Apple Hospitality REIT, Inc.: Form 10-Q for the period ended Jun 30, 2026

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple Hospitality REIT, Inc. and its wholly-owned subsidiaries (the “Company”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions (including the potential effects of tariffs, inflation or a recessionary environment); reduced business and leisure travel due to geopolitical uncertainty, including terrorism and acts of war; travel-related health concerns, including widespread outbreaks of infectious or contagious diseases in the U.S.; inclement weather conditions, including natural disasters such as hurricanes, earthquakes and wildfires; government shutdowns, airline strikes or equipment failures, or other disruptions; adverse changes in the real estate and real estate capital markets; financing risks; changes in interest rates; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust (“REIT”). Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the 2025 Form 10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.

The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the 2025 Form 10-K.

Overview

The Company is a Virginia corporation that has elected to be treated as a REIT for U.S. federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of June 30, 2026, the Company owned 216 hotels with an aggregate of 29,459 guest rooms located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 15 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”

Recent Hotel Portfolio Activities

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, as of June 30, 2026, the Company had one outstanding contract, which was entered into during the third quarter of 2025, for the potential purchase of a hotel in Anchorage, Alaska for an expected fixed purchase price of approximately $65.5 million. The hotel is under development as a 160-guest-room AC Hotel and is currently planned to be completed and opened for business in the fourth quarter of 2027. As of June 30, 2026, a $2.0 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotel under contract. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller has not met all of the conditions to closing.

As of June 30, 2026, the Company had one outstanding development project. During the third quarter of 2025, the Company entered into a fixed-price contract with a third party to develop a dual-branded property, consisting of an AC Hotel and a Residence Inn, on Company-owned land in Las Vegas, Nevada, adjacent to its existing SpringHill Suites. The Company expects to spend a total of approximately $143.7 million to develop the AC Hotel and Residence Inn, which are currently planned to be completed and opened for business in the second quarter of 2028. Upon completion, the AC Hotel and Residence Inn are expected to contain approximately 237 and 160 guest rooms, respectively. As of June 30, 2026, the Company has capitalized $9.9 million related to the construction of the AC Hotel and Residence Inn.

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, during the six months ended June 30, 2026, the Company sold one hotel to an unrelated party for a gross sales price of approximately $8.7 million, resulting in a gain on the sale of approximately $0.2 million, net of transaction costs. The Company used the net proceeds from the sale to repay amounts outstanding under the Revolving Credit Facility.

See Note 3 titled “Dispositions” and Note 10 titled “Contract Commitments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions.

As of June 30, 2026, the Company’s New York Property was included in the Company’s hotel and guest room counts. On April 4, 2025, the Company recovered possession of this property and reinstated operations of the hotel's 209 guest rooms through a third-party manager engaged by the Company. Therefore, starting in April 2025, the New York Property was included in the Company’s hotel and guest room counts. From May 2023 through March 2025, the Company classified the property as a “non-hotel property” and excluded it from hotel and guest room counts, as it was leased to a third-party hotel operator.

Hotel Operations

As of June 30, 2026, the Company owned 216 hotels with a total of 29,459 guest rooms as compared to 221 hotels with a total of 29,893 guest rooms as of June 30, 2025. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and the prior year. During the six months ended June 30, 2026, the Company did not acquire any properties and sold one property on April 15, 2026. During the six months ended June 30, 2025, the Company acquired one existing hotel on June 10, 2025, and sold two properties, including one property sold on February 12, 2025 and one property sold on March 19, 2025. On April 4, 2025, the Company recovered possession from a third-party hotel operator and reinstated operations of its 209-guest-room New York Property through a third-party manager engaged by the Company.

Management Company Transitions

The Company continually evaluates the performance of each property and may transfer management responsibilities to a different third-party manager to improve operational efficiency and maximize asset value. In markets or regions where the Company owns multiple properties, it may consolidate hotels under specific third-party managers to leverage regional expertise, gain operating efficiencies, and enhance overall portfolio performance. In January 2026, the Company transitioned the remaining nine hotels managed by affiliates of Marriott, as of December 31, 2025, to separate management companies that are not affiliated with Marriott, Hilton or Hyatt. In 2025, the Company transitioned the management responsibilities for nine other hotels to different third-party management companies with which it already had existing management agreements for other properties, a portion of which involved transitions from hotels previously managed by affiliates of Marriott to management companies unaffiliated with Marriott, Hilton, or Hyatt.

Operating Results

In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below. RevPAR and operating results may be impacted by regional and local economies and local regulations as well as changes in lodging demand due to macroeconomic factors including inflationary or deflationary pressures, changes in energy costs, economic expansion or a recessionary environment.

The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the Company:

(in thousands, except statistical data)

(1) See reconciliation of Adjusted Hotel EBITDA to net income in “Non-GAAP Financial Measures” below.

Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 216 hotels owned as of June 30, 2026 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 216 hotels owned as of the end of the reporting period. For the hotels acquired during the reporting periods shown, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. For dispositions, results have been excluded for the Company’s period of ownership.

23

Same Store Operating Results

The following table reflects certain operating statistics for the 213 hotels owned by the Company as of January 1, 2025 and during the entirety of the reporting periods being compared, excluding the New York Property (“Same Store Hotels”).

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. The Company’s Comparable Hotels and Same Store Hotels revenue and operating results increased for the three and six months ended June 30, 2026, compared to the same periods in 2025, reflecting broad-based improvement in both business and leisure travel demand beyond the impact of prior-year headwinds, including reduced government travel following the current administration's efforts to curtail government spending and broader U.S. macroeconomic uncertainty in 2025. Additionally, the 2026 FIFA World Cup events hosted in the U.S. drove incremental short-term demand and average daily rates across a number of markets during the month of June. The Company expects RevPAR to continue to show improvement as compared to 2025 for the remainder of the year. Based on performance through the second quarter, the Company currently expects full-year 2026 RevPAR to exceed 2025 levels, assuming no material changes in the macroeconomic environment.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended June 30, 2026 and 2025, the Company had total revenue of $402.6 million and $384.4 million, respectively. For the six months ended June 30, 2026 and 2025, the Company had total revenue of $740.3 million and $712.1 million, respectively. For the three months ended June 30, 2026 and 2025, respectively, Comparable Hotels achieved combined average occupancy of 80.1% and 78.8%, ADR of $169.90 and $164.19 and RevPAR of $136.17 and $129.30. For the six months ended June 30, 2026 and 2025, respectively, Comparable Hotels achieved combined average occupancy of 76.5% and 75.1%, ADR of $163.96 and $160.93 and RevPAR of $125.45 and $120.80. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Compared to the same periods in 2025, during the three and six months ended June 30, 2026, respectively, the Company’s Comparable Hotels ADR increased by 3.5% and 1.9%, while occupancy increased by 1.6% and 1.9%, resulting in an increase in RevPAR of 5.3% and 3.8%. Revenue increased for the three and six months ended June 30, 2026 compared to the same periods in 2025, reflecting improved demand beyond the impact of prior-year headwinds, including reduced government travel following the current administration’s efforts to curtail government spending and broader U.S. macroeconomic uncertainty in 2025. Revenue growth for the second quarter of 2026 was further driven by increased demand in markets that hosted FIFA World Cup events, as well as broad-based RevPAR improvement across the portfolio, including markets outside those hosting FIFA World Cup events, reflecting growth in both business and leisure travel demand. Markets with significantly above-average growth in the second quarter of 2026, compared to the same period in 2025, for the Company included Atlanta, Anchorage, Chicago, Fort Worth, Houston, Kansas City, Philadelphia, South Bend and St. Louis. For the remainder of 2026, the Company expects RevPAR to exceed 2025 levels for its Comparable Hotels, which is consistent with broader expectations for applicable industry chain scale averages assuming the current macroeconomic environment continues. Future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment, inflationary pressures, reduced government travel or continued geopolitical uncertainty.

Hotel Operating Expense

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended June 30, 2026 and 2025 totaled $227.6 million and $220.6 million, respectively, or 56.5% and 57.4% of total revenue for the respective periods. For the six months ended June 30, 2026 and 2025, hotel operating expense totaled $434.5 million and $420.4 million, respectively, or 58.7% and 59.0% of total revenue for the respective periods. The increases in hotel operating expense for the three and six months ended June 30, 2026, as compared to the same periods in 2025, were primarily driven by higher occupancy levels, which resulted in increased variable operating expenses, including labor and administrative costs. Utilities expense increased due to a combination of increased occupancy and increases in overall utility rates. Additionally, ongoing inflationary pressures across the broader economy contributed to the increase in operational costs for the period. While total payroll costs reflect a competitive labor market, wage growth has moderated. For the remainder of 2026, the Company anticipates a similar operating expense environment. The Company continues to monitor and support its management companies’ efforts to realize operational efficiencies and mitigate the impact of various cost pressures while responding effectively to changes in guest preferences and the overall operating environment to maximize operational efficiency.

Property Taxes, Insurance and Other Expense

Property taxes, insurance and other expense for the three months ended June 30, 2026 and 2025 was $21.8 million and $22.9 million, respectively, or 5.4% and 5.9% of total revenue for the respective periods. For the six months ended June 30, 2026 and 2025, property taxes, insurance and other expense totaled $44.3 million and $46.2 million, respectively, or 6.0% and 6.5% of total revenue for the respective periods. The decreases in property taxes, insurance and other expense for the three and six months ended June 30, 2026, as compared to the same periods in 2025, were primarily due to decreases in property insurance premiums and successful appeals of real estate tax assessments from prior periods in certain jurisdictions. The Company will continue to proactively pursue tax assessment appeals in certain jurisdictions in an attempt to minimize tax increases, as warranted.

General and Administrative Expense

General and administrative expense for the three months ended June 30, 2026 and 2025 was $13.2 million and $8.1 million, respectively, or 3.3% and 2.1% of total revenue for the respective periods. For the six months ended June 30, 2026 and 2025, general and administrative expense was $24.0 million and $17.3 million, respectively, or 3.2% and 2.4% of total revenue for the respective periods. The principal components of general and administrative expense are corporate payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The increases in general and administrative expense for the three and six months ended June 30, 2026, as compared to the same periods in 2025, were primarily due to increased accruals based on anticipated operating performance under the Company’s executive incentive compensation plan.

Impairment of Depreciable Real Estate

Impairment of depreciable real estate expense was approximately $2.3 million for the three and six months ended June 30, 2026 due to one property identified by the Company in the second quarter of 2026 for potential sale. See Note 3 titled “Dispositions” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning this impairment loss.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended June 30, 2026 and 2025 was $49.7 million and $48.0 million, respectively. For the six months ended June 30, 2026 and 2025, depreciation and amortization expense was $99.2 million and $96.0 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for the respective periods of ownership. The increases of approximately $1.6 million and $3.2 million for the three and six months ended June 30, 2026, respectively, as compared to the same periods in 2025, were primarily due to the acquisitions of two hotels in the second and fourth quarters of 2025, which had higher purchase prices compared to the carrying values of the eight hotels disposed of in 2025 and 2026, as well as renovations completed throughout 2025 and the first half of 2026.

Interest and Other Expense, net

Interest and other expense, net, for the three months ended June 30, 2026 and 2025 was $20.8 million and $21.0 million, respectively. For the six months ended June 30, 2026 and 2025, interest and other expense, net was $40.9 million and $40.4 million, respectively, and was net of approximately $0.9 million and $0.8 million, respectively, of interest capitalized associated with renovation projects.

Interest expense related to the Company’s debt instruments for the three and six months ended June 30, 2026 remained relatively unchanged compared to the same periods of 2025 as a result of higher average borrowings associated with variable-rate debt, offset by lower average interest rates on the Company's fixed and variable-rate debt and lower average borrowings associated with fixed-rate debt. The Company anticipates interest expense for the remainder of 2026 will be relatively similar to the interest expense for the same period of 2025 as the benefit of expected lower average interest rates is offset by a reduced benefit from interest rate swaps. The proportion of variable-rate debt that is fixed by interest rate swaps was lower over the six months ended June 30, 2026 compared to the same period of 2025, as the Company had one interest rate swap in effect on $75.0 million of variable-rate debt mature during the first half of 2026 and three interest rate swaps in effect on $150.0 million of variable-rate debt mature during 2025. However, this was partially offset as the Company entered into two new interest rate swaps in effect on $100.0 million of variable-rate debt during the third quarter of 2025, but at higher fixed rates than the swap agreements that expired.

Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified Funds from Operations (“MFFO”), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted EBITDAre (“Adjusted EBITDAre”) and Adjusted Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.

FFO and MFFO

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net, non-cash straight-line operating ground lease expense and share-based compensation expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance. In addition, MFFO is a component of a key compensation measure of operational performance within the 2026 Incentive Plan.

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30, 2026 and 2025 (in thousands):

(1) Effective January 1, 2026, in calculating MFFO, the Company began to exclude share-based compensation expense, as it represents a non-cash transaction, consistent with the MFFO presentation of the majority of other public lodging REITs. Prior year results have been updated to conform with the current year presentation.

EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.

In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.

The Company also considers the exclusion of non-cash straight-line operating ground lease expense and share-based compensation expense from EBITDAre useful, as these expenses do not reflect the underlying performance of the related hotels (Adjusted EBITDAre).

The Company further excludes corporate expense, defined as actual corporate-level general and administrative expense, excluding share-based compensation expense, for the Company as well as Adjusted EBITDAre from the non-hotel property (the New York Property) from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and it is used by management to measure the performance of the Company’s hotels and the effectiveness of the operators of the hotels. In addition, Adjusted EBITDAre and Adjusted Hotel EBITDA are both components of key compensation measures of operational performance within the 2026 Incentive Plan.

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and six months ended June 30, 2026 and 2025 (in thousands):

(1) Effective January 1, 2026, in calculating Adjusted EBITDAre, the Company began to exclude share-based compensation expense, 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 consistent with the presentation of Adjusted EBITDA for the majority of other public lodging REITs. Prior year results have been updated to conform with the current year presentation.

(2) Non-hotel property consists of the results of the New York Property that was leased to a third-party hotel operator before possession was recovered and operations reinstated through a third-party manager on April 4, 2025. This property’s Adjusted EBITDAre results are not included in Adjusted Hotel EBITDA beginning with the second half of 2023 through the first quarter of 2025.

Hotels Owned

As of June 30, 2026, the Company owned 216 hotels with an aggregate of 29,459 guest rooms located in 37 states and the District of Columbia. The following tables summarize the number of hotels and guest rooms by brand and by state:

Number of Hotels and Guest Rooms by Brand

28

Number of Hotels and Guest Rooms by State

29

The following table summarizes the location, brand, manager, date acquired or completed and number of guest rooms for each of the 216 hotels that the Company owned as of June 30, 2026. As noted below, as of June 30, 2026, 14 of the Company’s properties are subject to ground leases and nine of its hotels are encumbered by mortgage debt.

30

31

32

33

(1) Property is subject to a ground lease.

(2) Hotel is encumbered by a mortgage.

Related Parties

The Company has engaged in, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed as being at arm’s length, and the results of the Company’s operations may have been different if these transactions were conducted with non-related parties. See Note 6 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.

Liquidity and Capital Resources

Capital Resources

The Company’s principal short-term sources of liquidity are the operating cash flows generated from the Company’s properties and availability under its Revolving Credit Facility. Over the long term, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties and offerings of the Company’s common shares, including pursuant to the ATM Program. Macroeconomic pressures, including inflation, increases in interest rates and general market uncertainty, could impact the Company’s ability to raise debt or equity capital to fund long-term liquidity requirements in a cost-effective manner.

As of June 30, 2026, the Company had $1.5 billion of total outstanding debt consisting of $161.7 million of mortgage debt and $1.3 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs. As of June 30, 2026, the Company had available corporate cash on hand of approximately $10.2 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $602.0 million after taking into account outstanding letters of credit of approximately $2.0 million.

The credit agreements governing the unsecured credit facilities contain customary affirmative and negative covenants and events of default. As of June 30, 2026, the covenants included, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The Company was in compliance with the applicable covenants as of June 30, 2026.

On July 23, 2026, the Company amended and restated the credit agreement for its existing $1.2 billion credit facility, extending the maturity dates and increasing the borrowing capacity of the Revolving Credit Facility by $50 million to $700 million, resulting in a total borrowing capacity of approximately $1.3 billion. The amended and restated credit agreement extended the maturity dates, modified certain financial covenants and changed the interest rate margin range to 1.35% to 2.30% as compared to a range of 1.35% to 2.25% prior to the amendment. The Company also entered into conforming amendments for its other unsecured credit facilities to align with the revised financial covenants.

On July 28, 2026, the Company entered into an amendment to its existing $385 million term loan facility which updated the interest rate margin to a range of 1.35% to 2.25% as compared to a range of 1.35% to 2.20% prior to the amendment.

On July 24, 2026, the Company amended and restated the credit agreement for its existing $130 million term loan facility which increased the amount of the term loan facility to $160 million, with the additional $30 million funded at closing, extended the maturity date and changed the interest rate margin range to 1.70% to 2.65% as compared to a range of 1.35% to 2.20% prior to the amendment.

On July 24, 2026, the Company entered into an amendment to its existing $85 million term loan facility which updated the interest rate margin to a range of 1.35% to 2.25% as compared to a range of 1.70% to 2.55% prior to the amendment.

See Note 4, titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for details regarding the Company’s debt agreements as of June 30, 2026 and amendments to those agreements subsequent to that date.

The Company has a universal shelf registration statement on Form S-3 (No. 333-285184) that was automatically effective upon filing on February 25, 2025. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.

On February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $500 million of its common shares under the ATM Program. No common shares were sold under the Company’s ATM Program during the three and six months ended June 30, 2026 or during the year ended December 31, 2025. As of June 30, 2026, $500 million remained available for issuance under the ATM Program. The Company plans to use future net proceeds from the sale of shares under the ATM Program, or under a similar successor program, for general corporate purposes, which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the future net proceeds to acquire another REIT or other company that invests in income-producing properties. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.

Capital Uses

The Company anticipates that cash flow from operations, availability under its Revolving Credit Facility, additional borrowings, and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments, and cash management activities.

Distributions

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On June 18, 2026, the Company declared a monthly cash distribution of $0.08 per common share, paid on July 15, 2026, to shareholders of record as of June 30, 2026. For the three and six months ended June 30, 2026, the Company paid distributions of $0.24 and $0.48 per common share, respectively, for a total of $56.6 million and $113.2 million, respectively. Subsequent to quarter end, on July 17, 2026, the Company declared a monthly cash distribution of $0.08 per common share, payable on August 17, 2026, to shareholders of record as of July 31, 2026.

The Company’s current annual distribution rate, payable monthly, is $0.96 per common share. As it has done historically, due to seasonality, the Company may use its Revolving Credit Facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. While management currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the Company’s Board of Directors, and there can be no assurance of the classification, timing or duration of distributions at any particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company or to the extent required to maintain the Company’s REIT status. If cash flows from operations and the Revolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required to maintain its qualification as a REIT. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

Share Repurchases

In May 2026, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $242.5 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2027 if not terminated or extended earlier. The Company previously entered into, and expects to continue to enter into, written trading plans as part of the Share Repurchase Program that provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. The Company did not repurchase any common shares under the Share Repurchase Program during the three and six months ended June 30, 2026. During the six months ended June 30, 2025, the Company purchased, under its Share Repurchase Program, approximately 3.4 million of its common shares at a weighted-average market purchase price of approximately $12.83 per common share for an aggregate purchase price, including commissions, of approximately $43.2 million. Past purchases under the Share Repurchase Program have been funded, and the Company intends to fund future share repurchases with cash on hand, proceeds from dispositions or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be purchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of June 30, 2026, approximately $242.5 million remained available for purchase under the Share Repurchase Program.

Capital Improvements

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishment of furniture, fixtures, and equipment at the applicable hotels, based on a percentage of the hotel’s gross revenues, to be used for capital expenditures with respect to those hotels. As of June 30, 2026, the Company held approximately $5.3 million in reserves related to these properties. During the six months ended June 30, 2026, the Company invested approximately $39.8 million in capital expenditures. The Company anticipates spending approximately $85 million to $95 million during 2026, which includes various comprehensive renovation projects for approximately 18 properties. The increase of $5.0 million from the Company’s previous estimate and the change in the number of comprehensive renovation projects are primarily a result of prioritizing two larger projects: the renovation of its Embassy Suites in Anchorage, Alaska and the rebranding of the Residence Inn in Seattle, Washington. The Company’s expectations reflect its ongoing prioritization and management of its overall capital spending to keep its hotels competitive, while weighing larger investments toward the highest return opportunities. Estimates of future capital expenditures are subject to change, and inflationary pressures, supply chain disruptions, tariffs, or other factors could result in additional cost increases or delays to anticipated projects.

As of June 30, 2026, the Company had one outstanding development project. During the third quarter of 2025, the Company entered into a fixed-price contract with a third party to develop a dual-branded property, consisting of an AC Hotel and a Residence Inn, on Company-owned land in Las Vegas, Nevada, adjacent to its existing SpringHill Suites. The Company expects to spend a total of approximately $143.7 million to develop the AC Hotel and Residence Inn, which are currently planned to be completed and opened for business in the second quarter of 2028. As of June 30, 2026, the Company has capitalized $9.9 million related to the construction of the AC Hotel and Residence Inn.

Upcoming Debt Maturities and Debt Service Payments

As of June 30, 2026, the Company had approximately $292.6 million of principal and interest payments due on its debt over the next 12 months. This amount includes payments totaling $51.3 million on a loan secured by three properties that matures in the fourth quarter of 2026, as well as $46.0 million outstanding under the Revolving Credit Facility, which was scheduled to mature on July 25, 2026, but was amended and restated on July 23, 2026, extending the maturity date to July 24, 2030. Also included in the total above is a $130.0 million unsecured term loan which was scheduled to mature on July 25, 2026, but was amended and restated on July 24, 2026, to increase the amount of the term loan facility to $160 million and to extend the maturity date to July 24, 2033. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using one or a combination of any of the following: funds from operations, borrowings under its Revolving Credit Facility, proceeds from new financing, available credit extensions under its unsecured credit facilities or by refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of any expiring loans.

Interest expense related to the Company’s unsecured credit facilities over the next 12 months is expected to be similar to the previous 12 months, with comparable borrowings and average interest rates. The average proportion of variable-rate debt that is fixed by interest rate swaps is expected to be lower over the next 12 months compared to the six months ended June 30, 2026. The Company had one interest rate swap in effect on $75.0 million of variable-rate debt mature in the second quarter of 2026 and has one interest rate swap in effect on $125.0 million of variable-rate debt that will mature in the second half of 2026. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to generally be at higher rates than the expiring swap agreements. See Note 4 titled “Debt” and Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments and interest rate swap agreements as of June 30, 2026.

Purchase Contract Commitments

As of June 30, 2026, the Company had one outstanding contract, which was entered into during the third quarter of 2025, for the potential purchase of a hotel in Anchorage, Alaska for an expected fixed purchase price of approximately $65.5 million. The hotel is under development as a 160-guest-room AC Hotel and is currently planned to be completed and opened for business in the fourth quarter of 2027. As of June 30, 2026, a $2.0 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotel under contract. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller has not met all of the conditions to closing.

As mentioned in the “Capital Improvements” section above, during the third quarter of 2025, the Company entered into a fixed-price contract with a third party to develop a dual-branded property, consisting of an AC Hotel and a Residence Inn, on Company-owned land in Las Vegas, Nevada, adjacent to its existing SpringHill Suites. See Note 10 titled “Contract Commitments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding this development project.

Cash Management Activities

As part of the cost sharing arrangements discussed in Note 6, titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.

Impact of Inflation

The Company relies on the performance of its hotels and the ability of its hotel operators to increase revenue to keep pace with inflation. Hotel operators, in general, possess the ability to adjust room rates daily to reflect the effects of inflation on the Company’s operating expenses. However, competitive pressures and other factors could limit the operators’ ability to raise room rates and, as a result, the Company may not be able to offset such increased operating expenses with increases in revenue. Additionally, tariff-induced inflation could increase certain operating and renovation costs, as some supplies, furniture, fixtures and equipment and construction materials are imported, as well as negatively impact leisure travel by reducing the discretionary income of consumers.

Business Interruption

Being in the real estate industry, the Company is exposed to natural disasters on both a local and regional scale. Although management believes the Company has adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Company’s financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the Company’s Unaudited Consolidated Financial Statements and Notes thereto. The Company has discussed those policies and estimates that it believes are critical and require the use of complex judgment in their application in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission on February 23, 2026. There have been no material changes to the Company’s critical accounting policies or the methods or assumptions applied.

Subsequent Events

On July 15, 2026, the Company paid approximately $18.9 million, or $0.08 per common share, in distributions to shareholders of record as of June 30, 2026.

On July 17, 2026, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is payable on August 17, 2026, to shareholders of record as of July 31, 2026.

In July 2026, the Company entered into separate agreements amending its Revolving Credit Facility and each of its term loans as follows: an amended and restated credit agreement for its $1.2 billion credit facility, an amendment to its $385 million term loan facility, an amended and restated credit agreement for its $130 million credit facility and an amendment to its $85 million credit facility. See Note 4, titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information regarding these amendments.

As of June 30, 2026, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short-term interest rates as it invests its cash or borrows on its Revolving Credit Facility and due to the portion of its variable-rate debt that is not fixed by interest rate swaps. As of June 30, 2026, after giving effect to interest rate swaps, as described below, approximately $611.0 million, or approximately 41% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of June 30, 2026, every 100 basis point change in interest rates will impact the Company’s annual net income by approximately $6.1 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments.

As of June 30, 2026, the Company’s variable-rate debt consisted of its unsecured credit facilities, including $46.0 million in borrowings outstanding under its Revolving Credit Facility and $1.2 billion of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As of June 30, 2026, the Company had 10 interest rate swap agreements that effectively fix the interest payments on approximately $610.0 million of the Company’s variable-rate debt outstanding with swap maturity dates ranging from November 2026 to December 2029. Under the terms of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual rate of the one-month SOFR. See Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s interest rate swaps as of June 30, 2026.

In addition to its variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements as well as two fixed-rate senior notes facilities totaling $125 million. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its unsecured credit facilities at June 30, 2026. All dollar amounts are in thousands.

(1) The average interest rate gives effect to interest rate swaps, as applicable.

The Company’s senior management evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Company’s senior management has concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2026. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.