marriott managed assets, the transition away from brand management will also provide us with additional flexibility and increase the marketability of the hotels in the future as we consider select dispositions.

The Marriott transitions aligned with Marriott's publicly stated goal to drive incremental efficiencies in their own business, and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome.

Our disciplined approach to capital allocation has been a hallmark of our strategy throughout our history, balancing both near and long-term allocation decisions to capitalize on existing opportunities while securing the long-term relevance, stability, and performance of our portfolio and maximizing value for our shareholders.

While our long-term goal is to grow our portfolio, our stock is traded at an implied discount to values we can achieve in private market transactions for much of the past year.

We prudently capitalize on the disconnect by selectively selling assets and redeploying proceeds into the purchase of our own stock, preserving our balance sheet to safeguard against potential macroeconomic volatility, and to protect our ability to act quickly on future accretive acquisition opportunities.

During the year, we sold seven hotels for a combined gross sales price of approximately $73 million, and we purchased $4.6 million common shares for a total of approximately $58 million. Shares we purchased during 2025 were priced at around a 2.4-turn spread to dispositions completed during the year, and around a 6.5-turn EBITDA multiple spread after taking into consideration brand-mandated capital investments.

Our team has done a tremendous job pursuing opportunistic asset sales that further optimize our portfolio concentration, help to manage portfolio capex needs, and free capital for a creative redeployment at a meaningful spread. Pricing for the individual hotels varies, however, as a group, the seven hotels we sold in 2025 traded at a 6.5% blended cap rate, or a 12.4x EBITDA multiple before capex, and a 4.9% cap rate, or 16.5x EBITDA multiple after taking into consideration, de-estimated $24 million in anticipated capital improvements.

We were able to use 1031 exchanges to reinvest gains on hotel sales, redeploying proceeds into the acquisition of the Homewood Suite's Tampa Brandon, which sits adjacent to our embassy suites and market, and the motto by Hilton, Nashville Downtown, which we acquired in late December upon completion of construction.

Recent acquisitions had performed well despite headwinds in several markets. The embassy in Madison, Wisconsin saw meaningful year-over-year improvement as the hotel completed its first full year of operation, and the AC Hotel in Washington, D. C. , which was also purchased in 2024, produced full-year rep-par of $205, and a 43% house profit margin, despite the meaningful pullback in government travel and a weaker convention calendar.

Four of the six hotels we purchased in 2023 achieved yields in excess of 10% last year, including our Spring Hill suites in Las Vegas, despite meaningful declines in the performance of that market due to lower inbound foreign travel and a weaker convention calendar.

The Nashville motto is ramping nicely, and we continue to have forward commitments for two future hotel development projects, which are currently in early stages, including a dual brand, AC and Residence Inn, located adjacent to our Spring Hill suites in Las Vegas, and an AC in Anchorage, Alaska. The AC in Anchorage has broken ground and is expected to be delivered in late 2027.

Construction has not yet begun on the two Vegas hotels, though current expectations are for the AC and Residence Inn to be completed sometime in the second quarter of 2028. We do not currently have any pending acquisitions slated for 2026.

Through all phases of the economic cycle, we seek to create value for our shareholders by driving incremental earnings per share through a creative transactions that enhance the quality and competitiveness of our existing portfolio and ensure that we are well positioned for future outperformance.

We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. In the near term, we anticipate that we will continue to pursue select asset dispositions where we can redeploy proceeds at a multiple spread, while at the same time managing future capex needs and fine-tuning the distribution of our portfolio to increase exposure to potentially higher growth markets.

Disciplined reinvestment, our portfolio is another key component of our strategy and ensures that our hotels maintain competitive positioning within their respective markets and present guests with the value proposition that enables our hotels to drive incremental rate. Our historical annual capex spend has been between 5% and 6% of total revenue, which is a significant differentiator for us relative to our full-service peers.

Combined with higher margins, the lower capex obligation enables us to produce meaningfully more free cash from operations, which we then use to fund shareholder distributions and strategic investments.

Our experienced capital investment scheme leverages our scale ownership to reduce costs, maximize the value of reinvested dollars, and minimize revenue displacement by optimally scheduling projects during periods of seasonally lower demand. For the year ended December 31, capital expenditures totaled approximately $88 million. For 2026, we expect to reinvest between $80 and $90 million in our portfolio, with major renovations planned for approximately 21 of our hotels, including the conversion of our residents in Seattle Lake Union to a Homewood Suite, beginning in the fourth quarter of this year.

The transition of this hotel will happen as it reaches the end of its current franchise term, with the determination to change brands informed by competitive supply dynamics within the market and brand incentives.

The hotel will continue to operate as a resident in through the renovation, which is expected to be complete in the second quarter of 2027.

Supported by strong cash flow from our portfolio of hotels, we continue to pay an attractive dividend, which meaningfully enhances total returns for our investors.

During the fourth quarter, we paid distributions totaling approximately $57 million, or 24 cents, per common share. And for the full year, we paid distributions totaling approximately $240 million, or $1.01 per share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of 96 cents per share represents an annual yield of approximately 7.8%. Together with our board of directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital.

Historically, low supply growth continues to materially reduce the overall risk profile of our portfolio, limiting potential downside, and enhancing potential upside as lodging demand strengthens. At year end, nearly 59% of our hotels did not have any new upper upscale or upper mid-scale product under construction within a five-month radius.

Throughout our 26-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, strategically reinvesting in our hotels, and closely aligning our efforts with the associates and management teams who operate our hotels.

In 2025, we skillfully executed strategic initiatives to further maximize operating performance, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the company for our performance in the years ahead. Traveled demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy.

Our guidance for 2026 calls for comparable hotels rev-par to be flat at the midpoint, which generally aligns with star forecast for our chain scales. We believe that this represents a measured base case scenario for our portfolio. With early summer, potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026, an easier comparison to periods adversely impacted by cuts in government spending, tariff announcements, and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative.

With January and February being seasonally lower occupancy months, it is early in the year for us to identify with conviction, trends for either business or leisure travel. As we saw last year, the possibility of policy-related demand disruption is real. We are, however, optimistic about the setup for the year and feel we are well-positioned regardless of how things play out in the broader economy.

We remain confident in the long-term outlook for the hospitality industry, the strength of our portfolio specifically, and our ability to drive profitability and maximize the long-term value for our shareholders.

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.

Thank you, Justin, and good morning. While the travel industry faced several macroeconomic headwinds in 2025, we are generally pleased with the performance and resilience of our portfolio. Comparable hotels total revenue was $319 million for the quarter and $1.4 billion for the full year 2025. Down approximately 2% and 1% to the same periods of 2024.

Comparable hotels adjusted hotel EBITDA was approximately $99 million for the quarter and $474 million for the year. Down approximately 8% and 6% as compared to the same periods of 2024.

Fourth quarter comparable hotels rev-par with $107 down 2.6%. ADR was $152 down 90 basis points, and occupancy was 70% down 1.7% as compared to the fourth quarter 2024. For the year ended December 31, 2025, comparable hotels rev-par with $118 down 1.6%. ADR was $159 down only 10 basis points, and occupancy was 74%, down 1.6% to 2024. Our portfolio continues to outperform the industry where star reports rev-par of $100 and average occupancy of 62% for 2025, highlighting the relative strength of our portfolio demand despite year-over-year disruption.

Our teams have done a tremendous job adjusting strategy to re-optimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments, as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio.

Market performance varied significantly during the quarter, with a mix of strong rev-par gains in several markets and ongoing headwinds impacting others due to demand shifts in challenging year-over-year comparisons.

Our team remains focused on hotel and market-specific strategies, as well as operational execution to maximize performance. Top rev-par performing hotels during the quarter, as compared to the same period last year, included our Embassy Suites in Anchorage, Alaska, which was up almost 42%. Our Homewood Suites in Tequilla, Washington, which was up 33%. Our courtyard in Franklin, Tennessee, which was up almost 22%, and our residence in Renton, Washington, which was up over 21%, as the hotel lapsed Boeing strikes in 2024.

Other top performers included our Manassas residence in St. Louis Hampton Inn and National Airport Townplace Suites. Hotels with significant year-over-year rev-par declines for the quarter included our San Bernardino residence in, our Arlington, Hampton Inn and Suites, our Panama City Townplace Suites, our Huntsville, Hampton Inn and Suites, and Orlando, Spring Hill, and Fairfield Inn and Suites, which benefited from Hurricane Milton Business during the fourth quarter of 2024.

Based on preliminary results for the month of January 2026, comparable hotels declined by approximately 1.5% as compared to January 2025. Impacted by travel disruption related to winter weather, challenging comps related to wildfire recovery-related business, and the presidential inauguration last year, as well as ramp from our Nashville motto, which opened at the end of December. Performance has improved in February, bringing comparable rev-par growth slightly positive year-to-date.

Turning back to the fourth quarter, weekday occupancy was down 140 basis points, and weekend occupancy was down only 50 basis points as compared to the same period last year.

Encouragingly, occupancy growth turned positive in December, with weekday occupancy up 10 basis points after being down around 2% in October and November, and weekend occupancy was up 90 basis points after being down around 1% in October and November.

ADR declines were more pronounced on weekdays, down 1% for the quarter, while weekend ADR was essentially flat. As previously mentioned, following a pullback in October and November, due to travel disruption related to the government shutdown, we began to see improvement in December.

Highlighting same-store room night channel mix for the quarter, brand. com bookings were down 80 basis points to 16%. Looking at fourth quarter, same-store segmentation, bar was around flat at 33% of our occupancy mix. Other discounts grew 30 basis points to 31% of mix. Corporate and local negotiated declined 150 basis points to 16% of our mix, and government declined 100 basis points to 4% of our mix.

Group business mix improved 130 basis points to 15%. Our fourth quarter channel mix and segmentation trends highlight the relative strength of our leisure consumer, the pullback in government and other business transient as a result of the government shutdown, and our team's ability to re-optimize and grow property direct and group business where available.

We continued to seek growth in other revenues, which were up 5% on a comparable basis during the quarter and up 6% year-to-date, driven primarily by parking revenue and cancellation fees.

Turning to expenses, comparable hotels, total hotel expenses increased by only 1% in the fourth quarter and 1.9% for the year as compared to the same periods of last year. Our 2.5% and 3.3% on a CPOR basis.

On a same store basis, total hotel expenses increased by only 1% for both the fourth quarter and full year.

Total payroll per occupied room for our same store hotels was $43 for the quarter, up 3.5% to the fourth quarter 2024, and $41 for the full year, up 3% versus full year 2024. Our managers continued to achieve reductions in contract labor, which decreased during the quarter to 7% of total same store wages, down 120 basis points, or 14% versus the same period in 2024.

Comparable hotel, variable hotel expenses increased only 0.5% in the fourth quarter or 1.9% on a per occupied room basis. Cost control efforts amid occupancy softness kept expense growth muted, with only 80 basis points of comparable operating expense growth, 30 basis points of hotel administrative expense, and flat sales and marketing expenses. Comparable utilities and repair maintenance expense grew slightly higher at 2%, and fixed expenses remained an expected headwind at 7% growth.

Our comparable hotels adjusted hotel EBITDA margin was strong at 31.1% for the fourth quarter and 34.3% for the year, down 210 basis points and 190 basis points as compared to the same periods of 2024. Adjusted EBITDA RE was approximately $93 million for the quarter and $444 million for the full year compared to the same periods of 2024.

MSFO for the quarter was approximately $73 million for 31 cents per share, down 3.1% on a per share basis as compared to the fourth quarter 2024. For the full year 2025, MSFO was approximately $361 million or $1.52 per share, down 5.6% on a per share basis as compared to 2024.

Looking at our balance sheet, as of December 31st, 2025, we had approximately $1.5 billion of total outstanding debt, approximately 3.4 times our trailing 12-month EBITDA, with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately three years. We had cash on hand of approximately $9 million, availability under a revolving credit facility of approximately $587 million and approximately 64% of our total debt outstanding was fixed or hedged.

The number of unencumbered hotels in our portfolio as of December 31st was 207. As previously disclosed, in July, we entered into a new unsecured $385 million term loan, with a maturity date of July 31st, 2030, enabling us to stagger our maturities as we approach a recast of our main credit facility in the coming months.

Turning to our outlook for 2026, provided in yesterday's press release, for the full year, we expect net income to be between $133 million and $160 million. Comparable hotels redpar change to be between negative 1% and positive 1%. Comparable hotels adjusted hotel EBITDA margin to be between 32.4% and 33.4%. And adjusted EBITDA RE to be between $424 million and $447 million.

We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis.

Effective January 1st, 2026, the company will begin excluding from the calculation of adjusted EBITDA and MSFO, the expense recorded for share-based compensation. As it represents a non-cash transaction, and the add back to net income is consistent with the calculation of adjusted EBITDA for the company's financial covenant ratios, under its credit facilities, and is consistent with the presentation of other public lodging rates.

As Justin mentioned earlier, this outlook aligns with Star Forecast for our chain scale, and we believe represents a measured base case scenario for our portfolio. With early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026, an easier comparison to periods adversely impacted by cuts in government spending, tariff announcements, and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative.

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.

Trends early in the year are always difficult to extrapolate, but we are encouraged by recent improvement in midweek occupancies and GDS bookings.

While uncertainty remains elevated and the possibility of policy-related demand disruption continues, including the ongoing partial government shutdown, we believe our experience, discipline, and agility will enable us to adapt dynamically to maximize profitability, and we remain confident in our team's ability to successfully navigate shifting market conditions.

The strength of our differentiated strategy has proven resilient across economic cycles, allowing us to preserve equity value and challenging environments and position ourselves to capitalize on emerging opportunities. While we have faced economic headwinds this year, favorable supply-demand dynamics persist.

Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue creative opportunities in the future.

Importantly, we remain focused on the long term and committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation for shareholders over time. That concludes our prepared remarks, and we'll now open the call for questions.

Good morning, Jack. It's a good question. I think as we've progressed through the year and reported on government being pulled back and related business, whether it be government adjacent that we can identify or general BT related to some uncertainty, we've been clear it's hard to quantify completely. If you look at room nights for government on a same store basis for the full year, they were down about 12%, and negotiated was down 5% to 6%, which really that trend did not start until doge and certainly ebbed and flowed throughout the year, ending the year down a little bit more with the government shutdown.

So I'd say if you think about it from that perspective and you assume a good portion of that could come back, the total of those could be about a point in occupancy. But, you know, some of that from a doge perspective may not return. And so that's why the team worked really, really hard to optimize the mix of business and replace some of that with group business throughout the year.

Yeah, on a comparable basis at the midpoint, you're just under 3% for variable expenses, about 2.7%, and then fixed is just under 5%, so 4.5% or so for fixed expenses at the midpoint.

It's a good question. I think as we think about People World Cup, to the extent we get benefit of from that, that would occur probably mostly in late second quarter.

We provided in our prepared remarks as well as in the press release last night that not much of that, if any, is contemplated at the midpoint of our guidance range. You know, it's a little early to know how that might materialize, though we are optimistic about the potential. So if you think about cadence sort of outside of the guidance range, I'd say the end of the second quarter is when we're anticipating for our hotels where we see the most benefit, the way the matches are lining up.

As we think about the midpoint of guidance and what was assumed in guidance, you know, moving throughout the year, the cadence is fairly flat in the middle of the year and then a slight decrease in the first quarter because of the California wildfire comp to last year where we experienced the most benefit and certainly the weather that we've experienced so far here to date has had some impact too.

And then the fourth quarter, certainly we would have a little bit more of an increase due to the government shutdown last year. So highest growth in the fourth quarter, weakest quarter, first quarter.

We've actually been incredibly pleased with our team's ability to bring group into the hotels at attractive rates. And I think as we move forward this year, we expect those efforts to continue, direct sales to group within market. Ideally, we see improvement in government business, which helps to fill in the gaps. But certainly benefiting from the efforts of our property level teams in going out and seeking business to replace the business that was no longer available during the government shutdown.

So our expectation would be relative to years prior to last year, potentially slightly less government, slightly more group. But we'll see how the year plays out. I think what we've demonstrated is that we have a team at our hotels that has the ability to act on existing demand in market. And we have product that's versatile and appeals to a broad variety of potential customers.

And so that's a good question. I mean, I think we, you know, at the midpoint of guidance assumed, you know, little impact or benefit from, you know, the special events that may happen this year, or, you know, a return to some of the business we were missing. As you move higher up the range and hopefully beyond the range, it would anticipate, you know, some growth in occupancy as we lap those comps more so than rate.

Though, you know, I think that some of the special events to the extent they materialized should provide some rate opportunity as well.

Yeah, absolutely. Incredibly pleased with our team's ability to execute last year, specifically on just positions. I highlighted numbers during my prepared remarks, but their ability to execute, you know, at the multiples they were able to execute at, gave us a tremendous amount of flexibility to redeploy at spread multiples, which we think will meaningfully benefit us. I highlighted my prepared remarks, but at this point in time, we do not have any acquisitions under contract or currently contemplated for this year.

A lot can change as we move through the year. And I think we've demonstrated an ability to be nimble and to adjust strategy based on existing opportunities.

But today the environment looks very similar to the environment that we experienced last year. And, you know, I think in the near term, it's safe to assume that we will be focused on selective positions where we have confidence we can redeploy proceeds into higher producing opportunities. And, you know, I think certainly at current levels, we see our shares as being attractively priced.

Good morning, Rich. So, you know, I think we were encouraged to specially post government shutdown that we saw a return to midweek occupancy in December with some slight growth midweek. I mean, it was a little better than flat. And I think as we crossed over into the new year, you know, we've had a noisy year to date run here with weather, especially, you know, we've seen signs of, especially in February, signs of good midweek occupancy growth, so we're encouraged there.

As we look at segmentation, we'll have more data, you know, as we round out current months and we'll string together a trend. It's a little early because we've had some stops and starts with, you know, with weather to get too excited about the clean weeks, you know, thinking that there could be some pent up demand. But what we are seeing is encouraging from a midweek occupancy perspective.

We believe that that translates to business transient or the cause of that is business transient, whether it comes through the negotiated segment or not. And one of the reasons that I highlighted in my prepared remarks, we are seeing an improvement in GDS bookings, which is business oriented. So, some positive, you know, some positive signs. But, you know, as we looked forward and as we contemplated guidance, given, you know, the stops and starts. And, you know, I say every year on this call at this time, that it's just a really, it's a difficult time to extrapolate the full year and what we anticipate from a business transient standpoint. I think we're a little gunshot because we were seeing slow and steady business transient growth up until the announcement of doge and those cuts.

And that's really when that trend pulled back. Once we see that, you know, trend pick back up and continue, you know, we'll get a little bit more optimistic. I think one of the things that's important is what Justin mentioned earlier, which is the broad diversification from a demand standpoint that our properties attract. And that the team has done a really good job finding additional business in market. And we'll continue to do that, whether it's midweek occupancy, coming through transient and business, you know, and that's business oriented. Or whether it's group that we're able to put on the books that attractive rates and then drive incremental retail. So, the team continues to be really focused. We do believe there's room to grow from a standpoint.

It is the trend we're looking for. It's just a little too early to get excited about, you know, the recent things we've seen. But we are happy that, you know, despite some of the weather that people have gotten out and we've seen some improvement here in February.

Absolutely. So the mechanics of how we're approaching our total GNA, which would be now corporate expense in the share base compensation line items, combined is the same. We start the year at target compensation and then we adjust throughout the year based on how we're performing in third-party estimates from a return, total return and relative return metric standpoint. And so we're recalibrating to target-based compensation at the beginning of the year, like we typically do. Last year, we underperformed. And so GNA expense, including share base compensation, which much lower than target.

So that's the disconnect between last year and where we're, you know, guiding this year at the midpoint.

Yes.

It will likely change as we move through the year.

If you go back and look at the prior year, the delta is less significant.

Absolutely.

Morning, Mike.

Yes. Okay. So there is a lot of noise, especially since, and thank you for highlighting since I didn't include it, my prepared remarks. We are adding hotel 57 back to the comparable set. So that creates some noise. It is a lower margin asset. And so normalizing 2025 comparable for 57 would have a 40 basis point impact on 2025 margin. So that's one thing to note.

When you look at same store, total hotel expense growth at the midpoint, that's actually 1.6%. The additional increase comes from Nashville adding hotel 57 back in. And then of course we have Tampa that's also not part of the same store set that we bought earlier last year. So that's impacting total growth rates, but same store is 1.6%, which is, you know, something we're proud of, especially given the top line at the midpoint, you know, we're getting some benefit from not having brand conferences in 2026, which we had in 2025.

There also have been some fee reductions for the brands and will benefit from that. That's probably a net benefit of all three of those things combined, $5 million.

Not really at this point. And I think we continue to feel good about how the transitions will materialize. Remembering that there are some incremental costs in the beginning of any manager transition.

Our base case expectations are that we'll be offsetting transition costs through more efficient operations as we move through the year with the primary benefit of the transactions being realized in future years. You know, I think that is, as is the remainder of our guidance, a reasonable base case or a measured base case. As we interact with management at those properties, you know, their expectations for how they might perform are meaningfully higher.

A lot of good questions there. I want to clarify, we are incredibly excited about the potential for incremental business and incremental travel related to the World Cup. Our team is both at our corporate office and our management teams are intently focused on working to ensure that we maximize the opportunity, which means layering the appropriate business into the hotels, taking group where appropriate and early bookings and then blocking rooms to maximize, you know, rate as we get closer to the games.

The booking window is still short. And so I think significant part of the reason that at the midpoint of guidance, we're not reflecting, you know, the optimism we have about the potential business is because from our perspective, it's too soon to tell. As we get closer and are in a better position with more business on the books, we will also be in a better position to quantify the actual impact. You know, I think as we've had discussions with our property teams, and as we've thought more broadly about how things might play out, we anticipate that this could be, you know, a meaningful driver of incremental business as we move through the year.

We just are not yet based on business that we have on the books in a position to give you a really good estimate.

You know, a portion of it will be that we sold assets last year, though, you know, we also were adding the motto and hotel 57 back into, you know, back into the pool of assets. So I think for the most part, it's revenue driven and it's top line driven, but certainly there are some puts and takes with hotels sold and, you know, again, the new properties as well.

So to answer the second part of your question first, it makes them infinitely more marketable. We have tremendous amount of flexibility to sell at this point, those assets, unencumbered by management, which meaningfully increases the potential buyer pool. And, you know, even assuming operations remain constant in terms of net income produced by the assets, we see an ability to the extent we were to sell any of these assets to unlock significant value outside of that. I think there are two primary drivers that we anticipate for incremental profitability from these assets.

The first is that we are, in most cases, consolidating management within markets with management companies that we already have operating in market, which we believe will drive cost savings both on the formerly Marriott managed assets as well as our other assets in market as we share expenses and build, you know, build presence with specific management companies in those markets.

And then outside of that, you know, Marriott from an efficiency standpoint, you know, that has not been one of their strengths, especially as they work to deploy themselves against the types of assets that we own. And so we also anticipate meaningful reductions in overhead allocations to the properties, which will support stronger bottom line. You know, I think outside of that, we expect that our managers will bring increased focus and attention to the properties, which has potential to drive incremental top line results, meaning, you know, stronger rate and occupancy at the hotels.

But our primary underwriting was, you know, on the cost side and easily justified the transition just through anticipated cost savings.

Absolutely. So from a supply standpoint, we continue to feel incredibly good about the supply picture. And I've highlighted on Pascal's and continue to believe that it meaningfully changes the risk profile of our portfolio. We're using downside risk and improving upside potential as the demand picture improves. Some of the subtle adjustments are nuanced and driven by changes to our overall portfolio.

So when you look at the assets that we've been selling and the types of markets that we've been selling out of, those are in some instances lower supply markets. And the net result has been shrinking the total number of assets increase our concentration in some individual markets. And so, you know, on the margin, the difference that you're seeing between the number we reported last, and the number now has as much to do with kind of subtle shifts in our portfolio, as it does change in outlook or incremental supply.

You know, I think what we have historically been accustomed to in terms of supply growth in our markets is meaningfully greater exposure than we have now. And given the dynamics that continue to exist between construction costs and profitability, we see, you know, a meaningful impediment to increase supply growth, you know, for the foreseeable future.

You know, we, and I've commented in the past, our team continues to probe the market with various size potential portfolio transactions. To date, we continue to see more attractive pricing for individual assets.

You know, I think that potentially shifts as we see industry numbers improve more universally. As investors, in order for us to achieve portfolio premiums, generally speaking, investors need to see an industry level trend that would advantage them from buying in scale. And what we're finding more often is that we're able to maximize value by creating a story around an individual asset for often a local and a operator that has ties to the individual market and ability, you know, to bring incremental efficiencies to the property. So I think you, based on our track record over a more extended period of time, I think we have demonstrated an ability to pivot as we see changes in the overall marketplace for the near term.

My expectations are that, you know, we'll be likely transacting on individual assets, but, you know, we'll continue to probe and look for other opportunities.

We appreciate you taking the time to join with us this morning and are excited about the year ahead of us. As always, I hope that as you're traveling, you'll take the opportunity to stay with us at one of our hotels and we look forward to providing you with updates as we continue through the year.