Negative Points

• The company's guidance for the second half of 2026 assumes only low single-digit RevPAR growth, reflecting conservatism due to the ongoing conflict in the Middle East and limited forward visibility.

• Convention-oriented hotels underperformed, with RevPAR declining 5% in Q2 due to a soft convention calendar in San Diego and renovation disruptions at convention centers in Dallas and Austin.

• Leisure demand showed signs of softness, particularly at the Portsmouth hotel, which saw RevPAR decline 8% due to reduced Canadian travel, wildfire impacts, and new competitive supply.

• The company has paused its share repurchase program as the stock price has rebounded, reducing the valuation disconnect and limiting the opportunity for further accretive buybacks.

• The company is marketing one of its smaller hotels for sale, with expected proceeds of less than $20 million, indicating a potential reduction in portfolio scale and a need to recycle capital.

• The development project in Portland, Maine, carries execution risk, with total construction costs of $45 million and an expected opening in 2028, meaning it will not contribute to earnings for several years.

Q & A Highlights

Q: Can you bridge where RevPAR is so far this year through July and connect the dots with the full-year guide? Is there anything unique going on in the second half, and how much of the outlook is extra conservatism? A: Dennis Craven (EVP and COO) stated that while July's 10% RevPAR growth was fantastic and early August trends are good, the company is taking a conservative approach for the remainder of the year. They are assuming low single-digit RevPAR growth from September to December due to limited visibility and relative risk in the market, hoping to outperform this cautious outlook.

Q: You mentioned a protracted upcycle for lodging. What gives you the confidence that the current strength will continue over the next couple of years? A: Jeff Fisher (CEO) attributed his confidence to fundamental supply-demand economics, noting that construction starts are at historic lows due to high costs, which limits new supply. He highlighted that with portfolio occupancy around 81% and approaching peak levels, hotels are gaining pricing power. He also cited strong GDP and manufacturing growth, particularly in the Midwest and Silicon Valley, as key demand drivers that are unlikely to slow down.

Q: Can you double-click on the July performance in terms of RevPAR up 10%? Is there anything unusual with the comp year-over-year, and what contributed to that strong performance? A: Dennis Craven (EVP and COO) explained that the strong July performance was significantly driven by Silicon Valley, which had easier comparisons due to a pricing decision made last year that impacted Q3 2025 results. The 26% RevPAR increase in Silicon Valley, including a 41% jump at the two Sunnyvale hotels, was a much bigger surprise than underwritten, and this strength helped boost the entire portfolio's performance.

Q: On the expense management front, can you talk about other expense items besides labor, such as insurance costs, where you are looking at expense management? A: Dennis Craven (EVP and COO) noted that outside of labor and benefits, which make up almost 40% of operating costs, the company is benefiting from property tax refunds from prior years. Property insurance was renewed at the beginning of the year with a roughly 10% decrease. They have also secured longer-term fixed-rate contracts for utilities to mitigate rising costs, and are seeing a decline in R&M expenses due to past investments.

Q: What is the expected use of proceeds from the asset you are looking to sell, and is that disposition included in the guidance? A: Dennis Craven (EVP and COO) confirmed that the sale is not included in the current guidance, as the company typically waits until a deal closes. The short-term use of proceeds will be to pay down the credit facility, which currently has $60 million to $70 million outstanding.

Q: Just on the transaction market, given the positive fundamental outlook, what does the opportunity set look like for acquisitions in terms of valuations and volume? A: Jeff Fisher (CEO) stated that with a strong balance sheet, the company is carefully weighing acquisitions against share repurchases, but the economics have shifted as the stock price has rebounded. He expects the transaction pipeline to increase as positive RevPAR trends encourage owners to sell, whether to recycle capital, address debt maturities, or fund renovations. He anticipates the second half of the year will be better than the first six months for transactions.

Q: Can you provide more detail on the performance of the recently acquired Midwest portfolio and its impact on results? A: Jeff Fisher (CEO) highlighted that the six-hotel portfolio in Missouri, Illinois, and Kentucky is surpassing expectations. Q2 RevPAR growth accelerated to 9% with an even split between occupancy and ADR, and July RevPAR jumped another 13%. The portfolio achieved GOP margins of 49.3%, which is 250 basis points higher than the portfolio average, driven by strong RevPAR outlook, favorable labor dynamics, and lower operating costs per room.

Q: Can you elaborate on the strength in Silicon Valley and the demand drivers behind the recent performance? A: Jeff Fisher (CEO) noted that Silicon Valley, which accounts for 17% of EBITDA, saw RevPAR growth of 7% in Q2, with ADR up 10% to a post-pandemic high of $212. He cited strong corporate demand from top accounts like Applied Materials, Nvidia, and Google, and highlighted major expansion announcements from Databricks, Amazon, and OpenAI near their hotels. July RevPAR accelerated 26%, with the two Sunnyvale hotels up 41%, driven primarily by corporate transient demand.

Q: What is the status of the Home2 Suites development in Portland, Maine, and what are the expected returns? A: Jeff Fisher (CEO) announced that construction has commenced on the 130-suite Home2 Suites in downtown Portland, with an expected opening just before summer 2028. Total construction costs are estimated at $45 million, or $350,000 per room, though the sale of approximately 5,500 square feet of commercial space will reduce the basis. The company estimates an unlevered year-two stabilized yield of around 11%, which will be meaningfully accretive upon opening.

Q: Can you discuss the performance of the government-oriented and convention hotels, and what are the expectations for the balance of the year? A: Dennis Craven (EVP and COO) reported that the three government-oriented hotels in the DC area produced RevPAR growth of 9% in Q2, with Springfield Embassy Suites and Tysons Corner up 14% and 13%, respectively. However, the five convention hotels saw RevPAR decline 5%, with San Diego down 9% due to a soft convention calendar. In Texas, Dallas and Austin hotels were impacted by convention center renovations, but comps are expected to get easier in the second half of the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .