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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM
10-K
 
 
 
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
 ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              .
Commission File Number 001-34571
 
 
 
 
 
 
PEBBLEBROOK HOTEL TRUST
 
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
 
 
Maryland
 
27-1055421
(State of Incorporation
or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
4747 Bethesda Avenue,
Suite 1100
 
 
Bethesda,
Maryland
 
20814
(Address of Principal Executive Offices)
 
(Zip Code)
(240)
507-1300
(Registrant’s telephone number, including area code)
 

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol (s)
 
Name of Each Exchange on Which Registered
Common Shares, $0.01 par value per share
 
PEB
 
New York Stock Exchange
6.50% Series C Cumulative Redeemable Preferred Shares
 
PEB-PC
 
New York Stock Exchange
6.375% Series D Cumulative Redeemable Preferred Shares
 
PEB-PD
 
New York Stock Exchange
6.375% Series E Cumulative Redeemable Preferred Shares
 
PEB-PE
 
New York Stock Exchange
6.30% Series F Cumulative Redeemable Preferred Shares
 
PEB-PF
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☑  Yes    ¨  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    ☑  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☑  Yes    ¨  No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☑  Yes   ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☑
 
Accelerated filer
☐
 
 
 
 
 
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
☐  Yes    ☑  No
The aggregate market value of the 129,144,513 common shares of beneficial interest of the registrant held by non-affiliates of the registrant was $3.6 billion based on the closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2019.
The number of common shares of beneficial interest outstanding as of February 14, 2020 was 130,958,991.
_____________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Definitive Proxy Statement for its 2020 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission on or before April 30, 2020) are incorporated by reference into this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.


Pebblebrook Hotel Trust

TABLE OF CONTENTS
 
 
 
Item No.
 
Page
4
PART I
1.
5
1A.
8
1B.
28
2.
28
3.
31
4.
32
PART II
5.
32
6.
36
7.
38
7A.
47
8.
47
9.
47
9A.
47
9B.
48
PART III
10.
48
11.
48
12.
48
13.
48
14.
48
PART IV
15.
49



FORWARD-LOOKING STATEMENTS
This report, together with other statements and information publicly disseminated by us, contains certain "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 (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "should", "potential", "could", "seek", "assume", "forecast", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenues and expenses, estimated costs and durations of renovation or restoration projects, estimated insurance recoveries, our ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and our ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:
•
risks associated with the hotel industry, including competition, changes in visa and other travel policies by the U.S. government making it less convenient, more difficult or less desirable for international travelers to enter the U.S., increases in employment costs, energy costs and other operating costs, or decreases in demand caused by events beyond our control including, without limitation, actual or threatened terrorist attacks, natural disasters, cyber-attacks, any type of flu or disease-related pandemic, or downturns in general and local economic conditions;
•
the availability and terms of financing and capital and the general volatility of securities markets;
•
our dependence on third-party managers of our hotels, including our inability to implement strategic business decisions directly;
•
risks associated with the U.S. and global economies, the cyclical nature of hotel properties, and the real estate industry, including environmental contamination and costs of complying with new or existing laws, including the Americans with Disabilities Act and similar laws;
•
interest rate increases;
•
our possible failure to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), and the risk of changes in laws affecting REITs;
•
the timing and availability of potential hotel acquisitions, our ability to identify and complete hotel acquisitions and our ability to complete hotel dispositions in accordance with our business strategy;
•
the possibility of uninsured losses;
•
risks associated with redevelopment and repositioning projects, including delays and cost overruns; and
•
the other factors discussed under the heading "Risk Factors" in this Annual Report on Form 10-K.
Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
The "Company", "we" or "us" mean Pebblebrook Hotel Trust, a Maryland real estate investment trust, and one or more of its subsidiaries (including Pebblebrook Hotel, L.P., our operating partnership), or, as the context may require, Pebblebrook Hotel Trust only or Pebblebrook Hotel, L.P. only.

4

PART I
Item 1. Business.

General

Pebblebrook Hotel Trust is an internally managed hotel investment company, organized in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major U.S. cities, with an emphasis on the major gateway coastal markets. As of December 31, 2019, the Company owned 56 hotels with a total of 14,013 guest rooms.
Substantially all of the Company’s assets are held by, and all of the operations are conducted through, Pebblebrook Hotel, L.P. (our “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. At December 31, 2019, the Company owned 99.7% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.3% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a REIT under the Code, it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to our taxable REIT subsidiary ("TRS") lessees, including subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, “PHL”), which in turn engage third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company’s financial statements.

Business Objectives and Strategies
Acquisitions/Investments
We invest in hotel properties located primarily within major U.S. cities, including Atlanta, Boston, Chicago, Key West, Los Angeles, Miami, Nashville, Naples, New York, Philadelphia, Portland, Santa Monica, San Diego, San Francisco, Seattle and Washington, D.C., with an emphasis on major gateway urban markets. We believe these markets have barriers-to-entry and provide diverse sources of meeting and room night demand generators. In addition, we also opportunistically target investments in resort properties located near our primary urban target markets, as well as in select destination resort markets such as south Florida and southern California. We focus on both branded and independent full-service hotels in the “upper upscale” segment of the lodging industry. The full-service hotels on which we focus our investment activity generally have one or more restaurants, lounges, meeting facilities and other amenities, as well as high levels of customer service. We believe that our target markets, including the major gateway markets, are characterized by barriers-to-entry and that room-night demand and average daily rate ("ADR") growth of these types of hotels will outperform the national average over the long-term, as they have in past cyclical recoveries and growth periods.

We perform and utilize extensive research to evaluate any target market and property, including a detailed review of the long-term economic outlook, trends in local demand generators, competitive environment, property systems and physical condition and property financial performance. Specific acquisition criteria may include, but are not limited to, the following:

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premier locations, facilities and other competitive advantages that are not easily replicated;

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barriers-to-entry in the market, such as scarcity of development sites, regulatory hurdles, high per-room development costs and long lead times for new development;

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acquisition prices at a discount to replacement cost;

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properties not subject to long-term management contracts with hotel management companies;

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potential return on investment initiatives, including redevelopment, rebranding, redesign, expansion and change of management;

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opportunities to implement value-added operational improvements; and

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strong demand growth characteristics supported by favorable demographic indicators.

We believe that upper-upscale, full-service hotels and resorts and upscale, select-service hotels located in major U.S. urban, convention and drive-to and destination resort markets are likely to generate the most favorable returns on investment in the lodging industry over the long-term. However, short-term increases in supply above historical averages in certain markets may temporarily affect these long-term favorable returns. Nationally, new hotel supply growth has increased from its historically low levels and is generally in-line with demand growth. Industry occupancy levels are expected to remain flat over the near

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term. Supply growth has increased in certain of our markets which has limited our hotels' ability to increase room rates. Despite uncertainty related to international trade wars, international travel restrictions and political factors, economic fundamentals are stable and employment levels remain strong. We believe that portfolio diversification will allow us to benefit from growth in various customer segments, including business transient, leisure transient and group and convention room-night demand, as well as mitigate the negative impact from increases in hotel room supply.

We generally seek to enter into flexible management contracts, when possible, with third-party hotel management companies for the operation of our hotels that provide us with the ability to replace operators and/or reposition properties, to the extent that we determine to do so and align our operators with our objective of maximizing our return on investment. In addition, we believe that flexible management contracts facilitate the sale of hotels, and we may seek to sell hotels opportunistically if we believe sales proceeds may be used to repay debt or invested in other hotel properties that offer more attractive risk-adjusted returns.

We may engage in full or partial redevelopment, renovation and repositioning of certain properties, as we seek to maximize the financial performance of our hotels. In addition, we may acquire properties that require significant capital improvement, renovation or refurbishment. We also may acquire hotel and resort properties that we believe would benefit from significant redevelopment or expansion, including, for example, adding rooms, meeting facilities or other amenities.

We may consider acquiring outstanding debt secured by a hotel or resort property from lenders and investors if we believe we can foreclose on or acquire ownership of the property in the near-term. In connection with our acquisitions, generally we do not intend to originate any debt financing or purchase any debt where we do not expect to gain ownership of the underlying property. Additionally, we have co-invested, and may in the future co-invest, in hotels with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for a property, partnership, joint venture or other entity.
Asset Management

While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels' operations, including property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction. We believe we can add significant value to our portfolio through our intensive asset management strategies. Our executives and asset management team have significant experience in hotel operations and creating and implementing innovative asset management initiatives.

We have developed strategic short- and long-term capital investment plans to enhance our hotels' profitability through the strategic use of, among others, expansions, additions, renovations, technology upgrades and modifications, and energy efficiency improvements. We are also focused on revenue and expense management at our properties. We work closely with our hotel operators to evaluate optimal market mix and pricing strategies, ensure quality staffing and appropriate management focus, implement best practices to minimize expenses and aggressively monitor and evaluate our hotels' operations and performance.

Financing Strategies

Over time, we intend to finance our long-term growth with issuances of common and preferred equity securities and debt financings having staggered maturities. Our debt includes senior unsecured credit facilities, term loans, unsecured notes, mortgage debt secured by our hotel properties or our leasehold interests on our hotel properties subject to ground leases and may include other unsecured debt in the future.

We anticipate using our senior unsecured revolving credit facilities, term loans, senior unsecured notes, common and preferred equity issuances, and mortgage debt financings to fund future acquisitions as well as for property redevelopments, return on investment initiatives and working capital requirements. Subject to market conditions, we intend to repay amounts outstanding under our senior unsecured revolving credit facilities from time to time with proceeds from periodic common and preferred equity issuances, long-term debt financings, cash flows from operations and opportunistic or strategic dispositions.

When purchasing hotel properties, we may issue limited partnership interests in our Operating Partnership as full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or participate in the potential appreciation in value of our common shares of beneficial interest, or common shares. To date, we have not issued any limited partnership interests in our Operating Partnership to purchase hotel properties.


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Competition

We compete for hotel investment opportunities with institutional investors, private equity investors, other REITs and numerous local, regional, national and international owners, including franchisors, in each of our target markets. Some of these entities have substantially greater financial resources than we do and may be able and willing to accept more risk than we can prudently manage. Competition generally may increase the bargaining power of property owners seeking to sell and reduce the number of suitable investment opportunities offered to us or purchased by us.

The hotel industry is highly competitive. Our hotels compete with other hotels, and alternative lodging marketplaces, for guests in our markets. Competitive factors include, among others, location, convenience, brand affiliation, room rates, range of services, facilities and guest amenities or accommodations offered and quality of guest service. Competition in the markets in which our hotels operate includes competition from existing, newly renovated and newly developed hotels in the relevant segments. Competition can adversely affect the occupancy, ADR and room revenue per available room ("RevPAR") of our hotels, and thus our financial results, and may require us to provide additional amenities, incur additional costs or make capital improvements that we otherwise might not choose to make, which may adversely affect our profitability.

Seasonality

Demand in the lodging industry is affected by recurring seasonal patterns which are greatly influenced by overall economic cycles, geographic locations, weather and the customer mix at the hotels. Generally, our hotels have lower revenue, operating income and cash flow in the first quarter and higher revenue, operating income and cash flow in the third quarter.

Regulations

Our hotel properties are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require us, as owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur these costs even after we sell a property. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow using the property as collateral or to sell the property. Under the environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect the funds available for distribution to our shareholders. Prior to closing a property acquisition, we obtain Phase I environmental site assessments, or ESAs, in order to attempt to identify potential environmental concerns at the properties. These assessments are carried out in accordance with an appropriate level of due diligence and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property's chain of title and review of historic aerial photographs and other information on past uses of the property. We may also conduct limited subsurface investigations and test for substances of concern where the results of the Phase I ESAs or other information indicates possible contamination or where our consultants recommend such procedures. However, these Phase I ESAs or other investigations may not reveal all environmental costs that might have a material adverse effect on our business, assets, results of operations or liquidity and may not identify all potential environmental liabilities.

We believe that our hotels are in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the violation of which could have a material adverse effect on us. We have not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties.

Our properties must comply with Title III of the Americans with Disabilities Act (the "ADA") to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access

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by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in litigation, retrofit costs and imposition of fines or an award of damages to private litigants. Additionally, properties which we may acquire may not be in compliance with the requirements of the ADA, and we endeavor to identify such noncompliance prior to our acquisition. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.

Tax Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a result, we generally are not subject to corporate federal income tax on that portion of our REIT taxable income that we currently distribute to our shareholders. A REIT is subject to numerous organizational and operational requirements, including requirements concerning the nature of our gross income and assets and specifying that we must distribute at least 90 percent of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) each year. We will be subject to federal income tax on our taxable income at regular corporate rates if we fail to qualify as a REIT for federal income tax purposes in any taxable year, or to the extent we distribute less than 100 percent of our REIT taxable income. We will also not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Even if we continue to qualify as a REIT for federal income tax purposes, we will be subject to certain state and local income, franchise and property taxes.
For us to qualify as a REIT under the Code, we cannot operate the hotels we own and acquire. Therefore, our Operating Partnership and its subsidiaries lease our hotel properties to our TRS lessees who in turn engage third-party eligible independent contractors to manage our hotels. The earnings of TRS lessees are subject to taxation like other regular C corporations.

Joint Venture

We hold a 99.99% controlling interest in The Liberty, A Luxury Collection Hotel, Boston. Since we hold a controlling interest, the joint venture has been consolidated in our financial statements. The 0.01% interest of the third-party partner is included in non-controlling interests in the consolidated balance sheets.

Employees
We currently employ 58 full-time employees. None of our employees is a member of a union; however, some employees of the hotel managers at several of our hotels are currently represented by labor unions and are subject to collective bargaining agreements.

Available Information

Our Internet website is located at www.pebblebrookhotels.com. Copies of the charters of the committees of our board of trustees, our code of business conduct and ethics and our corporate governance guidelines are available on our website. All reports that we have filed with the United States Securities and Exchange Commission (the "SEC") including this Annual Report on Form 10-K and our current reports on Form 8-K, can be obtained free of charge from the SEC's website at www.sec.gov or through our website.

Item 1A. Risk Factors.
The following discussion concerns some of the risks associated with our business and should be considered carefully. These risks are interrelated and you should treat them as a whole. Additional risks and uncertainties not presently known to us may also materially and adversely affect our business operations, the value of our shares and our ability to pay dividends to our shareholders. In connection with the forward-looking statements that appear in this Annual Report on Form 10-K, in these risk factors and elsewhere, you should carefully review the section entitled “Forward-Looking Statements.”
Risks Related to Our Business and Properties
We depend on the efforts and expertise of our executive officers and would be adversely affected by the loss of their services.

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We depend on the efforts and expertise of our Chairman, President and Chief Executive Officer, as well as our other executive officers, to execute our business strategy. The loss of their services, and our inability to quickly identify and hire suitable replacements, could have an adverse effect on our business activities, including, without limitation, relationships with shareholders, lenders, management companies, joint venture partners and other industry personnel.
Our returns could be negatively impacted if the third-party management companies that operate our hotels do not manage our hotel properties effectively.
Because U.S. federal income tax laws restrict REITs and their subsidiaries from operating or managing a hotel, we do not operate or manage any of our hotel properties. Instead, we lease all of our hotel properties to subsidiaries that qualify as TRSs, under applicable REIT laws, and our TRS lessees retain third-party managers to operate our hotels pursuant to management contracts. Our cash flow from the hotels may be adversely affected if our managers fail to provide quality services and amenities or if they or their affiliates fail to maintain a quality brand name. In addition, our managers or their affiliates may manage, and in some cases may own, invest in or provide credit support or operating guarantees, to hotels that compete with hotel properties that we own or acquire, which may result in conflicts of interest and decisions regarding the operation of our hotels that are not in our best interests.
We do not have the authority to require any hotel property to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel property (for example, setting room rates). Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, RevPAR and ADR, we cannot force the management company to change its method of operating our hotels. We generally will attempt to resolve issues with our managers through discussions and negotiations. However, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to litigate the dispute or submit the matter to third-party dispute resolution. We can only seek redress if a management company violates the terms of the applicable management contract with a TRS lessee, and then only to the extent of the remedies provided for under the terms of the management contract. Additionally, in the event that we need to replace any management company, we may be required by the terms of the management contract to pay substantial termination fees and may experience significant disruptions at the affected hotels.
Our TRS lessee structure subjects us to the risk of increased hotel operating expenses.
Our leases with our TRS lessees require our TRS lessees to pay rent based in part on revenues from our hotels. Our operating risks include decreases in hotel revenues and increases in hotel operating expenses, which would adversely affect our TRS lessees' ability to pay rent due under the leases, including but not limited to increases in: wage and benefit costs, which may include an increase in minimum wages and health benefit costs; repair and maintenance expenses; property taxes; insurance costs; and other operating expenses. Increases in these operating expenses can have a significant adverse impact on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Our ability to make distributions to our shareholders is subject to fluctuations in our financial performance, operating results and capital improvements requirements.
To maintain our qualification as a REIT for U.S. federal income tax purposes, we are required to distribute at least 90 percent of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gains) each year to our shareholders and we generally expect to make distributions in excess of such amount. In the event of downturns in our operating results, unanticipated capital improvements to our hotel properties or other factors, we may be unable to declare or pay distributions to our shareholders. The timing and amount of distributions are in the sole discretion of our board of trustees which will consider, among other factors, our financial performance, any debt service obligations, any debt covenants and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.
We invest primarily in the upper-upscale segment of the lodging market, which is highly competitive and generally subject to greater volatility than most other market segments and could negatively affect our profitability.
The upper-upscale segment of the hotel business is highly competitive. Our hotel properties compete on the basis of location, room rates, quality, service levels, reputation and reservations systems, among many factors. There are many competitors in the upper-upscale segment, and many of these competitors may have substantially greater marketing and financial resources than we have. This competition could reduce occupancy levels and RevPAR at our hotels. In addition, in periods of weak demand, as may occur during a general economic recession, profitability is adversely affected by the relatively high fixed costs of operating upper-upscale hotels.

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Restrictive covenants in our management contracts could preclude us from taking actions with respect to the sale or refinancing of a hotel property that would otherwise be in our best interest.
We may enter into management contracts that contain some restrictive covenants or acquire properties subject to existing management contracts that do not allow the flexibility we seek, including management contracts that restrict our ability to terminate the contract or require us to pay significant termination fees. For example, the terms of some management contracts may restrict our ability to sell a property unless the purchaser is not a competitor of the manager and assumes the related management contract and meets specified other conditions which may preclude us from taking actions that would otherwise be in our best interest or could cause us to incur substantial expense.
Due to our concentration in hotel investments primarily in major gateway urban markets, a downturn in the lodging industry generally or a regional downturn in the markets in which we operate would adversely affect our operations and financial condition.
Our primary business is hotel-related. Therefore, a downturn in the lodging industry, in general, and the segments and markets (especially West Coast major gateway metropolitan markets) in which we operate, in particular, would have a material adverse effect on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Any joint venture investments that we may make in the future could be adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers' financial condition and disputes between us and our co-venturers.
We may co-invest in hotels in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for a property, partnership, joint venture or other entity. In this event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments through partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt, fail to fund their share of required capital contributions, make dubious business decisions or block or delay necessary decisions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or trustees from focusing their time and effort on our business. Consequently, action by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.
Our hotels operated under franchise agreements are subject to risks arising from adverse developments with respect to the franchise brand and to costs associated with maintaining the franchise license.
Certain of our hotel properties operate under franchise agreements and we anticipate that some of the hotels we acquire in the future will operate under franchise agreements. We are therefore subject to the risks associated with concentrating hotel investments in several franchise brands, including reductions in business following negative publicity related to one of the brands or the general decline of a brand.
Maintenance of franchise licenses for branded hotel properties is subject to franchisors' operating standards and other terms and conditions including the requirement to make certain capital improvements. Franchisors periodically inspect hotel properties to ensure that we and our lessees and management companies follow their standards. Failure by us, one of our TRS lessees or one of our third-party management companies to maintain these standards or other terms and conditions could result in a franchise license being canceled. If a franchise license is canceled due to our failure to make required improvements or to otherwise comply with its terms, we also may be liable to the franchisor for a termination payment, which varies by franchisor and by hotel property.
The loss of a franchise license could materially and adversely affect the operations and the underlying value of the hotel property because of the loss of associated name recognition, marketing support and centralized reservation system provided by the franchisor and adversely affect our revenues, financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Debt service obligations could adversely affect our overall operating results, may require us to sell hotel properties, may jeopardize our qualification as a REIT and could adversely affect our ability to make distributions to our shareholders and the market price of our common shares.

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Our business strategy includes the use of both secured and unsecured debt to finance long-term growth. Incurring debt subjects us to many risks, including the risks that our cash flow from operations will be insufficient to make required payments of principal and interest, our debt may increase our vulnerability to adverse economic and industry conditions, we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, and the terms of any refinancing will not be as favorable as the terms of the debt being refinanced.
We have placed and will continue to place mortgages on certain of our hotel properties to secure debt. To the extent we cannot meet any of our debt service obligations, we may be required to sell or we will risk losing to foreclosure some or all of our mortgaged hotel properties. If we are required to sell one or more of our hotel properties to meet debt service obligations, we may have to accept unfavorable terms. Also, covenants applicable to debt could impair our planned investment strategy and, if violated, result in a default. If we violate covenants relating to indebtedness, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. In addition, future indebtedness agreements may require that we meet certain covenant tests in order to make distributions to our shareholders.
Higher interest rates could increase debt service requirements on any of our floating rate debt, including our senior unsecured revolving credit facilities, and could reduce the amounts available for distribution to our shareholders, as well as reduce funds available for our operations, future business opportunities or other purposes. We have obtained, and we may in the future obtain, one or more forms of interest rate protection — in the form of swap agreements, interest rate cap contracts or similar agreements that are consistent with our intention to remain qualified as a REIT — to “hedge” against the possible negative effects of interest rate fluctuations. However, such hedging incurs costs and we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases or that counterparties under these agreements will honor their obligations thereunder. Adverse economic conditions could also cause the terms on which we borrow to be unfavorable.
Our senior executive officers have broad discretion to make investments, and they may make investments where the returns are substantially below expectations or which result in net operating losses.
Our senior executive officers have broad discretion, within the general investment criteria established by our board of trustees, to invest our capital and to determine the timing of such investments. In addition, our investment policies may be revised from time to time at the discretion of our board of trustees, without a vote of our shareholders. Such discretion could result in investments that may not yield returns consistent with expectations.
Some of our hotels are subject to rights of first offer which may adversely affect our ability to sell those properties on favorable terms or at all.
We are subject to a franchisor’s or operator’s right of first offer, in some instances. These third-party rights may adversely affect our ability to timely dispose of these properties on favorable terms, or at all.
The purchase or sale of properties we put under contract may not be consummated.
From time to time, we enter into purchase and sale agreements for hotel properties. These transactions, whether or not consummated, require substantial time and attention from management. Furthermore, potential acquisitions and potential dispositions require significant expense, including expenses for due diligence, marketing, legal fees and related overhead. To the extent we do not consummate one or more of the transactions, these expenses will not be offset by revenues or proceeds from these properties or dispositions.
If we cannot obtain financing, our growth will be limited.
To maintain our qualification as a REIT for U.S. federal income tax purposes, we are required to distribute at least 90 percent of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gains) each year to our shareholders and we generally expect to make distributions in excess of such amount. As a result, our ability to retain earnings to fund acquisitions, redevelopment and development or other capital expenditures is and will continue to be limited. Although our business strategy contemplates future access to debt financing (in addition to our senior unsecured revolving credit facilities and term loans) to fund acquisitions, redevelopment, development, return on investment initiatives and working capital requirements, there can be no assurance that we will be able to obtain such financing on favorable terms or at all. Events in financial markets have adversely impacted the credit markets, and they may do so in the future, and, as a result, credit can become significantly more expensive and difficult to obtain, if available at all. Tightening credit markets may have an adverse effect on our ability to obtain financing on favorable terms, if at all, thereby increasing financing costs and/or requiring us to accept financing with increased restrictions and/or significantly higher interest rates. If adverse conditions in the credit markets—in particular with respect to real estate or lodging industry finance-materially deteriorate, our business could be materially and adversely affected.

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Our cash and cash equivalents are maintained in a limited number of financial institutions and the funds in those institutions may not be fully or federally insured.
We maintain cash balances in a limited number of financial institutions. Our cash balances are generally in excess of federally insured limits. The failure or collapse of one or more of these financial institutions may materially adversely affect our ability to recover our cash balances.
Our conflicts of interest policy may not adequately address all of the conflicts of interest that may arise with respect to our activities.
In order to avoid any actual or perceived conflicts of interest with our trustees, officers or employees, we have adopted a conflicts of interest policy to specifically address some of the potential conflicts relating to our activities. Although under this policy any transaction, agreement or relationship in which any of our trustees, officers or employees has an interest must have the approval of a majority of our disinterested trustees, there is no assurance that this policy will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.
Risks Related to Debt and Financing
Our existing indebtedness contains financial covenants that could limit our operations and our ability to make distributions to our shareholders.
The credit agreements that govern our existing senior unsecured revolving credit facilities and unsecured term loan facilities contain financial and operating covenants, such as net worth requirements, fixed charge coverage, debt ratios and other limitations that restrict our ability to make distributions or other payments to our stockholders, sell all or substantially all of our assets and engage in mergers, consolidations and certain acquisitions without the consent of the lenders. In addition, property-level debt we enter into in the future may contain restrictions (including cash management provisions) that may under circumstances specified in the loan agreements prohibit our subsidiaries that own our hotels from making distributions or paying dividends, repaying loans to us or other subsidiaries or transferring any of their assets to us or another subsidiary which could adversely affect our ability to make distributions to our shareholders. Failure to meet our financial covenants could result from, among other things, changes in our results of operations, the incurrence of additional debt or changes in general economic conditions. Such failures could cause one or more of our lenders to accelerate the timing of payments and could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders. The terms of our debt may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our shareholders.
Mortgage loan agreements we may enter into in the future may contain “cash trap” provisions that could limit our ability to make distributions to our shareholders.
Mortgage loan agreements that we may enter into in the future may contain cash trap provisions that may be triggered if the performance of the hotels securing the loans declines below a threshold. If these provisions are triggered, substantially all of the profit generated by the hotel will be deposited directly into a lockbox account and then swept into a cash management account for the benefit of the lender. In that event, cash would be distributed to us only after certain items are paid, including deposits into leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses and extraordinary capital expenditures and leasing expenses. This could adversely affect our liquidity and our ability to make distributions to our shareholders.
There is refinancing risk associated with our debt.
Our typical debt contains limited principal amortization; therefore, the vast majority of the principal must be repaid at the maturity of the loan in a so-called “balloon payment.” At the maturity of these loans, assuming we do not have sufficient funds to repay the debt, we will need to refinance the debt. If the credit environment is constrained at the time of our debt maturities, we would have a very difficult time refinancing debt or refinancing terms may be at substantially higher interest rates and/or lower proceeds. If we are unable to refinance our debt on acceptable terms, we may be forced to choose from a number of unfavorable options. These options include agreeing to otherwise unfavorable financing terms on one or more of our unencumbered assets, selling one or more hotels at disadvantageous terms, including unattractive prices, or defaulting on the mortgage and permitting the lender to foreclose. Any one of these options could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders.
If we default on our secured debt, the lenders may foreclose on our hotels.
All of our indebtedness for borrowed money, except our senior unsecured revolving credit facility, term loans and senior unsecured notes, is secured by either single property first mortgage liens or leasehold interests under the ground leases on the

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applicable hotel. If we default on any of the secured loans, the applicable lender will be able to foreclose on the property pledged to secure the loan.
In addition to causing us to lose the property, a foreclosure may result in taxable income. Under the Code, a foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure even though we did not receive any cash proceeds. As a result, we may then be required to identify and utilize other sources of cash for distributions to our shareholders. If this occurs, our financial condition, cash flow and ability to satisfy our other debt obligations or ability to pay distributions may be adversely affected.
Acquiring outstanding debt secured by a hotel or resort property may expose us to risks of costs and delays in acquiring the underlying property.
We may acquire outstanding debt secured by a hotel or resort property from lenders and investors if we believe we can ultimately foreclose or otherwise acquire ownership of the underlying property in the near-term through foreclosure, deed-in-lieu of foreclosure or other means. However, if we do acquire such debt, borrowers may seek to assert various defenses to our foreclosure or other actions and we may not be successful in acquiring the underlying property on a timely basis, or at all, in which event we could incur significant costs and experience significant delays in acquiring such properties, all of which could adversely affect our financial performance and reduce our expected returns from such investments. In addition, we may not earn a current return on such investments particularly if the loan that we acquire is in default.

Changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, may adversely affect our financial results.
 
As of December 31, 2019, all of the debt outstanding under our unsecured term loans and our senior unsecured revolving credit facilities was indexed to LIBOR. In July 2017, the Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to phase out LIBOR rates by the end of 2021. We cannot predict the further effect of the FCA’s announcement, any changes in the methods by which LIBOR is determined or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Such developments may cause LIBOR to perform differently than in the past, or cease to exist. In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute, the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using alternative methods, which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.

Risks Related to the Lodging Industry
Economic conditions may reduce demand for hotel properties and adversely affect hotel profitability.
The performance of the lodging industry has historically been closely linked to the performance of the general economy and, specifically, growth in U.S. GDP. It is also sensitive to business and personal discretionary spending levels. Declines in corporate travel budgets and consumer demand due to adverse general economic conditions, such as declines in U.S. GDP, risks affecting or reducing travel patterns (such as governmental restrictions on in-bound international travel), lower consumer confidence or adverse political conditions can lower the revenues and profitability of hotel properties and therefore the net operating profits of our TRS lessees to whom we lease our hotel properties. Another domestic or global economic downturn may lead to a significant decline in demand for products and services provided by the lodging industry, lower occupancy levels and significantly reduced room rates.
We cannot predict the pace or duration of the global economic cycles or the cycles in the lodging industry. A period of economic weakness would likely have an adverse impact on our revenues and negatively affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

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Our operating results and ability to make distributions to our shareholders may be adversely affected by various operating risks common to the lodging industry.
Our hotel properties have different economic characteristics than many other real estate assets and a hotel REIT is structured differently than many other types of REITs. Our TRS lessees engage hotel managers pursuant to management contracts and pay the managers fees for managing the hotels. The TRS lessees receive all the operating profit or losses of the hotels. Moreover, virtually all hotel guests stay at a hotel for only a few nights at a time, so the rate and occupancy at each of our hotels change daily. As a result, we may have highly volatile earnings.
In addition, our hotel properties are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the following:
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competition from other hotel properties and non-hotel properties that provide nightly and short-term rentals in our markets;
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over-building of hotels in our markets, which could adversely affect occupancy and revenues at our hotel properties;
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dependence on business and commercial travelers, conventions and tourism;
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increases in energy costs, airplane fares, government taxes and fees, and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
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increases in operating costs due to inflation and other factors that may not be offset by increased room rates;
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changes in interest rates and in the availability, cost and terms of debt financing;
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changes in governmental laws and regulations (including minimum wage increases), fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
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adverse effects of international, national, regional and local economic and market conditions;
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labor strikes or disruptions;
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unforeseen events beyond our control, such as terrorist attacks, cyber-attacks, travel-related health concerns and restrictions as a result of pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu, Zika virus, SARS, MERS, and COVID-19 (coronavirus), political instability, regional hostilities, imposition of taxes or surcharges by regulatory authorities, travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes, tsunamis or earthquakes;
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strength of the U.S. dollar which may reduce in-bound international travel and encourage out-bound international travel;
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adverse effects of a downturn in the lodging industry; and
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risks generally associated with the ownership of hotel properties and real estate, as we discuss in more detail below.
These factors could reduce the revenues and net operating profits of our TRS lessees, which in turn could adversely affect our financial condition, results of operations, the market price of our common shares, and our ability to make distributions to our shareholders.
Competition for acquisitions may reduce the number of properties we can acquire.
We compete for investment opportunities with entities that may have substantially greater financial and other resources than we have. These entities generally may be able to accept more risk than we can prudently manage. This competition may generally limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire. This competition may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms.
The seasonality of the lodging industry may cause fluctuations in our quarterly revenues that cause us to borrow money to fund distributions to our shareholders.
The lodging industry is seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in our revenues. Our quarterly earnings may be adversely affected by factors outside our control, including weather conditions and

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poor economic factors. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these fluctuations in revenues and to make distributions to our shareholders.
The cyclical nature of the lodging industry may cause the returns from our investments to be less than we expect.
The lodging industry is highly cyclical in nature. Fluctuations in lodging demand and, therefore, hotel operating performance, are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect lodging industry fundamentals, and over-building has the potential to exacerbate the negative impact of poor economic conditions. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. A decline in lodging demand, or a continued growth in lodging supply, could result in continued deterioration in lodging industry fundamentals and returns that are substantially below expectations, or result in losses, which could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Capital expenditure requirements at our properties may be costly and require us to incur debt, postpone improvements, reduce distributions or otherwise adversely affect the results of our operations and the market price of our common shares.
Some of the hotel properties we acquire need renovations and capital improvements at the time of acquisition and all the hotel properties we have acquired and will acquire in the future will have an ongoing need for renovations and other capital improvements, including replacement, from time to time, of furniture, fixtures and equipment. The franchisors, if any, of our hotel properties also require periodic capital improvements as a condition to our maintaining the franchise licenses. In addition, our lenders often require that we set aside annual amounts for capital improvements to our hotel properties. These capital improvements may give rise to the following risks:
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possible environmental problems;
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construction cost overruns and delays;
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the possibility that revenues will be reduced while rooms or restaurants are out of service due to capital improvement projects;
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a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on attractive terms; and
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uncertainties as to market demand or a loss of market demand after capital improvements have begun.
The costs of renovations and capital improvements could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Hotel and resort development and redevelopment is subject to timing, budgeting and other risks that may adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
We may engage in hotel development and redevelopment if suitable opportunities arise. Hotel development and redevelopment involves a number of risks, including risks associated with:
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construction delays or cost overruns that may increase project costs;
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the receipt of zoning, occupancy and other required governmental permits and authorizations;
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development costs incurred for projects that are not pursued to completion;
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acts of God such as earthquakes, hurricanes, floods or fires that could adversely impact a project;
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the negative impact of construction on operating performance during and soon after the construction period;
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the ability to raise capital; and
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governmental restrictions on the nature or size of a project.
We cannot assure you that any development or redevelopment project will be completed on time or within budget. Our inability to complete a project on time or within budget could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
The increasing use by consumers of Internet travel intermediaries and alternative lodging marketplaces may reduce our revenues.

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Some of our hotel rooms are booked through Internet travel intermediaries, such as Travelocity.com, Expedia.com and Priceline.com. As bookings through these intermediaries increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from the management companies that operate the hotels we own and acquire. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”), at the expense of brand identification or quality of product or service. These intermediaries hope that consumers will eventually develop brand loyalties to their reservations system rather than to lodging brands or properties. Additional sources of competition, such as alternative lodging marketplaces like Airbnb, may, as they become more accepted, lead to a reduced demand for conventional hotel guest rooms and to an increased supply of lodging alternatives. If the amount of bookings made through Internet travel intermediaries or the use of alternative lodging marketplaces prove to be more significant than we expect, profitability may be lower than expected, and our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders may be adversely affected.
We may be adversely affected by increased use of business-related technology which may reduce the need for business-related travel.
The increased use of teleconference and video-conference technology by businesses could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location. To the extent that such technologies play an increased role in day-to-day business and the necessity for business-related travel decreases, hotel room demand may decrease and our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders may be adversely affected.
We and our hotel managers rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
We and our hotel managers rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as individually identifiable information, including information relating to financial accounts. Recently, a number of hotels and hotel management companies have been subject to successful cyber-attacks, including those seeking guest credit card information. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems' improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information or theft of corporate funds and expose us to claims by guests whose personal information is accessed. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
Many of our hotel managers carry cyber insurance policies to protect and offset a portion of potential costs that may be incurred from a security breach. Additionally, we currently have cyber insurance policies to provide supplemental coverage above the coverage carried by our third-party managers. Despite various precautionary steps to protect our hotels from losses resulting from cyber-attacks, however, any occurrence of a cyber-attack could still result in losses at our properties, which could affect our results of operations.  We are not aware of any cyber incidents that we believe to be material or that could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor.

Our third-party hotel managers are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage employees at our hotels, we are subject to risks associated with the employment of hotel personnel, particularly at those hotels with unionized labor. From time to time, strikes, lockouts, public demonstrations or other negative actions and publicity may disrupt hotel operations. In addition, we may be affected by shortages of qualified labor. If our managers are unable to hire qualified labor, our hotel customers may not receive adequate service. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. The resolution of labor disputes or new or re-negotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes

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in work rules that raise hotel operating costs. Furthermore, collective bargaining agreements, negotiated between the hotel managers and labor unions, may limit the ability of the hotel managers to reduce the size of hotel workforces during economic downturns. We do not have the ability to control negotiations between hotel managers and labor unions. In addition, we believe that unions are generally becoming more aggressive about organizing workers at hotels in certain locations. Potential labor activities at these hotels could significantly increase the administrative, labor and legal expenses of the third-party management companies operating these hotels and reduce the profits we receive. If additional employees at our hotels become unionized, this could have a material adverse effect on our business, financial condition and results of operations.
Terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.
Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries over the past several years, often disproportionately to the effect on the overall economy. The impact that terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be definitively determined, but any such attacks or the threat of such attacks could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties and our results of operations and financial condition.
Uninsured and underinsured losses could result in a loss of capital.
We maintain comprehensive property insurance on each of our hotel properties, including liability, fire and extended coverage, of the type and amount we believe are customarily obtained for or by hotel owners. There are no assurances that coverage will remain available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods, and losses from terrorist activities, may not be insurable in whole or in part or may not be available on terms that we consider acceptable.
In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel property, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.
Our hotels may be subject to unknown or contingent liabilities which could cause us to incur substantial costs.
The hotel properties that we own or may acquire are or may be subject to unknown or contingent liabilities for which we may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the hotel properties may not survive the closing of the transactions. While we will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with these hotels may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Noncompliance with environmental laws and regulations could subject us to fines and liabilities which could adversely affect our operating results.
Our hotel properties are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require us, as owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur cleanup costs even after we sell some of the properties we acquire. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow funds using the property as collateral or to sell the property. Under the environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. A person that arranges for the disposal or transports for disposal or treatment of a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property.
Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Also, some of these environmental laws restrict the use of a property or place conditions

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on various activities. An example would be laws that require a business using chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and to notify local officials that the chemicals are being used.
We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
As a result, we may become subject to material environmental liabilities. We can make no assurances that future laws or regulations will not impose material environmental liabilities or that the current environmental condition of our hotel properties will not be affected by the condition of the properties in the vicinity of our hotel properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.
Our hotel properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. Some of our properties may contain microbial matter such as mold and mildew. The presence of significant mold at any of our hotel properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property. The presence of significant mold could expose us to liability from hotel guests, hotel employees and others if property damage or health concerns arise.
Compliance with the Americans with Disabilities Act could require us to incur substantial costs.
Under the ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. While we believe that our hotels are substantially in compliance with these requirements, a determination to the contrary could require removal of access barriers and non-compliance could result in litigation costs, costs to remediate deficiencies, U.S. government fines or damages to private litigants.
If we are required to make substantial modifications to our hotel properties, whether to comply with the ADA or other changes in governmental rules and regulations, our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders could be adversely affected.

The nature of the operations of our hotels exposes us to the risk of claims and litigation that may arise in the normal course of business.
 As owners of hotel properties, we face potential claims, litigation and threatened litigation from guests, visitors to our properties, contractors, sub-contractors and others.  These claims and proceedings are inherently uncertain and their costs and outcomes cannot be predicted with certainty. Regardless of their outcomes, such claims and legal proceedings can have an adverse impact on us because of the legal and other costs, diversion of management time and resources and other factors. Although we and our hotel management companies maintain insurance covering some of these matters, it is possible that one or more claims, suits or proceedings may not be covered by insurance and could result in substantial costs, judgments, fines and penalties that could adversely affect our business, consolidated financial position, results of operations or cash flows.

A delay in approving a budget and/or continuing appropriation legislation to fund the operations of the federal government, failure to raise the borrowing limit for the federal government, and other legislative changes and governmental disruptions could affect travel directly and indirectly and may thereby negatively impact our revenues and cash available for distributions.

The delay in approving a budget and continuing appropriation legislation to fund the operations of the federal government caused many federal agencies to cease or curtail some activities during the fourth quarter of 2013 and for an even longer period of time beginning in the fourth quarter of 2018.  In April 2013, the Federal Aviation Administration announced the implementation of furloughs of air traffic controllers, resulting in flight delays throughout the United States until the U.S. Congress passed a bill suspending such furloughs. There can be no assurance that similar action or inaction by federal or state government agencies, or other efforts to reduce government expenditures or growth, will not occur again in future periods, resulting in difficulties and discouraging travel or meetings and conferences.  The reduction in income from both businesses and federal government employees and the possibility of another federal government impasse may adversely affect consumer confidence or may discourage both business and leisure travel, resulting in the deferral or cancellation of travel and a negative effect on our group and transient revenues in the future.  Such impacts could have a material adverse impact on our consolidated financial statements.

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General Risks Related to the Real Estate Industry
Illiquidity of real estate investments could significantly impede our ability to sell hotels or otherwise respond to adverse changes in the performance of our hotel properties.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties for reasonable prices in response to changing economic, financial and investment conditions will be limited. The real estate market is affected by many factors beyond our control, including:
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adverse changes in international, national, regional and local economic and market conditions;
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changes in interest rates and in the availability, cost and terms of debt financing;
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changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
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the ongoing need for capital improvements, particularly in older structures;
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changes in operating expenses; and
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civil unrest, acts of God, including earthquakes, floods, wildfires and other natural disasters, which may result in uninsured losses, and acts of war or terrorism.
We have acquired hotels, and may acquire additional hotels in the future, subject to ground leases or other leasehold interests. Sales of property subject to such leases may require the consent of the lessors. This consent requirement may make it more difficult or expensive to sell or finance the hotels subject to ground leases or other leasehold interests.
We may decide to sell hotel properties in the future. We cannot predict whether we will be able to sell any hotel property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property.
We may be required to expend funds to correct defects or to make improvements before a hotel property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of the hotel properties or a need for liquidity could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
If states and localities in which we own material amounts of property or conduct material amounts of business raise their income and property tax rates or amend their tax regimes in a manner that increases our state and local tax liabilities, we would have less cash available for distribution to our shareholders and the market price of our shares could be adversely affected.

We and our subsidiaries are subject to income tax and other taxes by states and localities in which we conduct business. Additionally, we are and will continue to be subject to property taxes in states and localities in which we own property, and our TRS lessees are and will continue to be subject to federal, state and local corporate income tax. States and localities may seek additional sources of revenue to reduce budget deficits and otherwise improve their financial condition or provide more services, they may, among other steps, raise income and property tax rates and/or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for U.S. federal income tax purposes. We cannot predict when or if any states or localities would make any such changes, or what form those changes would take. If states and localities in which we own material amounts of property or conduct material amounts of business make changes to their tax rates or tax regimes that increase our state and local tax liabilities, such increases would reduce the amount of cash available for distribution to our shareholders and could adversely affect the market price of our shares.
The costs of compliance with or liabilities under environmental laws could significantly reduce our profitability.
Operating expenses at our hotels could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. In addition, an owner of real property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:
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our lack of knowledge of the contamination;
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the timing of the contamination;

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the cause of the contamination; or
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the party responsible for the contamination of the property.
Environmental laws also impose ongoing compliance requirements on owners and operators of real property. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials, storage tanks, storm water and wastewater discharges, lead-based paint, mold/mildew and hazardous wastes. Failure to comply with these laws could result in fines and penalties and/or expose us to third-party liability. Some of our properties may have conditions that are subject to these requirements, and we could be liable for such fines or penalties and/or liable to third parties.
Certain hotel properties we own or may own in the future may contain, or may have contained, asbestos-containing building materials ("ACBMs"). Environmental laws require that ACBMs be properly managed and maintained and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, certain properties may be adjacent or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. These operations create a potential for the release of petroleum products or other hazardous or toxic substances. Third parties may be permitted by law to seek recovery from owners or operators for property damage and/or personal injury associated with exposure to contaminants, including, but not limited to, petroleum products, hazardous or toxic substances and asbestos fibers.
We have obtained Phase I environmental site assessments ("ESAs") on our hotel properties and expect to do so for hotel properties we acquire in the future. ESAs are intended to evaluate information regarding the environmental condition of the surveyed property and surrounding properties based generally on visual observations, interviews and certain publicly available databases. These assessments do not typically take into account all environmental issues including, but not limited to, testing of soil or groundwater or the possible presence of asbestos, lead-based paint, radon, wetlands or mold. As a result, these assessments may fail to reveal all environmental conditions, liabilities or compliance concerns. Material environmental conditions, liabilities or compliance concerns may arise after the ESAs and future laws, ordinances or regulations may impose material additional environmental liability. We cannot assure you that costs of future environmental compliance will not affect our ability to make distributions to our shareholders or that such costs or other remedial measures will not be material to us.
The presence of hazardous substances on a property may limit our ability to sell the property on favorable terms or at all, and we may incur substantial remediation costs. The discovery of material environmental liabilities at our properties could subject us to unanticipated significant costs, which could significantly reduce our profitability and the cash available for distribution to our shareholders.
Risks Related to Our Organization and Structure
Provisions of our declaration of trust may limit the ability of a third party to acquire control of us by authorizing our board of trustees to authorize issuances of additional securities.
Our declaration of trust authorizes our board of trustees to issue up to 500,000,000 common shares and up to 100,000,000 preferred shares. In addition, our board of trustees may, without shareholder approval, amend our declaration of trust to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common shares or preferred shares and to set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of trustees may authorize the issuance of additional shares or establish a series of common or preferred shares that may have the effect of delaying or preventing a change in control of our company, including transactions at a premium over the market price of our shares, even if shareholders believe that a change of control is in their interest.
Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of trustees or shareholders to approve proposals to acquire our company or effect a change of control.
Certain provisions of the Maryland General Corporation Law (the "MGCL") applicable to Maryland real estate investment trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10 percent or more of the voting power of our shares) or an affiliate of any interested shareholder for five years after the most recent date on which the

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shareholder becomes an interested shareholder, and thereafter imposes special appraisal rights and special shareholder voting requirements on these combinations; and

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“control share” provisions that provide that our “control shares” (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
By resolution of our board of trustees, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of trustees (including a majority of trustees who are not affiliates or associates of such persons). Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of trustees may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.
Additionally, Title 8, Subtitle 3 of the MGCL permits our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover defenses, such as a classified board. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then current market price. In October 2015, we opted out of the classified board provision of Title 8, Subtitle 3 of the MGCL and prohibited ourselves from opting back into that provision without prior approval of our shareholders.
The ownership limitations in our declaration of trust may restrict or prevent shareholders from engaging in certain transfers of our common shares.
In order for us to maintain our qualification as a REIT for U.S. federal income tax purposes, no more than 50 percent in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the U.S. federal income tax laws to include various kinds of entities) during the last half of any taxable year. To assist us in maintaining our qualification as a REIT, our declaration of trust contains a share ownership limit. Generally, any of our shares owned by affiliated owners will be added together for purposes of the share ownership limit.
If anyone transfers our shares in a way that would violate the share ownership limit or prevent us from qualifying as a REIT under the U.S. federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the share ownership limit or we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Anyone who acquires our shares in violation of the share ownership limit or the other restrictions on transfer in our declaration of trust bears the risk of suffering a financial loss when the shares are redeemed or sold if the market price of our shares falls between the date of purchase and the date of redemption or sale.
In addition, these ownership limitations may prevent an acquisition of control of us by a third party without our board of trustees' approval, even if our shareholders believe the change of control is in their interest.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit shareholders' recourse in the event of actions not in their best interests.
Under Maryland law, generally, a trustee's actions will be upheld if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our declaration of trust limits the liability of our trustees and officers to us and our shareholders for money damages, except for liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or
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active and deliberate dishonesty by the trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our declaration of trust authorizes us to indemnify our trustees and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each trustee or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we have entered into indemnification agreements with our officers and

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trustees and we may be obligated to fund the defense costs incurred by our trustees and officers. As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies.
Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.
Our declaration of trust provides that a trustee may be removed only for cause (as defined in our declaration of trust) and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. Our declaration of trust also provides that vacancies on our board of trustees may be filled only by a majority of the remaining trustees in office, even if less than a quorum. These requirements prevent shareholders from removing trustees except for cause and with a substantial affirmative vote and from replacing trustees with their own nominees and may prevent a change in control of our company that is in the best interests of our shareholders.
The ability of our board of trustees to change our major policies without the consent of shareholders may not be in shareholders' interest.
Our board of trustees determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to shareholders. Our board of trustees may amend or revise these and other policies and guidelines from time to time without the vote or consent of our shareholders. Accordingly, our shareholders will have limited control over changes in our policies and those changes could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.
Further issuances of equity securities may be dilutive to current shareholders.
We expect to issue additional common shares or preferred shares to raise the capital necessary to finance hotel acquisitions or improvements, refinance debt or pay portions of future dividends. In addition, we may issue units in our Operating Partnership, which are redeemable on a one-for-one basis for our common shares, to acquire hotels. Such issuances could result in dilution of our shareholders' equity interests.
Future offerings of debt securities or preferred shares, which would be senior to our common shares upon liquidation and for the purpose of distributions, may cause the market price of our common shares to decline.
We have issued six series of preferred shares, of which we have repurchased two and four remain outstanding, and two series of senior unsecured notes. In the future, we may increase our capital resources by making additional offerings of debt or equity securities, which may include senior or subordinated notes, series of preferred shares and common shares. We will be able to issue additional common shares or preferred shares without shareholder approval, unless shareholder approval is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Upon liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common shares. Additional equity offerings could significantly dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to preemptive rights or other protections against dilution. Preferred shares and debt, if issued, have a preference on liquidating distributions or a preference on dividend or interest payments that could limit our ability to make a distribution to the holders of our common shares. Because our decision to issue securities will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future securities issuances reducing the market price of our common shares and diluting their interest.
Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.
Our board of trustees has the authority to designate and issue preferred shares with liquidation, dividend and other rights that are senior to those of our common shares. As of December 31, 2019, 5,000,000 shares of our 6.50% Series C Cumulative Redeemable Preferred Shares (the “Series C Preferred Shares”), 5,000,000 shares of our 6.375% Series D Cumulative Redeemable Preferred Shares (the “Series D Preferred Shares”) 4,400,000 shares of our 6.375% Series E Cumulative Redeemable Preferred Shares (the “Series E Preferred Shares”) and 6,000,000 shares of our 6.30% Series F Cumulative Redeemable Preferred Shares (the “Series F Preferred Shares”) were issued and outstanding. The aggregate liquidation preference with respect to the outstanding preferred shares is approximately $510.0 million, and aggregate annual dividends on our outstanding preferred shares are approximately $32.6 million. Holders of any of these preferred shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares. Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common shares, holders of these preferred shares are entitled to receive a liquidation preference of $25.00 per share plus any accrued and unpaid

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distributions. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common shares. In addition, holders of these preferred shares have the right to elect two additional trustees to our board of trustees whenever dividends on the preferred shares are in arrears for six or more quarterly dividends, whether or not consecutive.
The change of control conversion and redemption features of the Series C Preferred Shares, the Series D Preferred Shares, the Series E Preferred Shares and the Series F Preferred Shares may make it more difficult for a party to take over our company or discourage a party from taking over our company.
Upon the occurrence of a change of control (as defined in our declaration of trust) as the result of which our common shares and the common securities of the acquiring or surviving entity (or American Depositary Receipts representing such securities) are not listed on the New York Stock Exchange (the “NYSE”), the NYSE American LLC or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American LLC or NASDAQ, holders of Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares or Series F Preferred Shares will have the right (unless, as provided in our declaration of trust, we have provided or provide notice of our election to redeem the applicable series) to convert some or all of their preferred shares into our common shares (or equivalent value of alternative consideration), and under these circumstances we will also have a special optional redemption right to redeem such shares. Upon such a conversion, holders of Series C Preferred Shares will be limited to a maximum number of our common shares equal to 2.0325 multiplied by the number of Series C Preferred Shares converted, holders of Series D Preferred Shares will be limited to a maximum number of our common shares equal to 1.9794 multiplied by the number of Series D Preferred Shares converted, holders of Series E Preferred Shares will be limited to a maximum number of our common shares equal to 1.9372 multiplied by the number of Series E Preferred Shares converted and holders of Series F Preferred Shares will be limited to a maximum number of our common shares equal to 2.0649 multiplied by the number of Series F Preferred Shares converted. In addition, those features of the Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares and Series F Preferred Shares may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change of control of our company under circumstances that otherwise could provide the holders of our common shares, Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares or Series F Preferred Shares with the opportunity to realize a premium over the then-current market price or that shareholders may otherwise believe is in their best interests.
We have entered into an agreement with each of our executive officers that requires us to make payments in the event the officer's employment is terminated by us without cause, by the officer for good reason or under certain circumstances following a change of control of our company.
The agreements that we have entered into with our executive officers provide benefits under certain circumstances that could make it more difficult or expensive for us to terminate these officers and may prevent or deter a change of control of our company that would otherwise be in the interest of our shareholders.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial results, which could harm our business and the value of our common shares.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually issue their own opinion on our internal controls over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of our common shares. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.
U.S. Federal Income Tax Risk Factors
Our failure to maintain our qualification as a REIT would result in higher taxes and reduced cash available for distribution to our shareholders.
We have elected to be taxed as a REIT for U.S. federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which only a limited number of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT qualification. Our

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qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis.
Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially applicable with retroactive effect, could make it more difficult or impossible for us to maintain our qualification as a REIT. If we were to fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates, and distributions to shareholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our shares. If, for any reason, we ceased to qualify as a REIT and we were not entitled to relief under certain Code provisions, we would be unable to elect REIT status for the four taxable years following the year during which we ceased to so qualify which would negatively impact the value of our shares.
In addition, if we fail to maintain our qualification as a REIT, we will no longer be required to make distributions to shareholders, and all distributions to shareholders will be subject to tax as dividend income to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to execute our business and growth strategies, as well as make it more difficult for us to raise capital and service our indebtedness.
We could face adverse tax consequences if LaSalle failed to qualify as a REIT prior to the merger.
In connection with the closing of the merger, we received an opinion of counsel to the effect that LaSalle qualified as a REIT for U.S. federal income tax purposes through the time of the merger. However, we did not request a ruling from the IRS that LaSalle qualified as a REIT. Notwithstanding the opinion of counsel, if the IRS successfully challenged LaSalle’s REIT status prior to the merger, we could face adverse tax consequences, including:
•succeeding to LaSalle’s liability for U.S. federal income taxes at regular corporate rates for the periods in which LaSalle failed to qualify as a REIT (without regard to the deduction for dividends paid for such periods);
•succeeding to any built-in gain on LaSalle’s assets, for which we could be liable for U.S. federal income tax at regular corporate rates, if we were to recognize such gain in the five-year period following the merger; and
•succeeding to LaSalle’s earnings and profits accumulated during the periods in which LaSalle failed to qualify as a REIT, which we would be required to distribute to our shareholders in order to satisfy the REIT distribution requirements and avoid the imposition of any excise tax.
As a result, we would have less cash available for operations and distributions to our shareholders, which could require us to raise capital on unfavorable terms or pay deficiency dividends.
Complying with REIT requirements may cause us to forego otherwise attractive business opportunities or liquidate otherwise attractive investments.
To maintain our qualification as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and the ownership of our shares. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.
In particular, we must ensure that at the end of each calendar quarter, at least 75 percent of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10 percent of the outstanding voting securities of any one issuer or more than 10 percent of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5 percent of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20 percent of the value of our total assets can be represented by the securities of one or more TRSs and no more than 25 percent of our assets can be represented by debt of "publicly offered REITs" (i.e., REITs that are required to file annual and periodic reports with the SEC under the Exchange Act) that is not secured by real property or interests in real property. The Code provides that temporary investments of new capital in stock or debt instruments for the one-year period beginning on the date on which we receive the new capital will be considered qualified real estate assets for purposes of the above requirements. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

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To maintain our qualification as a REIT and avoid corporate income tax and excise tax, we must distribute annually a certain percentage of our REIT taxable income, which could require us to raise capital on terms or sell properties at prices or at times that are unfavorable.
To maintain our qualification as a REIT, we must distribute to our shareholders each calendar year at least 90 percent of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding any net capital gain. To the extent that we satisfy the 90 percent distribution requirement, but distribute less than 100 percent of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed income. In addition, we will incur a 4 percent nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than the sum of:
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85 percent of our REIT ordinary income for that year;
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95 percent of our REIT capital gain net income for that year; and
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any undistributed REIT taxable income from prior years.
We have distributed, and we intend to continue to distribute, our REIT taxable income to our shareholders in a manner intended to satisfy the 90 percent distribution requirement and to avoid both corporate income tax and the 4 percent nondeductible excise tax. However, there is no requirement that TRSs distribute their after tax net income to their parent REIT or their shareholders.
Our REIT taxable income may substantially exceed our net income as determined based on U.S. generally accepted accounting principles, or U.S. GAAP, because, for example, realized capital losses will be deducted in determining our U.S. GAAP net income, but may not be deductible in computing our REIT taxable income. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow or raise capital on terms or sell properties at prices or at times that we regard as unfavorable in order to distribute enough of our REIT taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4 percent nondeductible excise tax in a particular year.
We may pay taxable dividends partly in shares and partly in cash, in which case shareholders may sell our shares to pay tax on such dividends, placing downward pressure on the market price of our shares.

We may pay taxable dividends partly in shares and partly in cash. Under IRS Revenue Procedure 2017-45, as a publicly offered REIT, as long as at least 20% of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the share distribution as a dividend (to the extent applicable rules treat such distribution as being made out of our earnings and profits). Although we have no current intention of paying dividends in the form of our own shares, if in the future we choose to pay dividends in our own shares, our shareholders may be required to pay tax in excess of the cash that they receive. If a U.S. shareholder sells the shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in shares. If we pay dividends in our own shares and a significant number of our shareholders sell our shares in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our shares.
Our TRS lessees increase our overall tax liability.
Our TRS lessees are subject to U.S. federal and state income tax on their taxable income, which consists of the revenues from the hotel properties leased by our TRS lessees, net of the operating expenses (including management fees) for such hotel properties and rent payments to us. In certain circumstances, the ability of our TRS lessees to deduct interest expense may be limited. Accordingly, although our ownership of our TRS lessees allows us to participate in the operating income from our hotel properties in addition to receiving rent, that operating income is fully subject to income tax. The after-tax net income of our TRS lessees is available for distribution to us.
Our ownership of our TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100 percent penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.
A REIT may own up to 100 percent of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotel operations pursuant to hotel management contracts. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35 percent of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20 percent of the value of a REIT's assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS

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to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100 percent excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.
Our TRSs are subject to applicable U.S. federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us, but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is and will continue to be less than 20 percent of the value of our total assets (including our TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm's-length terms to avoid incurring the 100 percent excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation discussed above or to avoid application of the 100 percent excise tax discussed above.
If the leases of our hotel properties to our TRS lessees are not respected as true leases for U.S. federal income tax purposes, we would fail to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders.
To maintain our qualification as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to our Operating Partnership by our TRS lessees pursuant to the lease of our hotel properties constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. If our leases are not respected as true leases for U.S. federal income tax purposes, we would fail to qualify as a REIT.
If our Operating Partnership failed to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders and suffer other adverse consequences.
We believe that our Operating Partnership qualifies to be treated as a partnership for U.S. federal income tax purposes. As a partnership, our Operating Partnership generally is not subject to U.S. federal income tax on its income. Instead, each of its partners, including us, is required to pay tax on its allocable share of our Operating Partnership's income. No assurance can be provided, however, that the IRS will not challenge its status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our Operating Partnership as a corporation for tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of our Operating Partnership to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
If our TRSs fail to qualify as TRSs for U.S. federal income tax purposes or our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT.
Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease all of our hotels to our TRS lessees. So long as any TRS lessee qualifies as a TRS, it will not be treated as a “related party tenant” with respect to our properties that are managed by an independent hotel management company that qualifies as an “eligible independent contractor.” We believe that our TRSs qualify to be treated as TRSs for U.S. federal income tax purposes, but there can be no assurance that the IRS will not challenge the status of a TRS for U.S. federal income tax purposes or that a court would not sustain such a challenge. If the IRS were successful in disqualifying any of our TRS lessee from treatment as a TRS, it is possible that we would fail to meet the asset tests applicable to REITs and substantially all of our income would fail to qualify for the gross income tests. If we failed to meet either the asset or gross income tests, we would likely lose our REIT qualification for U.S. federal income tax purposes.
Additionally, if our hotel managers do not qualify as “eligible independent contractors,” we will fail to qualify as a REIT. Each of the hotel management companies that enter into a management contract with our TRS lessees must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS lessees to be qualifying income for purposes of the REIT gross income tests. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own, directly or through its shareholders, more than 35 percent of our outstanding shares, taking into account certain ownership attribution rules. The ownership attribution rules that apply for purposes of these 35 percent thresholds are complex. Although we intend to monitor ownership of our shares by our hotel managers and their owners, there can be no assurance that these ownership levels will not be exceeded.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

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The maximum U.S. federal income tax rate applicable to qualified dividend income payable to certain non-corporate U.S. shareholders is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced qualified dividend rates. For taxable years beginning after December 31, 2017 and before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75 percent or 95 percent gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRSs.
If our subsidiary REITs failed to qualify as REITs, we could be subject to higher taxes and could fail to remain qualified as REITs.
Our Operating Partnership owns 100% of the common shares of our subsidiary REITs that have elected to be taxed as REITs under the U.S. federal income tax laws. Our subsidiary REITs are subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If either of our subsidiary REITs were to fail to qualify as a REIT, then (i) such subsidiary REIT would become subject to U.S. federal income tax and (ii) our ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If our subsidiary REITs were to fail to qualify as a REIT, it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions. We have made “protective” TRS elections with respect to each of our subsidiary REITs and may implement other protective arrangements intended to avoid such an outcome if our subsidiary REITs were not to qualify as a REIT, but there can be no assurance that such “protective” elections and other arrangements will be effective to avoid the resulting adverse consequences to us. Moreover, even if the “protective” TRS elections were to be effective in the event of the failure of our subsidiary REITs to maintain their qualifications as REITs, such subsidiary REITs would be subject to federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 20 percent of the value of our total assets may be represented by the securities of one or more TRSs. In this event, we would fail to qualify as a REIT unless we or such subsidiary REITs could avail ourselves or themselves of certain relief provisions.
The ability of our board of trustees to revoke our REIT qualification without shareholder approval may subject us to U.S. federal and state income tax and reduce distributions to our shareholders.
Our declaration of trust provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our shareholders, which may have adverse consequences on our total return to our shareholders and on the market price of our common shares.
The share ownership restrictions of the Code for REITs and the 9.8 percent share ownership limit in our declaration of trust may inhibit market activity in our shares and restrict our business combination opportunities.
In order to qualify as a REIT for each taxable year, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50 percent in value of our issued and outstanding shares at any time during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares under this requirement. Additionally, at least 100 persons must beneficially own our shares during at least 335 days of each

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taxable year. To help insure that we meet these tests, our declaration of trust restricts the acquisition and ownership of our shares.
Our declaration of trust, with certain exceptions, authorizes our board of trustees to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of trustees, our declaration of trust prohibits any person from beneficially or constructively owning more than 9.8 percent (measured by value or number of shares, whichever is more restrictive) of any class or series of our shares. Our board of trustees may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8 percent of the value of our outstanding shares would result in the termination of REIT status. These restrictions on transferability and ownership will not apply, however, if our board of trustees determines that it is no longer in our best interest to continue to qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our shares or otherwise be in the best interest of the shareholders.
The prohibited transactions tax may limit our ability to engage in transactions, including dispositions of assets that would be treated as sales for U.S. federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of real property or may conduct such sales through a TRS.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce the tax benefits of our REIT structure compared to non-REIT corporations, reduce our operating flexibility and reduce the market price of our shares.
At any time, the U.S. federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative and judicial interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative or judicial interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We cannot predict the long-term effect of any recent changes or any future law changes on REITs and their shareholders. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative and judicial interpretation.

Item 1B. Unresolved Staff Comments.
None.

Item 2. Properties.

We lease our headquarters located at 4747 Bethesda Avenue, Suite 1100, Bethesda, Maryland 20814. We lease office space that was formerly used as our headquarters at 7315 Wisconsin Avenue, 1100 West, Bethesda, Maryland 20814 and 7550 Wisconsin Avenue, 10th Floor, Bethesda, Maryland 20814.

At December 31, 2019, we owned 56 hotels with a total of 14,013 guest rooms.

The following table sets forth certain information about the hotels we owned as of December 31, 2019, all of which are consolidated in our financial statements.
 
Property
 
 
Date Acquired
 
Location
 
Number of Guest Rooms
1.
L'Auberge Del Mar
 
 
November 30, 2018
 
Del Mar, CA
 
121

2.
Hotel Palomar Los Angeles Beverly Hills
(1) 
 
November 20, 2014
 
Los Angeles, CA
 
264

3.
W Los Angeles - West Beverly Hills
 
 
August 23, 2012
 
Los Angeles, CA
 
297

4.
Chamberlain West Hollywood Hotel
 
 
November 30, 2018
 
West Hollywood, CA
 
115


28

5.
Grafton on Sunset
 
 
November 30, 2018
 
West Hollywood, CA
 
108

6.
Le Parc Suite Hotel
 
 
November 30, 2018
 
West Hollywood, CA
 
154

7.
Mondrian Los Angeles
 
 
May 3, 2011
 
West Hollywood, CA
 
236

8.
Montrose West Hollywood
 
 
November 30, 2018
 
West Hollywood, CA
 
133

9.
Le Meridien Delfina Santa Monica
 
 
November 19, 2010
 
Santa Monica, CA
 
310

10.
Viceroy Santa Monica Hotel
(1) 
 
November 30, 2018
 
Santa Monica, CA
 
162

11.
Embassy Suites San Diego Bay - Downtown
 
 
January 29, 2013
 
San Diego, CA
 
341

12.
Hilton San Diego Gaslamp Quarter
 
 
November 30, 2018
 
San Diego, CA
 
286

13
Paradise Point Resort & Spa
(1) 
 
November 30, 2018
 
San Diego, CA
 
462

14
San Diego Mission Bay Resort
(1) 
 
November 30, 2018
 
San Diego, CA
 
357

15.
Solamar Hotel
 
 
November 30, 2018
 
San Diego, CA
 
235

16.
The Westin San Diego Gaslamp Quarter
 
 
April 6, 2011
 
San Diego, CA
 
450

17.
Argonaut Hotel
(1) 
 
February 16, 2011
 
San Francisco, CA
 
252

18.
Harbor Court Hotel San Francisco
(1) 
 
November 30, 2018
 
San Francisco, CA
 
131

19.
Hotel Spero
 
 
November 30, 2018
 
San Francisco, CA
 
236

20.
Hotel Vitale
(1) 
 
November 30, 2018
 
San Francisco, CA
 
200

21.
Hotel Zelos San Francisco
(2) 
 
October 25, 2012
 
San Francisco, CA
 
202

22.
Hotel Zephyr Fisherman's Wharf
(1) 
 
December 9, 2013
 
San Francisco, CA
 
361

23.
Hotel Zeppelin San Francisco
(2) 
 
May 22, 2014
 
San Francisco, CA
 
196

24.
Hotel Zetta San Francisco
 
 
April 4, 2012
 
San Francisco, CA
 
116

25.
Hotel Zoe Fisherman's Wharf
 
 
June 11, 2015
 
San Francisco, CA
 
221

26.
Sir Francis Drake
 
 
June 22, 2010
 
San Francisco, CA
 
416

27.
The Marker San Francisco
 
 
November 30, 2018
 
San Francisco, CA
 
208

28.
Villa Florence San Francisco on Union Square
 
 
November 30, 2018
 
San Francisco, CA
 
189

29.
Chaminade Resort & Spa
 
 
November 30, 2018
 
Santa Cruz, CA
 
156

30.
Donovan Hotel
(4) 
 
November 30, 2018
 
Washington, DC
 
193

31.
George Hotel
 
 
November 30, 2018
 
Washington, DC
 
139

32.
Hotel Monaco Washington DC
(1) 
 
September 9, 2010
 
Washington, DC
 
184

33.
Mason & Rook Hotel
 
 
November 30, 2018
 
Washington, DC
 
178

34.
Sofitel Washington DC Lafayette Square
 
 
November 30, 2018
 
Washington, DC
 
237

35.
Southernmost Beach Resort
(3) 
 
November 30, 2018
 
Key West, FL
 
262

36.
The Marker Key West
 
 
November 30, 2018
 
Key West, FL
 
96

37.
Hotel Colonnade Coral Gables, Autograph Collection
 
 
November 12, 2014
 
Miami, FL
 
157

38.
LaPlaya Beach Resort and Club
 
 
May 21, 2015
 
Naples, FL
 
189

39.
InterContinental Buckhead Atlanta
 
 
July 1, 2010
 
Buckhead, GA
 
422

40.
Hotel Chicago Downtown, Autograph Collection
 
 
November 30, 2018
 
Chicago, IL
 
354

41.
The Westin Michigan Avenue Chicago
 
 
November 30, 2018
 
Chicago, IL
 
752

42.
Hyatt Regency Boston Harbor
(1) 
 
November 30, 2018
 
Boston, MA
 
270

43.
Revere Hotel Boston Common
 
 
December 18, 2014
 
Boston, MA
 
356

44.
The Liberty, A Luxury Collection Hotel, Boston
(1) (5) 
 
November 30, 2018
 
Boston, MA
 
298

45.
The Westin Copley Place, Boston
(1) 
 
November 30, 2018
 
Boston, MA
 
803

46.
W Boston
 
 
June 8, 2011
 
Boston, MA
 
238

47.
The Roger New York
(1) 
 
November 30, 2018
 
New York, NY
 
194

48.
Hotel Vintage Portland
 
 
July 9, 2012
 
Portland, OR
 
117

49.
The Heathman Hotel
 
 
November 30, 2018
 
Portland, OR
 
151

50.
The Hotel Zags (formerly Hotel Modera)
 
 
August 28, 2013
 
Portland, OR
 
174

51.
The Nines, a Luxury Collection Hotel, Portland
 
 
July 17, 2014
 
Portland, OR
 
331

52.
Sofitel Philadelphia at Rittenhouse Square
 
 
December 3, 2010
 
Philadelphia, PA
 
306

53.
Union Station Hotel Nashville, Autograph Collection
(1) 
 
December 10, 2014
 
Nashville, TN
 
125

54.
Hotel Monaco Seattle
 
 
April 7, 2011
 
Seattle, WA
 
189


29

55.
Hotel Vintage Seattle
 
 
July 9, 2012
 
Seattle, WA
 
125

56.
Skamania Lodge
 
 
November 3, 2010
 
Stevenson, WA
 
258

 
Total number of guest rooms
 
 
 
 
 
 
14,013

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) This property is subject to a long-term ground or air rights lease.
 
(2) This property is subject to a long-term hotel lease.
 
(3) The restaurant facility at this property is subject to a ground lease.
 
(4) This property is closed for renovation as of December 31, 2019 and is expected to re-open in the second quarter as Hotel Zena.
 
(5) We own a 99.99% controlling interest in this property.


Hotel Managers and Hotel Management Agreements

We are a party to hotel management agreements with Access Hotels and Resorts, AccorHotels, Benchmark Hotels and Resorts, CoralTree Hospitality Group, Davidson Hotels and Resorts, HEI Hotels and Resorts, Highgate, Hyatt, InterContinental Hotels Group, JRK Property Holdings, Kimpton Hotels and Restaurants, Marriott International, Noble House Hotels & Resorts, OLS Hotels and Resorts, Provenance Hotels, Pyramid Hotel Group, Sage Hospitality, sbe Hotel Group, Schulte Hospitality Group and Viceroy Hotel Group.

Our management agreements generally have the terms described below:

•
Base Management Fees.  Our management agreements generally provide for the payment of base management fees between 1% and 4% of the applicable hotel's revenues or a fixed amount, as determined in the agreements.

•
Incentive Management and Other Fees.   Some of our management agreements provide for the payment of incentive management fees.  Generally, incentive management fees are 10% to 20% of net operating income above a specified return on project costs or as a percentage of net operating income above various net operating income thresholds.  Some of our management agreements provide for an incentive fee of the lesser of 1% of revenues or the amount by which net operating income exceeds a threshold.  Some of our management agreements have a maximum incentive fee of 2.5% of revenue.

•
Terms.  The terms of our management agreements range from 1 year to 22 years not including renewals, and 1 year to 52 years including renewals.

•
Ability to Terminate.  Many of our management agreements are terminable at will by us upon payment of a termination fee and some are terminable upon sale of the property. Most of the agreements also provide us the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to seven times the annual base management and incentive management fees, depending on the agreement and the reason for termination.

•
Operational Services.  Each manager has exclusive authority to supervise, direct and control the day-to-day hotel operation and management including establishing all room rates, processing reservations, procuring inventories, supplies and services, hiring and firing employees and independent contractors and preparing public relations, publicity and marketing plans for the hotel.

•
Executive Supervision and Management Services.  Each manager supervises all managerial and other hotel employees, reviews hotel operation and maintenance, prepares reports, budgets and projections, and provides other administrative and accounting support services for the hotel. Under certain management agreements, we have approval rights over certain key management personnel at the hotel.

•
Chain Services.  Our management agreements with major hotel franchisors require the managers to furnish chain services that are generally made available to other hotels managed by such operators. Such services may, for example, include: the development and operation of computer systems and reservation services; management and administrative

30

services; marketing and sales services; human resources training services; and additional services as may from time to time be more efficiently performed on a national, regional or group level.

•
Working Capital.  Our management agreements typically require us to maintain working capital for a hotel and to fund the cost of supplies such as linens and other similar items. We are also responsible for providing funds to meet the cash needs for the hotel operations if at any time the funds available from the hotel operations are insufficient to meet the financial requirements of the hotel.

•
Furniture, Fixtures and Equipment Replacements.  We are required to invest in the hotels and to provide all the necessary furniture, fixtures and equipment for the operation of the hotels (including funding any required furniture, fixture and equipment replacements). Our management agreements generally provide that once a year the managers will prepare a list of furniture, fixtures and equipment to be acquired and certain routine capital repairs to be performed in the following year and an estimate of funds that are necessary for our review and approval. To fund the furniture, fixtures and equipment replacements, a specified percentage of the gross revenues of each hotel (typically 4.0%) is either deposited by the manager in an escrow account or held by us, as owner.

•
Building Alterations, Improvements and Renewals.  Our management agreements generally require the managers to prepare an annual estimate of the expenditures necessary for major capital repairs, alterations, improvements, renewals and replacements to the structural, mechanical, electrical, heating, ventilating, air conditioning, plumbing and vertical transportation elements of the hotels. In addition to the foregoing, the management agreements generally provide that the managers may propose such changes, alterations and improvements to the hotels as are required by reason of laws or regulations or, in the manager's reasonable judgment, to keep the hotels in a safe, competitive and efficient operating condition.

•
Sale of a Hotel.  Certain of our management agreements limit our ability to sell, lease or otherwise transfer a hotel, unless the transferee assumes the related management agreement and meets other specified conditions.

Franchise and Sub-License Agreements

We have franchise or sub-license agreements for certain of our hotels. Pursuant to these agreements, we pay franchise or sub-license fees based on a percentage of gross room revenues, as well as certain other fees for marketing and reservations services. Franchise or sub-license fees for room revenues are approximately one to five percent of gross room revenues. The agreements for the respective hotels expire as follows:
Property
 
Expiration Date
Hilton San Diego Mission Bay Resort
 
December 31, 2019
Le Meridien Delfina Santa Monica
 
September 2033
Embassy Suites San Diego Bay - Downtown
 
January 2028
The Nines, a Luxury Collection Hotel, Portland
 
October 2033
Hotel Colonnade Coral Gables, Autograph Collection
 
April 2039
Union Station Hotel Nashville, Autograph Collection
 
January 2032
The Liberty, A Luxury Collection Hotel, Boston
 
January 2036
Hilton San Diego Gaslamp Quarter
 
May 2020
Hotel Chicago Downtown, Autograph Collection
 
February 2034
Paradise Point Resort & Spa
 
15th anniversary after hotel is re-branded as a Margaritaville

Item 3. Legal Proceedings.
The nature of the operations of our hotels exposes the hotels and us to the risk of claims and litigation in the normal course of business. We are not presently subject to any material litigation nor, to our knowledge, is any litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or our financial condition.

31

Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.  Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares began trading on the NYSE on December 9, 2009 under the symbol “PEB”.
Shareholder Information
On February 14, 2020, there were 69 holders of record of our common shares. However, because the vast majority of our common shares are held by brokers and other institutions on behalf of shareholders, we believe that there are considerably more beneficial holders of our common shares than record holders.

The following graph provides a comparison of the cumulative total return on our common shares from December 31, 2014, to the NYSE closing price per share on December 31, 2019, with the cumulative total return on the Russell 2000 Index (the “Russell 2000 Index”) and the FTSE National Association of Real Estate Investment Trusts Equity REITs Index (the “FTSE NAREIT Equity Index”) for the same period. Total return values were calculated assuming a $100 investment on December 31, 2014 with reinvestment of all dividends in (i) our common shares, (ii) the Russell 2000 Index and (iii) the FTSE NAREIT Equity Index. The total return values do not include any dividends declared, but not paid, during the period.


CHART-27F64B29216554569C9.JPG

The actual returns shown on the graph above are as follows:

32

Name
Value of Initial
Investment at
December 31,
2014
Value of
Investment at
December 31,
2015
 
Value of
Investment at
December 31,
2016
 
Value of
Investment at
December 31,
2017
 
Value of
Investment at
December 31,
2018
 
Value of
Investment at
December 31,
2019
Pebblebrook Hotel Trust
$
100.00

$
63.49

 
$
71.28

 
$
93.18

 
$
74.07

 
$
74.00

Russell 2000 Index
$
100.00

$
95.59

 
$
115.93

 
$
132.88

 
$
118.23

 
$
148.36

FTSE NAREIT Equity Index
$
100.00

$
102.83

 
$
111.94

 
$
121.65

 
$
116.71

 
$
150.14


Distributions
Distributions to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary income. Distributions in excess of current and accumulated earnings and profits generally will be treated as a nontaxable reduction of the shareholder's basis in such shareholder's shares, to the extent thereof, and thereafter as taxable capital gain. Distributions that are treated as a reduction of the shareholder's basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder's shares.
The declaration of distributions by our company is in the sole discretion of our board of trustees and depends on our actual cash flow, financial condition, capital expenditure requirements for our hotels, the annual distributions requirements under the REIT provisions of the Code and such other factors as our board of trustees deems relevant.

33

For income tax purposes, distributions paid per share were characterized as follows:


2019

2018

2017

Amount

%

Amount

%

Amount

%
Common Shares:











Ordinary non-qualified income
$
0.5609


30.03
%

$
1.2040


77.57
%

$
1.3611


95.41
%
Qualified dividend
0.0069


0.37
%

0.3482


22.43
%

0.0256


1.79
%
Capital gain
1.3000


69.60
%

—


—
%

—


—
%
Return of capital
—


—
%

—


—
%

0.0399


2.80
%
Total
$
1.8678


100.00
%

$
1.5522


100.00
%

$
1.4266


100.00
%












Series C Preferred Shares:











Ordinary non-qualified income
$
0.6100


30.03
%

$
1.2605


77.57
%

$
1.1969


98.20
%
Qualified dividend
0.0075


0.37
%

0.3645


22.43
%

0.0219


1.80
%
Capital gain
1.4138


69.60
%

—


—
%

—


—
%
Return of capital
—


—
%

—


—
%

—


—
%
Total
$
2.0313


100.00
%

$
1.6250


100.00
%

$
1.2188


100.00
%












Series D Preferred Shares:
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5982

 
30.03
%
 
$
1.2363

 
77.57
%
 
$
1.1739

 
98.21
%
Qualified dividend
0.0074

 
0.37
%
 
0.3575

 
22.43
%
 
0.0214

 
1.79
%
Capital gain
1.3866

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9922

 
100.00
%
 
$
1.5938

 
100.00
%
 
$
1.1953

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Series E Preferred Shares: (1)
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5982

 
30.03
%
 
$
—

 
—
%
 
$
—

 
—
%
Qualified dividend
0.0074

 
0.37
%
 
—

 
—
%
 
—

 
—
%
Capital gain
1.3866

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9922

 
100.00
%
 
$
—

 
—
%
 
$
—

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
Series F Preferred Shares: (1)
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5912

 
30.03
%
 
$
—

 
—
%
 
$
—

 
—
%
Qualified dividend
0.0073

 
0.37
%
 
—

 
—
%
 
—

 
—
%
Capital gain
1.3703

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9688

 
100.00
%
 
$
—

 
—
%
 
$
—

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 

(1) Issued upon completion of our merger with LaSalle on November 30, 2018.

Of the common distribution declared on December 15, 2016 and paid on January 17, 2017, $0.2866 was treated as a 2017 distribution for tax purposes. The preferred share distributions declared on December 15, 2016 and paid on January 17, 2017, were treated as 2016 distributions for tax purposes.

Of the common distribution declared on December 15, 2017 and paid on January 12, 2018, $0.3800 was treated as a 2018 distribution for tax purposes. The preferred share distributions declared on December 15, 2017 and paid on January 12, 2018, were treated as 2018 distributions for tax purposes.

34


Of the common distributions declared on November 19, 2018 and December 14, 2018 and both paid on January 15, 2019, $0.3478 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 14, 2018 and paid on January 15, 2019, $0.4063 of Series C, of $0.3984 of Series D, $0.3984 of Series E, and $0.3938 of Series F were treated as 2019 distributions for tax purposes.

Of the common distribution declared on December 16, 2019 and paid on January 15, 2020, $0.3800 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 16, 2019 and paid on January 15, 2020 were treated as 2019 distributions for tax purposes.
Securities Authorized for Issuance Under Equity Compensation Plan
The following table sets forth information regarding securities authorized for issuance under our equity compensation plan, our 2009 Equity Incentive Plan, as amended and restated, as of December 31, 2019. See Note 8 to the accompanying consolidated financial statements for additional information regarding our 2009 Equity Incentive Plan.
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders
 
—

 
—

 
1,035,909

Equity compensation plans not approved by security holders
 
—

 
—

 
—

Total
 
—

 
—

 
1,035,909


During the year ended December 31, 2019, certain of our employees chose to have us acquire from such employees an aggregate of 126,681 common shares to pay taxes due upon vesting of restricted common shares granted pursuant to share award agreements. The average price paid by the Company for these shares was $31.64 per share.
Issuer Purchases of Equity Securities
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1, 2019 - October 31, 2019
 
—

 
$
—

 
—

 
$
—

November 1, 2019 - November 30, 2019
 
—

 
$
—

 
—

 
$
—

December 1, 2019 - December 31, 2019
 
—

 
$
—

 
—

 
$
—

Total
 
—

 
$
—

 
—

 
$
56,600,000

_____________________________
(1) Amounts in this column represent common shares sold to the Company as payment of tax withholding due upon vesting of equity awards.
(2) On February 22, 2016, we announced that our board of trustees authorized a share repurchase program of up to $150.0 million of our outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. As of December 31, 2019, $56.6 million of common shares remained available for repurchase under this program.
On July 27, 2017, we announced that our board of trustees authorized a new share repurchase program of up to $100.0 million of our outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. This $100.0 million share repurchase program will commence upon the completion of the $150.0 million share repurchase program.


35

Item 6.  Selected Financial Data.
The following table includes selected historical financial information which has been derived from the audited consolidated financial statements. The following information should be read in conjunction with “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Consolidated Financial Statements and Supplementary Data” and all of the financial statements and notes included elsewhere in this Annual Report on Form 10-K.


36

 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
(In thousands, except share and per-share data)
Revenues:
 
 
 
 
 
 
 
 
 
 
Room
 
$
1,103,947

 
$
565,107

 
$
532,288

 
$
568,867

 
$
526,573

Food and beverage
 
370,584

 
199,089

 
182,737

 
191,857

 
190,852

Other operating
 
137,682

 
64,482

 
54,292

 
55,697

 
53,439

Total revenues
 
1,612,213

 
828,678

 
769,317

 
816,421

 
770,864

Expenses:
 
 
 
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
 
 
 
Room
 
275,855

 
143,171

 
134,068

 
137,312

 
124,090

Food and beverage
 
260,278

 
136,845

 
123,213

 
126,957

 
128,816

Other direct and indirect
 
438,035

 
231,818

 
210,692

 
219,655

 
215,169

Total hotel operating expenses
 
974,168

 
511,834

 
467,973

 
483,924

 
468,075

Depreciation and amortization
 
234,880

 
108,475

 
102,290

 
102,439

 
95,872

Real estate taxes, personal property taxes, property insurance and ground rent
 
125,013

 
54,191

 
48,500

 
50,488

 
46,947

General and administrative
 
34,047

 
20,945

 
20,062

 
24,712

 
24,075

Transaction costs
 
8,679

 
75,049

 
71

 
193

 
4,686

(Gain) loss on sale of hotel properties
 
(2,819
)
 
2,147

 
(14,877
)
 
(40,690
)
 
—

(Gain) loss and other operating expenses
 
8,903

 
(10,935
)
 
9,918

 
15,348

 
3,574

Total operating expenses
 
1,382,871

 
761,706

 
633,937

 
636,414

 
643,229

Operating income (loss)
 
229,342

 
66,972

 
135,380

 
180,007

 
127,635

Interest expense
 
(108,474
)
 
(53,923
)
 
(37,299
)
 
(43,615
)
 
(38,774
)
Other
 
29

 
2,078

 
2,362

 
2,278

 
2,511

Equity in earnings (loss) of joint venture
 
—

 
—

 
—

 
(64,842
)
 
6,213

Income (loss) before income taxes
 
120,897

 
15,127

 
100,443

 
73,828

 
97,585

Income tax (expense) benefit
 
(5,172
)
 
(1,742
)
 
(181
)
 
134

 
(2,590
)
Net income (loss)
 
115,725

 
13,385

 
100,262

 
73,962

 
94,995

Net income (loss) attributable to non-controlling interests
 
283

 
(8
)
 
374

 
258

 
327

Net income (loss) attributable to the Company
 
115,442

 
13,393

 
99,888

 
73,704

 
94,668

Distributions to preferred shareholders
 
(32,556
)
 
(17,466
)
 
(16,094
)
 
(19,662
)
 
(25,950
)
Issuance costs of redeemed preferred shares
 
—

 
—

 
—

 
(7,090
)
 
—

Net income (loss) attributable to common shareholders
 
$
82,886

 
$
(4,073
)
 
$
83,794

 
$
46,952

 
$
68,718

Net income (loss) per share available to common shareholders, basic
 
$
0.63

 
$
(0.06
)
 
$
1.20

 
$
0.65

 
$
0.95

Net income (loss) per share available to common shareholders, diluted
 
$
0.63

 
$
(0.06
)
 
$
1.19

 
$
0.64

 
$
0.94

Weighted-average number of common shares, basic
 
130,471,670

 
74,286,307

 
69,591,973

 
71,901,499

 
71,715,870

Weighted-average number of common shares, diluted
 
130,718,306

 
74,286,307

 
69,984,837

 
72,373,242

 
72,384,289



37

 
 
As of December 31,
 
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
(In thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Investment in hotel properties, net
 
$
6,332,587

 
$
6,534,193

 
$
2,456,450

 
$
2,672,654

 
$
2,673,584

Ground lease asset
 
—

 
199,745

 
29,037

 
29,627

 
30,218

Cash and cash equivalents
 
30,098

 
83,366

 
25,410

 
33,410

 
26,345

Total assets
 
6,498,555

 
6,978,348

 
2,590,868

 
2,809,259

 
3,058,471

Debt
 
2,229,220

 
2,746,898

 
885,237

 
996,251

 
1,105,595

Total shareholders' equity
 
3,621,208

 
3,759,835

 
1,498,901

 
1,605,684

 
1,758,389


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Pebblebrook Hotel Trust is a Maryland real estate investment trust that conducts its operations so as to qualify as a REIT under the Code. Substantially all of the operations are conducted through Pebblebrook Hotel, L.P. (our "Operating Partnership"), a Delaware limited partnership of which Pebblebrook Hotel Trust is the sole general partner. In this report, we use the terms "the Company", "we" or "our", to refer to Pebblebrook Hotel Trust and its subsidiaries, unless the context indicates otherwise.
Overview

Our operating results for the fourth quarter of 2019 exceeded our outlook primarily due to unexpected increases in hotel demand during November and December throughout many of our markets, including San Francisco, Los Angeles, South Florida and Boston. We also made great progress in transforming our Company for stronger growth in future years. We completed $1.3 billion in hotel sales, with another $331.0 million of sales expected in the near term, 12 successful operator or brand transitions, including 2 in early 2020, and we completed or commenced 8 major redevelopment and repositioning projects. Up until the emergence of the coronavirus in China, we were encouraged with the improvements in near term business and leisure booking trends that we experienced from November through January. However, we are concerned about the potential negative impact of coronavirus on travel. While we expect some reduced demand outside of what we have already experienced and incorporated, our outlook does not reflect any impact since it is not knowable or able to be forecasted due to the unique evolving nature of the situation.
During the year ended December 31, 2019, we sold seven hotel properties for aggregate sales price of $481.9 million, repaid $450.0 million of our term loans, consisting of the full repayment of $200.0 million of the third term loan and the $250.0 million tranche maturing in 2020 of our sixth term loan, and we repaid the $65.4 million mortgage loan on The Westin San Diego Gaslamp Quarter. In addition, we acquired the ground lease underlying the land of the Solamar Hotel. On January 9, 2020, we entered into an agreement to sell InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square to an unaffiliated third-party for an aggregate sales price of $331.0 million. We expect the sale of these hotel properties to be completed during the first quarter of 2020, subject to customary closing conditions, although no assurances can be given that the sales will be completed on these terms, or at all.
While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels’ operations, including property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction. Through these efforts, we seek to improve property efficiencies, lower costs, maximize revenues and enhance property operating margins, which we expect will enhance returns to our shareholders.

Key Indicators of Financial Condition and Operating Performance

We measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ("RevPAR"); total revenue per available room ("Total RevPAR"); average daily rate ("ADR"); occupancy rate ("Occupancy"); funds from operations ("FFO"); earnings before interest, income taxes, depreciation and amortization ("EBITDA"); and EBITDA for real estate ("EBITDAre"). We evaluate individual hotel and

38

company-wide performance with comparisons to budgets, prior periods and competing properties. ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events. See "Non-GAAP Financial Matters" for further discussion of FFO, EBITDA and EBIDTAre.

Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics for our hotels for the years ended December 31, 2019 and 2018.
 
For the year ended December 31,
 
2019
 
2018
 
 
 
 
Same-Property Occupancy
82.2
%
 
82.4
%
Same-Property ADR
$
256.17

 
$
252.76

Same-Property RevPAR
$
210.65

 
$
208.19

Same-Property Total RevPAR
$
308.01

 
$
302.28


This schedule of hotel results for the year ended December 31 includes information from all of the hotels we owned as of December 31, 2019 and excludes Onyx Hotel for the second, third and fourth quarters in both 2019 and 2018 due to its sale in the second quarter of 2019 as well as Hotel Amarano Burbank, Rouge Hotel and Hotel Madera for the third and fourth quarters in both 2019 and 2018 due to their sales in the third quarter of 2019 and Topaz Hotel and Donovan Hotel for the fourth quarter in both 2019 and 2018 due to respective sale and closure in the fourth quarter of 2019. These hotel results for the respective periods may include information reflecting operational performance prior to the Company's ownership of the hotels.
Results of Operations

This section includes comparisons of certain 2019 financial information to the same information for 2018. Year-to-year comparisons of the 2018 financial information to the same information for 2017 are contained in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 1, 2019.
At December 31, 2019 and 2018, we had 56 and 63 wholly owned properties and leasehold interests, respectively. All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition or through the dates of disposition. Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the years ended December 31, 2019 and 2018. The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are considered and referred to as "comparable properties":
Property
 
Location
 
Acquisition/Disposition Date
 
Non-comparable property for the years ended 2019 and 2018
LaSalle Hotel Properties' portfolio
(1) 
Various
 
November 30, 2018
 
X
The Grand Hotel Minneapolis
 
Minneapolis, MN
 
December 4, 2018
 
X
 
 
 
 
 
 
 
(1) As a result of our merger with LaSalle Hotel Properties, we acquired a portfolio of 36 properties.

Comparison of the year ended December 31, 2019 to the year ended December 31, 2018
Revenues — Total hotel revenues increased by $783.5 million, of which $15.9 million was contributed by the comparable properties and an increase of $767.6 million was contributed by the non-comparable properties acquired through our merger with LaSalle. The comparable properties increase was primarily due to increases in revenues at our San Francisco properties after the renovation and re-opening of the Moscone Center in late 2018 and the re-opening of LaPlaya after its closure from Hurricane Irma in 2017.
Hotel operating expenses — Total hotel operating expenses increased by $462.3 million. The comparable properties contributed a net increase of $12.0 million, primarily due to increases in revenues and expenses at our San Francisco properties

39

after the renovation and re-opening of the Moscone Center in late 2018 and the re-opening of LaPlaya after its closure in 2017 from Hurricane Irma. The acquisitions of hotel properties through our merger with LaSalle contributed to an additional $450.3 million increase which was offset by a decrease in expenses from the other non-comparable properties.
Depreciation and amortization — Depreciation and amortization expense increased by $126.4 million primarily due to the additional depreciation expense of $117.2 million from the acquisition of the LaSalle portfolio.
Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $70.8 million primarily due to additional real estate taxes, personal property taxes, property insurance and ground rent from the acquisition of the LaSalle portfolio.
Corporate general and administrative — Corporate general and administrative expenses increased by $13.1 million primarily due to additional employee and share-based compensation costs relating to the merger with LaSalle. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance, state franchise taxes and other expenses.
Transaction costs — Transaction costs decreased by $66.4 million as a result of the merger with LaSalle which closed in November 2018. Transaction costs consist of transfer taxes and financial advisory, legal and other professional service fees in connection with the Mergers and integration costs related to professional fees and employee-related costs, including compensation for transition employees.
(Gain) loss on sale of hotel properties — (Gain) loss on sale of hotel properties changed from a $2.1 million loss to a $2.8 million gain. In 2018, we incurred a loss of $2.1 million from the sale of The Grand Hotel Minneapolis. In 2019, we recognized a gain of $2.8 million from the sale of seven hotel properties.
(Gain) loss and other operating expenses — (Gain) loss and other operating expenses changed from a gain of $10.9 million to a loss of $8.9 million. In 2018, we recognized a gain of $13.1 million relating to the insurance settlement related to LaPlaya for damages resulting from Hurricane Irma. In 2019, we incurred $5.9 million in hotel management transition expenses.
Interest expense — Interest expense increased by $54.6 million as a result of higher debt balances.
Other — Other decreased by $2.0 million due to a net gain from our investment in LaSalle common shares in 2018.
Income tax (expense) benefit — Income tax expense increased by $3.4 million due to an increase in taxable income of our taxable REIT subsidiaries.
Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the OP unit holders.
Distributions to preferred shareholders — Distributions to preferred shareholders increased by $15.1 million as a result of the issuances of the Series E Preferred Shares and Series F Preferred Shares in connection with the merger with LaSalle.
Other comprehensive income (loss) — Other comprehensive income (loss) increased by $79.2 million as a result of an increase in net income and the change in the fair values of our interest rate swaps.

Non-GAAP Financial Measures
Non-GAAP financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with U.S. GAAP. We report FFO, EBITDA and EBITDAre, which are non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance.
We calculate FFO in accordance with standards established by Nareit, formerly known as the National Association of Real Estate Investment Trusts, which defines FFO as net income (calculated in accordance with U.S. GAAP), excluding real estate related depreciation and amortization, gains (losses) from sales of real estate, impairments of real estate assets (including impairment of real estate related joint ventures), the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures. 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 industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization, gains (losses) from sales of real estate and impairments of real estate assets (including impairment of real estate related joint ventures), all of which are based on historical

40

cost accounting and which may be of lesser significance in evaluating current performance, we believe that FFO provides investors a useful financial measure to evaluate our operating performance.
The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the years ended December 31, 2019, 2018 and 2017 (in thousands):
 
 
For the year ended December 31,
 
 
2019
 
2018
 
 
2017
Net income (loss)
 
$
115,725

 
$
13,385

 
 
$
100,262

Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization
 
234,591

 
108,265

 
 
102,064

(Gain) loss on sale of hotel properties
 
(2,819
)
 
2,147

 
 
(14,877
)
Impairment loss
 
—

 
—

 
 
3,849

FFO
 
$
347,497

 
$
123,797

 
 
$
191,298

Distribution to preferred shareholders
 
(32,556
)
 
(17,466
)
 
 
(16,094
)
FFO available to common share and unit holders
 
$
314,941

 
$
106,331

 
 
$
175,204

EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. The white paper issued by Nareit entitled “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate” defines EBITDAre as net income or loss (computed in accordance with U.S. GAAP), excluding interest expense, income tax, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and after comparable adjustments for our portion of these items related to unconsolidated affiliates. We believe that EBITDA and EBITDAre provide investors useful financial measures to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).
The following table reconciles net income (loss) to EBITDA and EBITDAre for the years ended December 31, 2019, 2018 and 2017 (in thousands):
 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
Net income (loss)
 
$
115,725

 
$
13,385

 
$
100,262

Adjustments:
 
 
 
 
 
 
Interest expense
 
108,474

 
53,923

 
37,299

Income tax expense (benefit)
 
5,172

 
1,742

 
181

Depreciation and amortization
 
234,880

 
108,475

 
102,290

EBITDA
 
$
464,251

 
$
177,525

 
$
240,032

(Gain) loss on sale of hotel properties
 
(2,819
)
 
2,147

 
(14,877
)
Impairment loss
 
—

 
—

 
3,849

EBITDAre
 
$
461,432

 
$
179,672

 
$
229,004

FFO, EBITDA and EBITDAre do not represent cash generated from operating activities as determined by U.S. GAAP and should not be considered as alternatives to U.S. GAAP net income (loss), as indications of our financial performance, or to U.S. GAAP cash flow from operating activities, as measures of liquidity. In addition, FFO, EBITDA and EBITDAre are not indicative of funds available to fund cash needs, including the ability to make cash distributions.
Critical Accounting Policies
We consider these policies critical because they require estimates about matters that are inherently uncertain, involve various assumptions and require significant management judgment, and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Applying different estimates or assumptions may result in materially different amounts reported in our financial statements.

41

Hotel Properties
Investment in Hotel Properties
Estimation and judgment is required to determine the fair values of our acquired hotel properties. Upon acquiring a business or hotel property, we measure and recognize the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements assumed in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. We determine the acquisition-date fair values of all assets and assumed liabilities using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. Acquisition costs related to business combinations are expensed as incurred.
Hotel renovations and/or replacements of assets that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. Furniture, fixtures and equipment under capital leases are carried at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.
Impairment
We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, we perform an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel's estimated fair market value is recorded and an impairment loss recognized. In the evaluation of impairment of our hotel properties, we make many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and holding period, future required capital expenditures, and fair values, including consideration of capitalization rates, discount rates, and comparable selling prices. We will adjust our assumptions with respect to the remaining useful life of the hotel property when circumstances change, such as an expiring ground lease or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.
New Accounting Pronouncements Not Yet Implemented
See Note 2 to the accompanying consolidated financial statements for additional information relating to recently issued accounting pronouncements.

Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our senior unsecured revolving credit facilities. We expect our existing cash balances and cash provided by operations will be adequate to fund operating requirements, service debt and fund dividends in accordance with the REIT requirements of the federal income tax laws.
We expect to meet our long-term liquidity requirements, such as hotel property acquisitions, property redevelopment, investments in new joint ventures, and debt principal payments and debt maturities, through the net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our Operating Partnership, secured and unsecured borrowings, hotel property sales and cash provided by operations. The success of our business strategy may depend in part on our ability to access additional capital through issuances of debt and equity securities, which is dependent on favorable market conditions.
We strive to maintain prudent debt leverage and intend to opportunistically enhance our capital position.



42

Our debt consisted of the following as of December 31, 2019 and December 31, 2018 (dollars in thousands):
 
 
 
 
 
Balance Outstanding as of
 
Interest Rate
 
Maturity Date
 
December 31, 2019
 
December 31, 2018
Revolving credit facilities
 
 
 
 
 
 
 
Senior unsecured credit facility
Floating (1)
 
January 2022
 
$
165,000

 
$
170,000

PHL unsecured credit facility
Floating (2)
 
January 2022
 
—

 
—

Total revolving credit facilities
 
 
 
 
$
165,000

 
$
170,000

 
 
 
 
 
 
 
 
Unsecured term loans
 
 
 
 
 
 
 
First Term Loan
Floating (3)
 
January 2023
 
300,000

 
300,000

Second Term Loan
Floating (3)
 
April 2022
 
65,000

 
65,000

Third Term Loan
Floating (3)
 
January 2021
 
—

 
200,000

Fourth Term Loan
Floating (3)
 
October 2024
 
110,000

 
110,000

Sixth Term Loan:
 
 
 
 
 
 
 
Tranche 2020
Floating (3)
 
December 2020
 
—

 
250,000

Tranche 2021
Floating (3)
 
November 2021
 
300,000

 
300,000

Tranche 2022
Floating (3)
 
November 2022
 
400,000

 
400,000

Tranche 2023
Floating (3)
 
November 2023
 
400,000

 
400,000

Tranche 2024
Floating (3)
 
January 2024
 
400,000

 
400,000

Total Sixth Term Loan
 
 
 
 
1,500,000

 
1,750,000

Total term loans at stated value
 
 
 
 
1,975,000

 
2,425,000

Deferred financing costs, net
 
 
 
 
(10,343
)
 
(15,716
)
Total term loans
 
 
 
 
$
1,964,657

 
$
2,409,284

 
 
 
 
 
 
 
 
Senior unsecured notes
 
 
 
 
 
 
 
Series A Notes
4.70%
 
December 2023
 
60,000

 
60,000

Series B Notes
4.93%
 
December 2025
 
40,000

 
40,000

Total senior unsecured notes at stated value
 
 
 
 
100,000

 
100,000

Deferred financing costs, net
 
 
 
 
(437
)
 
(531
)
Total senior unsecured notes
 
 
 
 
$
99,563

 
$
99,469

 
 
 
 
 
 
 
 
Mortgage loans
 
 
 
 
 
 
 
The Westin San Diego Gaslamp Quarter
3.69%
 
January 2020
 
—

 
68,207

Deferred financing costs, net
 
 
 
 
—

 
(62
)
Total mortgage loans
 
 
 
 
$
—

 
$
68,145

Total debt
 
 
 
 
$
2,229,220

 
$
2,746,898

__________
(1) Borrowings bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin.
(2) Borrowings bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) a Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.
(3) Borrowings under the term loan facilities bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.
As of December 31, 2019, approximately $1.6 billion of the borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.43%, after taking into account interest rate swap agreements, and approximately $345.0 million was at a weighted-average floating interest rate of 3.32%. As of December 31, 2018, approximately $1.2 billion of the

43

borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.46%, after taking into account interest rate swap agreements, and approximately $1.2 billion was at a weighted-average floating interest rate of 4.26%.
Unsecured Revolving Credit Facilities
We are party to a $650.0 million senior unsecured revolving credit facility maturing in January 2022, with options to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee. As of December 31, 2019, we had $165.0 million of outstanding borrowings and $482.2 million borrowing capacity remaining on our senior unsecured revolving credit facility. Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount. The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement. We have the ability to increase the aggregate borrowing capacity of our senior unsecured revolving credit facility to up to $1.3 billion, subject to lender approval. We intend to repay indebtedness incurred under the senior unsecured revolving credit facility from time to time out of cash flows from operations and, as market conditions permit, from the net proceeds of issuances of additional equity and debt securities and from the net proceeds of dispositions of hotel properties.
We also have a $25.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. This credit facility has substantially similar terms as our senior unsecured revolving credit facility and matures in January 2022. Borrowings under the PHL Credit Facility bear interest at LIBOR plus an applicable margin, depending on our leverage ratio. As of December 31, 2019, we had no borrowings under the PHL Credit Facility.
Unsecured Term Loan Facilities
We are party to senior unsecured term loans with different maturities. Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on our leverage ratio. We entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loans. Information about our senior unsecured term loans is found in the table above and Note 5 to the accompanying consolidated financial statements.
Senior Unsecured Notes
We have two unsecured notes outstanding, $60.0 million of senior unsecured notes bearing a fixed interest rate of 4.70% per annum and maturing in December 2023 (the "Series A Notes") and $40.0 million of senior unsecured notes bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes"). The terms of the Series A Notes and the Series B Notes are substantially similar to those of our senior unsecured revolving credit facility, as amended and restated. 
Issuance of Shares of Beneficial Interest
On February 22, 2016, we announced that our board of trustees authorized a share repurchase program of up to $150.0 million of the Company's outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. No common shares were repurchased by the Company under the share repurchase program during the year ended December 31, 2019. As of December 31, 2019, $56.6 million of common shares remained available for repurchase under this program.
On July 27, 2017, we announced that our board of trustees authorized a new share repurchase program of up to $100.0 million of the Company's outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. This $100.0 million share repurchase program will commence upon the completion of our $150.0 million share repurchase program.
Sources and Uses of Cash
Our principal sources of cash are cash from operations, borrowings under mortgage financings and other debt, draws on our credit facilities, proceeds from offerings of our equity securities and hotel property sales. Our principal uses of cash are asset acquisitions, debt service, capital investments, operating costs, corporate expenses and dividends.
Cash Provided by Operations. Our cash provided by operating activities was $395.2 million for the year ended December 31, 2019. Our cash from operations includes the operating activities of the 56 hotels we owned as of December 31, 2019, offset by corporate expenses and merger-related transaction expenses. Our cash provided by operating activities was $135.7 million for the year ended December 31, 2018. Our cash from operations includes the operating activities of the 63 hotels we wholly owned as of December 31, 2018.
Cash Provided by and Used in Investing Activities. Our cash provided by investing activities was $300.0 million for the year ended December 31, 2019. During the year ended December 31, 2019, we invested $169.6 million in improvements to our

44

hotel properties and received $470.4 million from sales of hotel properties. Our cash used in investing activities was $1,778.2 million for the year ended December 31, 2018. During the year ended December 31, 2018, we paid $1,372.6 million to fund the LaSalle merger, invested $89.6 million in improvements to our hotel properties, purchased $356.2 million in marketable securities, sold $6.7 million in marketable securities, received $28.6 million from the sale of one hotel property and received $5.2 million in property insurance proceeds.
Cash Provided by and Used In Financing Activities. Our cash used in financing activities was $746.1 million for the year ended December 31, 2019. During the year ended December 31, 2019, we borrowed $414.8 million under the revolving credit facilities, repaid $419.8 million under the revolving credit facilities, repaid $518.2 million of debt, repurchased $4.0 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $217.4 million in distributions and paid $1.5 million in other transactions. For the year ended December 31, 2018, cash provided by financing activities was $1,717.7 million. During the year ended December 31, 2018, we borrowed $550.2 million under the revolving credit facilities (a portion of which was used to purchase marketable securities described above in "Cash Used in and Provided by Investing Activities"), repaid $425.2 million under the revolving credit facilities, borrowed $1,850.0 million in debt to fund the LaSalle merger, repaid $102.4 million of debt, repurchased $2.5 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $121.8 million in distributions and paid $29.4 million in financing costs.
Capital Investments
We maintain and intend to continue maintaining all of our hotels, including each hotel that we acquire in the future, in good repair and condition and in conformity with applicable laws and regulations and when applicable, in accordance with the franchisor’s standards and the agreed-upon requirements in our management agreements. Routine capital investments will be administered by the hotel management companies. However, we maintain approval rights over the capital investments as part of the annual budget process and as otherwise required from time to time.
From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, meeting space and restaurants, in order to better compete with other hotels in our markets. In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if there is one, to complete a property improvement plan (“PIP”) in order to bring the hotel property up to the franchisor’s or brand’s standards. Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility, or proceeds from new mortgage debt or equity offerings.
For the year ended December 31, 2019, we invested $169.6 million in capital investments to reposition and improve the properties we own. We expect to invest approximately $165.0 million to $185.0 million in capital investments for our hotels in 2020, including a $17.0 million renovation at The Westin San Diego Gaslamp Quarter and a $18.0 million renovation at Embassy Suites San Diego Bay - Downtown, both of which are expected to be completed in the first quarter of 2020. In November 2019, we commenced a $25.0 million renovation and repositioning at Donovan Hotel. This renovation is expected to be completed during the second quarter of 2020 at which time the hotel will be relaunched as Hotel Zena Washington DC, a member of our "Unofficial Z Collection" proprietary brand.
Contractual Obligations and Off-Balance Sheet Arrangements
The table below summarizes our contractual obligations as of December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):
 

45

 
Payments due by period
 
Total
 
Less
than 1
year
 
1 to 3
years
 
3 to 5
years
 
More
than 5
years
Term loans (2)
$
2,207,086

 
$
70,305

 
$
890,625

 
$
1,246,156

 
$
—

Unsecured notes (1)
123,112

 
4,792

 
9,584

 
66,764

 
41,972

Borrowings under credit facilities (3)
176,345

 
5,566

 
170,779

 
—

 
—

Hotel and ground leases (4)
1,231,781

 
16,828

 
33,800

 
34,015

 
1,147,138

Capital lease obligation
65,201

 
1,247

 
2,614

 
2,693

 
58,647

Refundable membership initiation deposits (5)
30,613

 
243

 
—

 
—

 
30,370

Purchase commitments (6)
28,774

 
28,774

 
—

 
—

 
—

Corporate office leases
16,887

 
1,432

 
3,941

 
2,497

 
9,017

Total
$
3,879,799

 
$
129,187

 
$
1,111,343

 
$
1,352,125

 
$
1,287,144

 ____________________
(1) 
Amounts include principal and interest.
(2) 
Amounts include principal and interest. Borrowings under the term loan facilities bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.
(3) 
Amounts include principal and interest under the two revolving credit facilities. Interest expense is calculated based on the weighted-average interest rate for all outstanding credit facility borrowings as of December 31, 2019. It is assumed that the outstanding borrowings will be repaid upon maturity with fixed interest-only payments until then.
(4) 
Our leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases. The table above reflects only minimum fixed rent for all periods presented and does not include assumptions for CPI adjustments.
(5) 
Represents refundable initiation membership deposits from club members at LaPlaya.
(6) 
Amounts represent purchase orders and contracts that have been executed for renovation projects at the properties. We are committed to these purchase orders and contracts and anticipate making similar arrangements in the future with the existing properties or any future properties that we may acquire.

Off-Balance Sheet Arrangements
As of December 31, 2019, we had no off-balance sheet arrangements.
Inflation
We rely on the performance of the hotels to increase revenues to keep pace with inflation. Generally, our hotel operators possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than inflation or even at the same rate.
Seasonality
Demand in the lodging industry is affected by recurring seasonal patterns which are greatly influenced by overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, our hotels have lower revenue, operating income and cash flow in the first quarter of each year and higher revenue, operating income and cash flow in the third quarter of each year.
Derivative Instruments
In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are subject to fair value reporting at each reporting date and the increase or decrease in fair value is recorded in net income (loss) or accumulated other comprehensive income (loss), based on the applicable hedge accounting guidance. Derivatives expose the Company to credit risk in the event of non-performance by the counter parties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with major credit-worthy financial institutions.

46

The Company has interest rate swap agreements with an aggregate notional amount of $1.6 billion to hedge variable interest rates on our unsecured term loans. In addition, as of December 31, 2019, the Company had interest rates swaps for an aggregate notional amount of $590.0 million which will become effective in the future as current swaps mature.
We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges. For the years ended December 31, 2019 and 2018, there was $(26.0) million and $(2.9) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Sensitivity
We are exposed to market risk from changes in interest rates. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. From time to time, we may enter into interest rate swap agreements or other interest rate hedging contracts. While these agreements are intended to lessen the impact of rising interest rates, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly effective cash flow hedges under guidance included in ASC 815 "Derivatives and Hedging."
The table below provides information about financial instruments that are sensitive to changes in interest rates, including mortgage obligations, bonds and lines of credit. For debt obligations, the table presents scheduled maturities, including annual amortization of principal, and related weighted-average interest rates for the debt maturing in each specified period (dollars in thousands).
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt
 
$
—

 
$
—

 
$
—

 
$
60,000

 
$
—

 
$
40,000

 
$
100,000

Average interest rate
 
—
%
 
—
%
 
—
%
 
4.70
%
 
—
%
 
4.93
%
 
4.79
%
Variable rate debt
 
$
—

 
$
300,000

 
$
630,000

 
$
700,000

 
$
510,000

 
$
—

 
$
2,140,000

Average interest rate (1)
 
—
%
 
3.29
%
 
3.31
%
 
3.74
%
 
3.37
%
 
—
%
 
3.46
%
Total
 
$
—

 
$
300,000

 
$
630,000

 
$
760,000

 
$
510,000

 
$
40,000

 
$
2,240,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
____________
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) See discussion of our debt under Liquidity and Capital Resources and Derivative Instruments.
This table reflects indebtedness outstanding as of December 31, 2019 and does not reflect indebtedness, if any, incurred after that date. Our ultimate exposure to interest rate fluctuations depends on the amount of indebtedness that bears interest at variable rates, the time at which the interest rate is adjusted, the amount of adjustment, the ability to prepay or refinance variable rate indebtedness and hedging strategies used to reduce the impact of any increases in rates. As of December 31, 2019, the estimated fair value of our fixed rate debt was $101.2 million.
As of December 31, 2019, $510.0 million of the Company's aggregate indebtedness (22.9% of total indebtedness) was subject to variable interest rates, excluding amounts outstanding under the term loan facilities that have been effectively swapped into fixed rates. If interest rates on our unhedged variable rate debt increase or decrease by 0.1 percent, our annual interest expense will increase or decrease by approximately $0.5 million, respectively.
Item 8. Consolidated Financial Statements and Supplementary Data.

See Financial Statements and index beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures


47

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the original framework in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

KPMG LLP, a registered independent accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-5, on the effectiveness of our internal control over financial reporting.

There was no change to our internal control over financial reporting during the fourth quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.
PART III
Item 10. Trustees, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders.
Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions, and Trustee Independence.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020 Annual Meeting of Shareholders.


48

PART IV
Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements
Included herein on pages F-1 through F-40.

2. Financial Statement Schedules

The following financial statement schedule is included herein on pages F-41 through F-44.

Schedule III--Real Estate and Accumulated Depreciation

All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15.

3. Exhibits

The following exhibits are filed or furnished, as the case may be, as part of this Annual Report on Form 10-K:

Exhibit
Number
 
Description of Exhibit
3.1
 
Declaration of Trust, as amended and supplemented through November 30, 2018, of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.1 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on March 1, 2019 (File No. 001-34571)).
3.2
 
Amended and Restated Bylaws of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on November 14, 2016 (File No. 001‑34571)).
3.3
 
First Amendment to Amended and Restated Bylaws of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 21, 2017 (File No. 001‑34571)).
3.4
 
Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of December 13, 2013 (incorporated by reference to Exhibit 3.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)).
3.5
 
First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of September 30, 2014 (incorporated by reference to Exhibit 3.4 to Pebblebrook Hotel Trust’s Annual Report on Form 10‑K filed with the SEC on February 17, 2015 (File No. 001‑34571)).
3.6
 
Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of June 8, 2016 (incorporated by reference to Exhibit 3.5 to Pebblebrook Hotel Trust’s Current Report on Form 8‑K filed with the SEC on June 8, 2016 (File No. 001‑34571)).
3.7
 
Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of November 30, 2018 (incorporated by reference to Exhibit 3.3 to Pebblebrook Hotel Trust’s Current Report on Form 8‑K filed with the SEC on December 3, 2018 (File No. 001‑34571)).
 
Description of the Registrant's Securities.
 
Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on August 2, 2012 (File No. 001-34571)).
 
Amendment No. 1 to the Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012, effective July 7, 2016 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Quarterly Report on Form 10‑Q filed with the SEC on July 25, 2016 (File No. 001‑34571)).

49

 
Amendment No. 2 to the Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012, effective February 15, 2017 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 22, 2017 (File No. 001‑34571)).
 
Change in Control Severance Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)).
 
Change in Control Severance Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)).
 
Change in Control Severance Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)).
 
Form of Indemnification Agreement between Pebblebrook Hotel Trust and its officers and trustees (incorporated by reference to Exhibit 10.4 of Amendment No. 1 to Pebblebrook Hotel Trust's Registration Statement on Form S-11/A filed with the SEC on November 10, 2009 (File No. 333-162412)).
 
Form of Share Award Agreement for trustees (incorporated by reference to Exhibit 10.6 of Amendment No. 2 to Pebblebrook Hotel Trust's Registration Statement on Form S-11/A filed with the SEC on November 25, 2009 (File No. 333-162412)).
 
Form of Share Award Agreement (Performance Vesting) for executive officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)).
 
Form of LTIP Unit Vesting Agreement (supersedes Exhibits 10.11, 10.12 and 10.13 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)).
 
Form of Share Award Agreement for executive officers (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)).
 
Lease, dated December 1, 1999, by and between the United States of America, acting through the Administrator of General Services, and Tariff Building Associates, L.P. (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on September 13, 2010 (File No. 001-34571)).
 
Assignment and Assumption of GSA Lease, dated September 9, 2010, by and among the United States of America, acting by and through the Administrator of General Services and Authorized Representatives, Tariff Building Associates, L.P., and Jayhawk Owner LLC (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on September 13, 2010 (File No. 001-34571)).
 
Historical Lease, dated October 16, 2000, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)).
 
Seventh Amendment to Historic Lease, dated February 6, 2001, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)).
 
Tenth Amendment to Historic Lease, dated December 9, 2008, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)).
 
Eleventh Amendment to Historic Lease, dated February 16, 2011, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)).

50

 
Assignment and Assumption of Historical Lease, dated February 16, 2011, by and among the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an Agency of the United States of America, Maritime Hotel Associates, L.P., and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.5 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)).
 
Form of LTIP Class B Unit Vesting Agreement (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)).
 
Form of Performance Unit Retention Award Agreement (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)).
 
Form of Performance Unit Award Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 23, 2015 (File No. 001-34571)).
 
Fourth Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.22 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)).
 
Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, U.S. Bank National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.23 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)).
 
Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Capital One, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.24 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)).
 
Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, PNC Bank, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.25 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)).
 
Note Purchase and Guarantee Agreement, dated November 12, 2015, by and among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.33 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on February 22, 2016 (File No. 001-34571)).
 
First Amendment to Note Purchase Agreement, dated as of October 13, 2017, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.27 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)).
 
Form of Share Award Agreement (time-based vesting) for Executive Officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 16, 2018).
 
Form of Performance Unit Award Agreement for Executive Officers (incorporated by reference to (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 16, 2018).
 
Credit Agreement, dated as of September 5, 2018, among Pebblebrook Hotel L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Quarterly Report on Form 10-Q filed with the SEC on November 1, 2018).
 
Waiver Agreement, dated September 5, 2018, between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on September 7, 2018 (File No. 001‑34571)).

51

 
Waiver Agreement, dated September 5, 2018, between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on September 7, 2018 (File No. 001‑34571)).
 
Waiver Agreement, dated September 5, 2018, between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on September 7, 2018 (File No. 001‑34571)).

 
Credit Agreement, dated as of October 31, 2018, among Pebblebrook Hotel L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.34 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on March 1, 2019 (File No. 001-34571)).
 
List of Subsidiaries of Pebblebrook Hotel Trust.
 
Consent of KPMG LLP.
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)
________________
*
Management agreement or compensatory plan or arrangement.
†
Filed herewith.
††
Furnished herewith.




52

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
PEBBLEBROOK HOTEL TRUST
 
 
 
 
Date:
February 20, 2020
 
/s/ JON E. BORTZ
 
 
 
Jon E. Bortz
 
 
 
Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name
 
Title
 
Date
/s/ JON E. BORTZ
 
Chairman of the Board, President and Chief Executive Officer (principal executive officer)
 
February 20, 2020
Jon E. Bortz
 
 
 
 
 
 
 
/s/ RAYMOND D. MARTZ
 
Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)
 
February 20, 2020
Raymond D. Martz
 
 
 
 
 
 
 
/s/ CYDNEY C. DONNELL
 
Trustee
 
February 20, 2020
Cydney C. Donnell
 
 
 
 
 
 
 
/s/ RON E. JACKSON
 
Trustee
 
February 20, 2020
Ron E. Jackson
 
 
 
 
 
 
 
/s/ PHILLIP M. MILLER
 
Trustee
 
February 20, 2020
Phillip M. Miller
 
 
 
 
 
 
 
/s/ MICHAEL J. SCHALL
 
Trustee
 
February 20, 2020
Michael J. Schall
 
 
 
 
 
 
 
/s/ BONNY W. SIMI
 
Trustee
 
February 20, 2020
Bonny W. Simi
 
 
 
 
 
 
 
/s/ EARL E. WEBB
 
Trustee
 
February 20, 2020
Earl E. Webb
 
 


Table of Contents

PEBBLEBROOK HOTEL TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page
No.
Reports of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-6
Consolidated Statements of Operations and Comprehensive Income
F-7
Consolidated Statements of Equity
F-9
Consolidated Statements of Cash Flows
F-11
Notes to Consolidated Financial Statements
F-13
Schedule III - Real Estate and Accumulated Depreciation
F-41


F-1

Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Pebblebrook Hotel Trust:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Pebblebrook Hotel Trust and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for its leases as of January 1, 2019 due to the adoption of FASB ASC Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the fair value of investment in hotel properties acquired in the LaSalle Hotel Properties business combination

F-2

As discussed in Notes 2 and 3 to the consolidated financial statements, upon acquisition of a business, the Company will recognize and measure at fair value the acquired land, land improvements, building, furniture, fixtures, and equipment, identifiable intangible assets or liabilities, other assets, and assumed liabilities. On November 30, 2018, the Company acquired LaSalle Hotel Properties in a business combination for total consideration of $4.1 billion. During 2019, using a combination of the market, cost, and income methods, the Company finalized its measurement and recognition of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment, which represents substantially all of the fair value of LaSalle Hotel Properties.
We identified the evaluation of the fair value of investment in hotel properties acquired in the LaSalle Hotel Properties business combination as a critical audit matter. Subjective auditor judgment and specialized skills and knowledge were required to evaluate the method used to determine the fair value of the investment in hotel properties acquired. Evaluation of the methodology and resulting estimate required a high degree of subjectivity, specifically as it related to the assessment of available information and certain assumptions. For the market method, transaction adjustments may be needed to the observable market transactions to make them comparable to the hotel acquired. For the income approach, the estimated hotel revenues and net operating income were based on historical hotel results adjusted for the current economic environment in order to be indicative of future results. In addition, the estimated discount rates and terminal capitalization rates used required significant auditor judgment as there is high estimation uncertainty related to these assumptions.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process to estimate the fair value of investment in hotel properties acquired in a business combination, including controls related to the identification of the population of market comparable transactions, and the development of adjustments to the market comparable transactions. In addition, we tested controls over the selection of the projected net operating income, projected revenue, estimated discount rates and estimated terminal capitalization rates. We assessed the projected revenue and net operating income estimates for the hotel properties in relation to historical and current year actuals. We involved valuation professionals with specialized skills and knowledge, who assisted in the following:
•
Comparing the methodologies used by the Company to value the investment in hotel properties acquired to industry standards;
•
Evaluating the Company’s discount rate, by comparing it against a discount rate range that was independently developed using publicly available third-party market data for comparable entities;
•
Evaluating estimated terminal capitalization rates by comparing to independent market comparable transactions from industry sources, including information about features of the comparable assets; and
•
Evaluating the adjusted market comparable transactions, by comparing to independent comparable sales transactions from industry sources.
    
Evaluation of the company’s assessment of hotel properties for impairment
As discussed in Note 2 to the consolidated financial statements, the Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition; expected useful life and holding period; and capitalization rates. Investment in hotel properties was $6.3 billion, or 97% of total assets as of December 31, 2019.
We identified the evaluation of the Company’s assessment of hotel properties for impairment as a critical audit matter. Evaluation of the events or changes in circumstances that indicate the carrying value of a hotel property may not be recoverable involved a high degree of auditor judgment. In particular, as part of its evaluation of indicators of potential hotel property impairment, judgments include 1) the likelihood that a hotel property will be sold before the end of its previously estimated useful life, and 2) changes in market conditions or other factors. In addition, when there was an indication of a potential hotel property impairment, it was challenging to obtain evidence and subjective auditor judgment was required to evaluate certain assumptions used in the Company’s undiscounted cash flow analysis. Specific assumptions included the probability assessment related to the Company’s holding period and expected terminal capitalization rate. There is high estimation uncertainty related to both of these assumptions. Changes in these judgments could have a significant impact on the determination of the recoverability of the carrying amount of the Company’s investments in hotel properties.

F-3

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process to identify and evaluate events or changes in circumstances that indicate the carrying amount of a hotel property may not be recoverable. We also tested internal controls related to the estimated holding period and the expected terminal capitalization rate. We inquired of Company officials and inspected documents, such as meeting minutes of the board of directors, to identify Company strategies that may indicate it was more-likely-than not that a property will be sold before the end of its previously estimated useful life. We assessed financial information and read minutes of the board of directors for indicators of decreases in current and projected operating performance of the hotel properties to identify other factors that could result in identification of a potentially impaired hotel property. We evaluated the Company’s expected terminal capitalization rates by comparing to published third-party industry reports as well as the Company’s historical property sales. We also performed sensitivity analysis over the hold period of certain of the Company’s hotel properties by changing the Company’s estimates to assess the impact on the analysis. We inquired and obtained documentation from the Company regarding the status and evaluation of any potential disposal of properties, which we corroborated with others in the organization who are responsible for, and have authority over, disposition activities.

/s/ KPMG LLP

We have served as the Company's auditor since 2009.

McLean, Virginia
February 20, 2020

F-4


Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Pebblebrook Hotel Trust:
Opinion on Internal Control Over Financial Reporting
We have audited Pebblebrook Hotel Trust and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 20, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP

McLean, Virginia
February 20, 2020


F-5
Table of Contents


Pebblebrook Hotel Trust
Consolidated Balance Sheets
(In thousands, except share data)
 
December 31,
2019
 
December 31,
2018
 
 
 
 
ASSETS
 
 
 
Investment in hotel properties, net
$
6,332,587

 
$
6,534,193

Ground lease asset, net
—

 
199,745

Cash and cash equivalents
30,098

 
83,366

Restricted cash
26,777

 
24,445

Hotel receivables (net of allowance for doubtful accounts of $738 and $526, respectively)
49,619

 
59,897

Prepaid expenses and other assets
59,474

 
76,702

Total assets
$
6,498,555

 
$
6,978,348

LIABILITIES AND EQUITY
 
 
 
Debt
$
2,229,220

 
$
2,746,898

Accounts payable and accrued expenses
516,437

 
360,279

Deferred revenues
57,704

 
54,741

Accrued interest
4,694

 
2,741

Distribution payable
58,564

 
43,759

Total liabilities
2,866,619

 
3,208,418

Commitments and contingencies (Note 11)

 

Shareholders’ equity:
 
 
 
Preferred shares of beneficial interest, $.01 par value (liquidation preference $510,000 at December 31, 2019 and at December 31, 2018), 100,000,000 shares authorized; 20,400,000 shares issued and outstanding at December 31, 2019 and December 31, 2018
204

 
204

Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 130,484,956 issued and outstanding at December 31, 2019 and 130,311,289 issued and outstanding at December 31, 2018
1,305

 
1,303

Additional paid-in capital
4,069,410

 
4,065,804

Accumulated other comprehensive income (loss)
(24,715
)
 
1,330

Distributions in excess of retained earnings
(424,996
)
 
(308,806
)
Total shareholders’ equity
3,621,208

 
3,759,835

Non-controlling interests
10,728

 
10,095

Total equity
3,631,936

 
3,769,930

Total liabilities and equity
$
6,498,555

 
$
6,978,348

The accompanying notes are an integral part of these financial statements.


F-6
Table of Contents

Pebblebrook Hotel Trust
Consolidated Statements of Operations and Comprehensive Income
(In thousands, except share and per-share data)


 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
Revenues:
 
 
 
 
 
 
Room
 
$
1,103,947

 
$
565,107

 
$
532,288

Food and beverage
 
370,584

 
199,089

 
182,737

Other operating
 
137,682

 
64,482

 
54,292

Total revenues
 
1,612,213

 
828,678

 
769,317

Expenses:
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
Room
 
275,855

 
143,171

 
134,068

Food and beverage
 
260,278

 
136,845

 
123,213

Other direct and indirect
 
438,035

 
231,818

 
210,692

Total hotel operating expenses
 
974,168

 
511,834

 
467,973

Depreciation and amortization
 
234,880

 
108,475

 
102,290

Real estate taxes, personal property taxes, property insurance, and ground rent
 
125,013

 
54,191

 
48,500

General and administrative
 
34,047

 
20,945

 
20,062

Transaction costs
 
8,679

 
75,049

 
71

(Gain) loss on sale of hotel properties
 
(2,819
)
 
2,147

 
(14,877
)
(Gain) loss and other operating expenses
 
8,903

 
(10,935
)
 
9,918

Total operating expenses
 
1,382,871

 
761,706

 
633,937

Operating income (loss)
 
229,342

 
66,972

 
135,380

Interest expense
 
(108,474
)
 
(53,923
)
 
(37,299
)
Other
 
29

 
2,078

 
2,362

Income (loss) before income taxes
 
120,897

 
15,127

 
100,443

Income tax (expense) benefit
 
(5,172
)
 
(1,742
)
 
(181
)
Net income (loss)
 
115,725

 
13,385

 
100,262

Net income (loss) attributable to non-controlling interests
 
283

 
(8
)
 
374

Net income (loss) attributable to the Company
 
115,442

 
13,393

 
99,888

Distributions to preferred shareholders
 
(32,556
)
 
(17,466
)
 
(16,094
)
Net income (loss) attributable to common shareholders
 
$
82,886

 
$
(4,073
)
 
$
83,794

Net income (loss) per share available to common shareholders, basic
 
$
0.63

 
$
(0.06
)
 
$
1.20

Net income (loss) per share available to common shareholders, diluted
 
$
0.63

 
$
(0.06
)
 
$
1.19

Weighted-average number of common shares, basic
 
130,471,670

 
74,286,307

 
69,591,973

Weighted-average number of common shares, diluted
 
130,718,306

 
74,286,307

 
69,984,837


F-7
Table of Contents

Pebblebrook Hotel Trust
Consolidated Statements of Operations and Comprehensive Income - Continued
(In thousands, except share and per-share data)


 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
 
Net income (loss)
 
$
115,725

 
$
13,385

 
$
100,262

Other comprehensive income (loss):
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments
 
(26,045
)
 
(2,907
)
 
6,001

Comprehensive income (loss)
 
89,680

 
10,478

 
106,263

Comprehensive income (loss) attributable to non-controlling interests
 
209

 
(16
)
 
395

Comprehensive income (loss) attributable to the Company
 
$
89,471

 
$
10,494

 
$
105,868

The accompanying notes are an integral part of these financial statements.


F-8
Table of Contents


Pebblebrook Hotel Trust
Consolidated Statements of Equity
(In thousands, except share data)

 
 
Preferred Shares
 
Common Shares
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
 Distributions in Excess of Retained Earnings
 
Total Shareholders' Equity
 
Non-Controlling Interests
 
Total Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2016
 
10,000,000
 
$
100

 
71,922,904

 
$
719

 
$
1,776,404

 
$
(2,312
)
 
$
(169,227
)
 
$
1,605,684

 
$
3,432

 
$
1,609,116

Issuance of shares, net of offering costs
 
—

 
—

 
—

 
—

 
(62
)
 
—

 
—

 
(62
)
 
—

 
(62
)
Issuance of common shares for Board of Trustees compensation
 
—

 
—

 
16,711

 
1

 
502

 
—

 
—

 
503

 
—

 
503

Repurchase of common shares
 
—

 
—

 
(3,335,278
)
 
(33
)
 
(95,948
)
 
—

 
—

 
(95,981
)
 
—

 
(95,981
)
Share-based compensation
 
—

 
—

 
208,238

 
1

 
4,541

 
—

 
—

 
4,542

 
1,104

 
5,646

Distributions on common shares/units
 
—

 
—

 
—

 
—

 
—

 
—

 
(105,580
)
 
(105,580
)
 
(359
)
 
(105,939
)
Distributions on preferred shares
 
—

 
—

 
—

 
—

 
—

 
—

 
(16,094
)
 
(16,094
)
 
(32
)
 
(16,126
)
Redemption of non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
106

 
106

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments
 
—

 
—

 
—

 
—

 
—

 
6,001

 
—

 
6,001

 
—

 
6,001

Net income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
99,888

 
99,888

 
374

 
100,262

Balance at December 31, 2017
 
10,000,000

 
$
100

 
68,812,575

 
$
688

 
$
1,685,437

 
$
3,689

 
$
(191,013
)
 
$
1,498,901

 
$
4,625

 
$
1,503,526

Issuance of shares, net of offering costs
 
10,400,000

 
104

 
61,399,104

 
614

 
2,377,089

 
—

 
—

 
2,377,807

 
—

 
2,377,807

Issuance of operating partnership units
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,665

 
4,665

Issuance of common shares for Board of Trustees compensation
 
—

 
—

 
17,410

 
1

 
661

 
—

 
—

 
662

 
—

 
662

Repurchase of common shares
 
—

 
—

 
(69,687
)
 
(1
)
 
(2,506
)
 
—

 
—

 
(2,507
)
 
—

 
(2,507
)
Share-based compensation
 
—

 
—

 
151,887

 
1

 
5,123

 
—

 
—

 
5,124

 
1,104

 
6,228

Distributions on common shares/units
 
—

 
—

 
—

 
—

 
—

 
—

 
(113,172
)
 
(113,172
)
 
(377
)
 
(113,549
)
Distributions on preferred shares
 
—

 
—

 
—

 
—

 
—

 
—

 
(17,466
)
 
(17,466
)
 
(39
)
 
(17,505
)
Net contribution from non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
125

 
125

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments
 
—

 
—

 
—

 
—

 
—

 
(2,907
)
 
—

 
(2,907
)
 
—

 
(2,907
)
Cumulative effect adjustment from adoption of new accounting standard
 
—

 
—

 
—

 
—

 
—

 
548

 
(548
)
 
—

 
—

 
—

Net income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
13,393

 
13,393

 
(8
)
 
13,385

Balance at December 31, 2018
 
20,400,000

 
$
204

 
130,311,289

 
$
1,303

 
$
4,065,804

 
$
1,330

 
$
(308,806
)
 
$
3,759,835

 
$
10,095

 
$
3,769,930


F-9
Table of Contents

Issuance of shares, net of offering costs
 
—

 
—

 
—

 
—

 
(275
)
 
—

 
—

 
(275
)
 
—

 
(275
)
Issuance of common shares for Board of Trustees compensation
 
—

 
—

 
25,282

 
1

 
739

 
—

 
—

 
740

 
—

 
740

Repurchase of common shares
 
—

 
—

 
(126,681
)
 
(1
)
 
(4,008
)
 
—

 
—

 
(4,009
)
 
—

 
(4,009
)
Share-based compensation
 
—

 
—

 
275,066

 
2

 
7,180

 
—

 
—

 
7,182

 
1,057

 
8,239

Distributions on common shares/units
 
—

 
—

 
—

 
—

 
—

 
—

 
(199,076
)
 
(199,076
)
 
(562
)
 
(199,638
)
Distributions on preferred shares
 
—

 
—

 
—

 
—

 
—

 
—

 
(32,556
)
 
(32,556
)
 
(50
)
 
(32,606
)
Redemption of non-controlling interests
 
—

 
—

 
—

 
—

 
(30
)
 
—

 
—

 
(30
)
 
(95
)
 
(125
)
Other comprehensive income (loss):
 

 

 

 

 

 

 

 


 

 


Unrealized gain (loss) on derivative instruments
 
—

 
—

 
—

 
—

 
—

 
(26,045
)
 
—

 
(26,045
)
 
—

 
(26,045
)
Net income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
115,442

 
115,442

 
283

 
115,725

Balance at December 31, 2019
 
20,400,000
 
$
204

 
130,484,956
 
$
1,305

 
$
4,069,410

 
$
(24,715
)
 
$
(424,996
)
 
$
3,621,208

 
$
10,728

 
$
3,631,936

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these financial statements.

F-10
Table of Contents


Pebblebrook Hotel Trust
Consolidated Statements of Cash Flows
(In thousands)

 
For the year ended December 31,
 
2019
 
2018
 
2017
Operating activities:
 
 
 
 
 
Net income (loss)
$
115,725

 
$
13,385

 
$
100,262

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization
234,880

 
108,475

 
102,290

Share-based compensation
8,239

 
6,228

 
5,646

(Gain) loss on derivative instruments
—

 
—

 
(265
)
(Gain) loss on marketable securities
—

 
2,978

 
—

Amortization of deferred financing costs, non-cash interest and mortgage loan premiums
17,349

 
18,256

 
2,040

(Gain) loss on sale of hotel properties
(2,819
)
 
2,147

 
(14,877
)
Impairment and other losses
—

 
—

 
3,849

Non-cash ground rent
6,395

 
3,062

 
2,884

Other
2,365

 
2,939

 
2,378

Changes in assets and liabilities:
 
 
 
 
 
Hotel receivables
8,648

 
3,684

 
(1,270
)
Prepaid expenses and other assets
1,061

 
5,031

 
(2,161
)
Accounts payable and accrued expenses
(605
)
 
(34,517
)
 
(9,176
)
Deferred revenues
3,964

 
4,029

 
2,039

Net cash provided by (used in) operating activities
395,202

 
135,697

 
193,639

Investing activities:
 
 
 
 
 
Acquisition of LaSalle, net of cash acquired
—

 
(1,372,584
)
 
—

Improvements and additions to hotel properties
(169,632
)
 
(89,605
)
 
(80,825
)
Deposit received on hotel properties
—

 
—

 
2,000

Proceeds from sales of hotel properties
470,352

 
28,551

 
203,479

Investment in marketable securities
—

 
(356,180
)
 
—

Sale of marketable securities
—

 
6,658

 
—

Purchase of corporate office equipment, software, and furniture
(752
)
 
(164
)
 
(40
)
Property insurance proceeds
—

 
5,162

 
7,674

Net cash provided by (used in) investing activities
299,968

 
(1,778,162
)
 
132,288

Financing activities:
 
 
 
 
 
Payment of offering costs — common and preferred shares
(275
)
 
(470
)
 
(62
)
Payment of deferred financing costs
(461
)
 
(29,366
)
 
(5,411
)
(Distributions) contributions from non-controlling interest
(125
)
 
—

 
106

Borrowings under revolving credit facilities
414,771

 
550,181

 
238,687

Repayments under revolving credit facilities
(419,771
)
 
(425,181
)
 
(275,687
)
Proceeds from debt
—

 
1,850,000

 
—

Repayments of debt
(518,207
)
 
(102,366
)
 
(72,317
)
Repurchases of common shares
(4,009
)
 
(2,507
)
 
(95,982
)
Distributions — common shares/units
(184,836
)
 
(105,729
)
 
(107,329
)
Distributions — preferred shares
(32,556
)
 
(16,094
)
 
(16,094
)
Proceeds from refundable membership deposits
—

 
29

 
656


F-11
Table of Contents


Pebblebrook Hotel Trust
Consolidated Statements of Cash Flows
(In thousands)

Repayments of refundable membership deposits
(637
)
 
(754
)
 
(790
)
Net cash provided by (used in) financing activities
(746,106
)
 
1,717,743

 
(334,223
)
Net change in cash and cash equivalents and restricted cash
(50,936
)
 
75,278

 
(8,296
)
Cash and cash equivalents and restricted cash, beginning of year
107,811

 
32,533

 
40,829

Cash and cash equivalents and restricted cash, end of year
$
56,875

 
$
107,811

 
$
32,533

The accompanying notes are an integral part of these financial statements.

F-12
Table of Contents

PEBBLEBROOK HOTEL TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.
As of December 31, 2019, the Company owned 56 hotels with a total of 14,013 guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Boston, Massachusetts; Chicago, Illinois; Key West, Florida; Miami (Coral Gables), Florida; Los Angeles, California (Beverly Hills, Santa Monica, and West Hollywood); Naples, Florida; Nashville, Tennessee; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; San Diego, California; San Francisco, California; Seattle, Washington; Stevenson, Washington; and Washington, D.C.
Substantially all of the Company’s assets are held by, and all of the Company's operations are conducted through, Pebblebrook Hotel, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At December 31, 2019, the Company owned 99.7% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.3% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "PHL") and LaSalle Hotel Lessee Inc. (collectively with its subsidiaries, "LHL"), the Company’s taxable REIT subsidiaries ("TRSs"), which in turn engage third-party eligible independent contractors to manage the hotels. PHL and LHL are consolidated into the Company’s financial statements.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company and its subsidiaries are separate legal entities and maintain records and books of account separate and apart from each other. The consolidated financial statements include all of the accounts of the Company and its subsidiaries and are presented in accordance with U.S. GAAP. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities that the Company does not control, but over which the Company has the ability to exercise significant influence regarding operating and financial policies, are accounted for under the equity method.
Certain reclassifications have been made to the prior period’s financial statements to conform to the current year presentation.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.
Risks and Uncertainties
The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company's financial position. Should any of the hotels experience a significant decline in operational performance, it may affect the Company's ability to make distributions to our shareholders and service debt or meet other financial obligations.
Fair Value Measurements
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:

1.
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
2.
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
3.
Level 3 – Model-derived valuations with unobservable inputs.

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In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 5 to the accompanying consolidated financial statements for disclosures on the fair value of debt and derivative instruments.
Investment in Hotel Properties
Upon acquiring a business or hotel property, the Company measures and recognizes the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties.
Transaction costs related to business combinations are expensed as incurred and included on the consolidated statements of operations and comprehensive income.
Hotel renovations and replacements of assets that improve or extend the life of the asset are recorded at cost and depreciated over their estimated useful lives. Furniture, fixtures and equipment under capital leases are recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.
Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. Intangible assets arising from contractual arrangements are typically amortized over the life of the contract. The Company is required to make subjective assessments as to the useful lives and classification of properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets. These assessments may impact the Company’s results of operations.
The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and holding period, future required capital expenditures, and fair values, including consideration of capitalization rates, discount rates, and comparable selling prices. The Company will adjust its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.
The Company will classify a hotel as held for sale and will cease recording depreciation expense when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, approval of the Company's board of trustees (the "Board of Trustees") has been obtained, no significant financing contingencies exist, and the sale is expected to close within one year. If the fair value less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. The Company will classify the loss, together with the related operating results, as continuing or discontinuing operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.
Intangible Assets and Liabilities
Intangible assets or liabilities are recorded on non-market contracts assumed as part of the acquisition of certain hotels. The Company reviews the terms of agreements assumed in conjunction with the purchase of a hotel to determine if the terms are

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over or under market compared to an estimated market agreement at the acquisition date. Under market lease assets or over market contract liabilities are recorded at the acquisition date and amortized using the straight-line method over the term of the agreement. The Company does not amortize intangible assets with indefinite useful lives, but reviews these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term liquid investments with an original maturity of three months or less. The Company maintains cash and cash equivalents balances in excess of insured limits with various financial institutions. This may subject the Company to significant concentrations of credit risk. The Company performs periodic evaluations of the credit quality of these financial institutions.
Restricted Cash
Restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property insurance.
Prepaid Expenses and Other Assets
The Company's prepaid expenses and other assets consist of prepaid real estate taxes, prepaid insurance, inventories, over or under market leases, and corporate office equipment and furniture.
Derivative Instruments
In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. Unrealized gains and losses of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
Revenue Recognition
Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over the length of a customer's hotel stay. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied.
The Company recognizes revenue related to nonrefundable membership initiation fees and refundable membership initiation deposits over the expected life of an active membership. For refundable membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as other operating revenues on the consolidated statements of operations and comprehensive income over the expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method using the Company's incremental borrowing rate. The accretion is included in interest expense.
Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties. Lease revenue is recognized on a straight-line basis over the life of the lease and included in other operating revenues in the Company's consolidated statements of operations and comprehensive income.
The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations and comprehensive income. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.
Income Taxes
To qualify as a REIT for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its REIT taxable income (determined

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without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, the Company's TRS lessees are subject to federal and state income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Share-based Compensation
The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share-based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available to common shareholders, as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.
Comprehensive Income
The purpose of reporting comprehensive income is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income consists of all components of income, including other comprehensive income, which is excluded from net income.
Segment Information
The Company separately evaluates the performance of each of its hotels properties. However, because each of the hotels has similar economic characteristics, facilities, and services, the hotel properties have been aggregated into a single operating segment.
Recent Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The Company adopted this standard on January 1, 2019. The Company elected the practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the impact of the adoption of the new standard. The adoption of this standard has resulted in the recognition of right-of-use assets and related liabilities to account for the Company's future obligations under the ground lease and corporate office arrangements for which the Company is the lessee. See Notes 4 and 11 below for additional disclosures of the adoption of this standard.

F-16
Table of Contents



Note 3. Business Combinations and Acquisition and Disposition of Hotel Properties

Merger with LaSalle Hotel Properties

On November 30, 2018, the Company completed its merger with LaSalle Hotel Properties (“LaSalle”) pursuant to the Agreement and Plan of Merger, dated as of September 6, 2018, as amended on September 18, 2018 (the “Merger Agreement”), by and among the Company, the Operating Partnership, Ping Merger Sub, LLC (“Merger Sub”), Ping Merger OP, LP (“Merger OP”), LaSalle and LaSalle Hotel Operating Partnership, L.P. (“LaSalle OP”).

Pursuant to the Merger Agreement, on November 30, 2018, Merger OP merged with and into LaSalle OP (the “Partnership Merger”) with LaSalle OP surviving as a subsidiary of the Operating Partnership. Immediately following the Partnership Merger, LaSalle merged with and into Merger Sub (the “Company Merger” and, together with the Partnership Merger, the “Mergers”) with Merger Sub surviving as a wholly owned subsidiary of the Company. On December 3, 2018, Merger Sub assigned all of its rights and obligations to the Company and was liquidated and dissolved.

Upon completion of the Company Merger and pursuant to the Merger Agreement, each issued and outstanding LaSalle common share of beneficial interest, $0.01 par value per share ("LaSalle common shares") (other than the 10.8 million LaSalle common shares held by the Company) was converted into the right to receive either (i) 0.92 of the Company's common shares and cash in lieu of fractional shares, if any; or (ii) $37.80 in cash, subject to certain adjustments and to any applicable withholding tax (the “Cash Consideration”). The maximum number of LaSalle common shares that were eligible to be converted into the right to receive the Cash Consideration was equal to 30% of the aggregate number of LaSalle common shares issued and outstanding immediately prior to completion of the Company Merger. The LaSalle common shares held by the Company were excluded from the cash election in the Company Merger and were cancelled. In addition, each issued and outstanding LaSalle 6.375% Series I cumulative redeemable preferred share was converted into the right to receive one of the Company's 6.375% Series E cumulative redeemable preferred shares and each issued and outstanding LaSalle 6.3% Series J cumulative redeemable preferred share was converted into the right to receive one of the Company's 6.3% Series F cumulative redeemable preferred shares.

Upon completion of the Partnership Merger and pursuant to the Merger Agreement, each common unit of LaSalle OP (a “LaSalle OP Common Unit”) that was issued and outstanding immediately prior to completion of the Partnership Merger, other than LaSalle OP Common Units held by LaSalle and its subsidiaries, was cancelled and converted into the right to receive 0.92 common units of the Operating Partnership, without interest. No fractional common shares or OP units were issued in the Mergers, and the value of any fractional interests was paid in cash.
The Company accounted for the Mergers under the acquisition method of accounting in ASC 805, Business Combinations. As a result of the Mergers, the Company acquired an ownership interest in the following 36 hotel properties:

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Table of Contents

Property
 
Location
 
Ownership Interest
 
Guest Rooms
Villa Florence San Francisco on Union Square
 
San Francisco, CA
 
100
%
 
189

Hotel Vitale
 
San Francisco, CA
 
100
%
 
200

The Marker San Francisco
 
San Francisco, CA
 
100
%
 
208

Hotel Spero
 
San Francisco, CA
 
100
%
 
236

Chaminade Resort & Spa
 
Santa Cruz, CA
 
100
%
 
156

Harbor Court Hotel San Francisco
 
San Francisco, CA
 
100
%
 
131

Viceroy Santa Monica Hotel
 
Santa Monica, CA
 
100
%
 
162

Le Parc Suite Hotel
 
West Hollywood, CA
 
100
%
 
154

Montrose West Hollywood
 
West Hollywood, CA
 
100
%
 
133

Chamberlain West Hollywood Hotel
 
West Hollywood, CA
 
100
%
 
115

Grafton on Sunset
 
West Hollywood, CA
 
100
%
 
108

The Westin Copley Place, Boston
 
Boston, MA
 
100
%
 
803

The Liberty, A Luxury Collection Hotel, Boston
 
Boston, MA
 
99.99
%
 
298

Hyatt Regency Boston Harbor
 
Boston, MA
 
100
%
 
270

Sofitel Washington DC Lafayette Square
 
Washington, DC
 
100
%
 
237

George Hotel
 
Washington, DC
 
100
%
 
139

Mason & Rook Hotel
 
Washington, DC
 
100
%
 
178

Donovan Hotel
(8)
Washington, DC
 
100
%
 
193

Paradise Point Resort & Spa
 
San Diego, CA
 
100
%
 
462

Hilton San Diego Gaslamp Quarter
 
San Diego, CA
 
100
%
 
286

Solamar Hotel
 
San Diego, CA
 
100
%
 
235

L'Auberge Del Mar
 
Del Mar, CA
 
100
%
 
121

Hilton San Diego Mission Bay Resort
 
San Diego, CA
 
100
%
 
357

The Heathman Hotel
 
Portland, OR
 
100
%
 
151

Southernmost Beach Resort
 
Key West, FL
 
100
%
 
262

The Marker Key West
 
Key West, FL
 
100
%
 
96

The Roger New York
 
New York, NY
 
100
%
 
194

Hotel Chicago Downtown, Autograph Collection
 
Chicago, IL
 
100
%
 
354

The Westin Michigan Avenue Chicago
 
Chicago, IL
 
100
%
 
752

Hotel Palomar Washington DC
(1)
Washington, DC
 
100
%
 
335

The Liaison Capitol Hill
(2)
Washington, DC
 
100
%
 
343

Onyx Hotel
(3)
Boston, MA
 
100
%
 
112

Hotel Amarano Burbank
(4)
Burbank, CA
 
100
%
 
132

Rouge Hotel
(5)
Washington, DC
 
100
%
 
137

Hotel Madera
(6)
Washington, DC
 
100
%
 
82

Topaz Hotel
(7)
Washington, DC
 
100
%
 
99

 
 
 
 
 
 
8,420


(1) In February 2019, the Company sold this hotel property for $141.5 million.
(2) In February 2019, the Company sold this hotel property for $111.0 million.
(3) In May 2019, the Company sold this hotel property for $58.3 million.
(4) In July 2019, the Company sold this hotel property for $72.9 million.
(5) In September 2019, the Company sold this hotel property for $42.0 million.
(6) In September 2019, the Company sold this hotel property for $23.3 million.
(7) In November 2019, the Company sold this hotel property for $33.1 million.
(8) This hotel property was closed in November 2019 for renovation and is expected to re-open in the second quarter of 2020 as Hotel Zena.


F-18
Table of Contents

The total consideration for the Mergers was approximately $4.1 billion, which included the Company's issuance of approximately 61.4 million common shares valued at $34.92 per share to LaSalle common shareholders, the Company's issuance of 4.4 million Series E Preferred Shares valued at $23.10 per share to former LaSalle Series I preferred shareholders and 6.0 million Series F Preferred Shares valued at $22.10 per share to former LaSalle Series J preferred shareholders, the Operating Partnership's issuance of approximately 0.1 million OP units valued at $34.92 per unit to former LaSalle limited partners, and cash. Additionally, the Company's investment of 10.8 million of LaSalle common shares valued at $346.5 million is included in the total consideration.
The total consideration, excluding the net working capital assumed, consisted of the following (in thousands):
 
 
Total Consideration
Common shares
 
$
2,144,057

Series E preferred shares
 
101,622

Series F preferred shares
 
132,600

OP units
 
4,665

Cash
 
1,719,150

Total consideration
 
$
4,102,094



The Company determined the acquisition date fair values as follows (in thousands):

 
 
November 30, 2018
Investment in hotel properties
 
$
4,095,721

Restricted cash reserves
 
14,784

Hotel and other receivables
 
34,669

Intangible assets
 
158,920

Prepaid expenses and other assets
 
54,808

Accounts payable and accrued expenses
 
(227,647
)
Deferred revenues
 
(23,816
)
Accrued interest
 
(2,496
)
Distributions payable
 
(2,744
)
Other
 
(105
)
Total consideration
 
$
4,102,094



During the year ended December 31, 2019, the Company finalized the purchase price accounting and recorded an adjustment to decrease the preliminary fair value of investment in hotel properties by $24.6 million, decrease intangible assets by $12.7 million, increase prepaid expenses and other assets by $7.0 million and decrease accounts payable and accrued expenses by $30.3 million.
The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the equity interests acquired:
•
Investment in hotel properties — The Company estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the market, cost, and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures, and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties.
•
Intangible assets — The Company estimated the fair value of its lease intangible assets by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The below market lease intangible assets are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.

F-19
Table of Contents

•
Above market lease liabilities — The Company estimated the fair value of its above market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The above market lease liabilities were included in accounts payable and other liabilities in the accompanying consolidated balance sheet prior to the adoption of ASC 842, Leases. The above market lease liabilities are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.
•
Restricted cash reserves, hotel and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, deferred revenues, accrued interest, and distributions payable — the carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.
For the hotel properties acquired during the Mergers, total revenues of $56.7 million and operating income of $15.9 million for the year ended December 31, 2018 are included in the accompanying consolidated statements of operations and comprehensive income.
There were no acquisitions of hotel properties during the year ended December 31, 2019. For the year ended December 31, 2019, the Company incurred $0.6 million in transaction costs and $7.7 million in integration costs in connection with the Mergers. For the year ended December 31, 2018, the Company incurred $72.7 million in transaction costs and $2.0 million in integration costs in connection with the Mergers. The transaction costs are primarily related to transfer taxes, financial advisory fees, loan commitment fees, legal, and other professional service fees in connection with the Mergers. The integration costs are primarily related to professional fees and employee-related costs. The merger-related costs noted above are included in transaction costs in the accompanying consolidated statements of operations and comprehensive income.
The following unaudited condensed pro forma financial information presents the results of operations as if the Mergers, excluding all dispositions after the Mergers, had taken place on January 1, 2017. The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Mergers had taken place on January 1, 2017, nor is it indicative of the results of operations for future periods. The unaudited condensed pro forma financial information is as follows (in thousands):
 
 
For the year ended December 31,
 
 
2019

2018
 
 
 
 
 
 
(unaudited)
Total revenues
 
$
1,612,213


$
1,677,663

Operating income (loss)
 
$
229,342


$
255,333

Net income (loss) attributable to common shareholders
 
$
82,886


$
89,767

Net income (loss) per share available to common shareholders — basic
 
$
0.63


$
0.69

Net income (loss) per share available to common shareholders — diluted
 
$
0.63


$
0.69



Disposition of Hotel Properties
The Company will report a disposed or held for sale hotel property or group of hotel properties in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on its operations and financial results. All other disposed hotel properties will have their operating results reflected within continuing operations on the Company's consolidated statements of operations and comprehensive income for all periods presented.
During the year ended December 31, 2019, the Company sold seven hotel properties for an aggregate sales price of $481.9 million. In connection with these transactions, the Company recorded an aggregate of $2.8 million net gain on sales, which is included in (gain) loss on sale of hotel properties, net, in the accompanying consolidated statements of operations and comprehensive income.
The following table discloses the hotel properties that were sold during the year ended December 31, 2019 (in thousands):

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Table of Contents

Hotel Property Name
 
Location
 
Sale Date
 
Sale Price
The Liaison Capitol Hill
 
Washington, DC
 
February 14, 2019
 
$
111,000

Hotel Palomar Washington DC
 
Washington, DC
 
February 22, 2019
 
141,450

Onyx Hotel
 
Boston, MA
 
May 29, 2019
 
58,255

Hotel Amarano Burbank
 
Burbank, CA
 
July 16, 2019
 
72,866

Rouge Hotel
 
Washington, DC
 
September 12, 2019
 
42,000

Hotel Madera
 
Washington, DC
 
September 26, 2019
 
23,250

Topaz Hotel
 
Washington, DC
 
November 22, 2019
 
33,100

Total
 
 
 
 
 
$
481,921


During the year ended December 31, 2018, the Company sold The Grand Hotel Minneapolis for $30.0 million and recognized a loss of $2.1 million related to this hotel property.
For the years ended December 31, 2019, 2018 and 2017, the Company's consolidated statements of operations and comprehensive income included operating (loss) income of $9.9 million, $5.5 million and $8.5 million, respectively, related to the hotel properties sold.
The sales of the hotel properties described above did not represent a strategic shift that had a major effect on the Company’s operations and financial results, and therefore, did not qualify as discontinued operations.

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Table of Contents

Note 4. Investment in Hotel Properties
Investment in hotel properties as of December 31, 2019 and 2018 consisted of the following (in thousands):
 
 
December 31,
2019
 
December 31, 2018
Land
$
1,042,198

 
$
1,056,862

Buildings and improvements
4,998,108

 
5,440,513

Furniture, fixtures and equipment
522,631

 
462,620

Capital lease asset
134,063

 
91,985

Construction in progress
35,637

 
25,643

 
$
6,732,637

 
$
7,077,623

Right-of-use asset, operating leases
335,272

 
—

Investment in hotel properties
$
7,067,909

 
$
7,077,623

Less: Accumulated depreciation
(735,322
)
 
(543,430
)
Investment in hotel properties, net
$
6,332,587

 
$
6,534,193



On January 1, 2019, the Company adopted ASC 842, Leases and applied it prospectively. At adoption, the Company also elected the practical expedients which permitted it to not reassess its prior conclusions about lease identification, classification, and initial direct costs. Consequently on January 1, 2019, the Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases. Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates, which ranged from 5.5% to 7.6%. All of of these ground leases have long terms, ranging from 10 years to 88 years and the Company included the exercise of options to extend when it is reasonably certain the Company will exercise such option. See Note 11 for additional information about the ground leases. The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of December 31, 2019, the Company's right-of-use assets of $335.3 million, which included favorable and unfavorable intangibles, are included in the investment in hotel properties and its related lease liabilities of $256.2 million are presented in accounts payable and accrued expenses in the Company's consolidated balance sheets. The adoption of this standard had minimal impact on the Company's consolidated statements of operations and comprehensive income.

On September 10, 2017, Hotel Colonnade Coral Gables, Autograph Collection ("Hotel Colonnade") located in Coral Gables, Florida and LaPlaya Beach Resort and Club ("LaPlaya") located in Naples, Florida were impacted by Hurricane Irma. Hotel Colonnade did not suffer any material damage and remained open. LaPlaya was closed in anticipation of the storm and re-opened in stages beginning in the fourth quarter of 2017 and was fully reopened in January 2018.

The Company’s insurance policies provide coverage for property damage, business interruption, and reimbursement for other costs that were incurred relating to damages sustained during Hurricane Irma. Insurance proceeds are subject to deductibles. As of June 30, 2018, the Company reached a final agreement with the insurance carriers related to LaPlaya totaling $20.5 million, and the Company recognized gain of $13.1 million for the year ended December 31, 2018.

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Table of Contents

Note 5. Debt
The Company's debt consisted of the following as of December 31, 2019 and 2018 (dollars in thousands):
 
 

 

Balance Outstanding as of
 
Interest Rate

Maturity Date

December 31, 2019

December 31, 2018
Revolving credit facilities
 
 
 
 
 
 
 
Senior unsecured credit facility
Floating (1)

January 2022

$
165,000


$
170,000

PHL unsecured credit facility
Floating (2)

January 2022

—


—

Total revolving credit facilities
 
 
 
 
$
165,000

 
$
170,000

 
 
 
 
 
 
 
 
Unsecured term loans









First Term Loan
Floating (3)

January 2023

300,000


300,000

Second Term Loan
Floating (3)

April 2022

65,000


65,000

Third Term Loan
Floating (3)

January 2021

—


200,000

Fourth Term Loan
Floating (3)
 
October 2024
 
110,000

 
110,000

Sixth Term Loan
 
 
 
 
 
 
 
Tranche 2020
Floating (3)
 
December 2020
 
—

 
250,000

Tranche 2021
Floating (3)
 
November 2021
 
300,000

 
300,000

Tranche 2022
Floating (3)
 
November 2022
 
400,000

 
400,000

Tranche 2023
Floating (3)
 
November 2023
 
400,000

 
400,000

Tranche 2024
Floating (3)
 
January 2024
 
400,000

 
400,000

Total Sixth Term Loan
 
 
 
 
1,500,000

 
1,750,000

Total term loans at stated value




1,975,000


2,425,000

Deferred financing costs, net




(10,343
)

(15,716
)
Total term loans




$
1,964,657


$
2,409,284











Senior unsecured notes









Series A Notes
4.70%

December 2023

60,000


60,000

Series B Notes
4.93%

December 2025

40,000


40,000

Total senior unsecured notes at stated value




100,000


100,000

Deferred financing costs, net




(437
)

(531
)
Total senior unsecured notes




$
99,563


$
99,469











Mortgage loans









The Westin San Diego Gaslamp Quarter
3.69%

January 2020

—


68,207

Deferred financing costs, net




—


(62
)
Total mortgage loans




$
—


$
68,145

Total debt




$
2,229,220


$
2,746,898

 
________________________ 
(1) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin.
(2) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.
(3) Borrowings under the term loan facilities bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.



F-23
Table of Contents

As of December 31, 2019, approximately $1.6 billion of the borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.43%, after taking into account interest rate swap agreements, and approximately $345.0 million was at a weighted-average floating interest rate of 3.32%. As of December 31, 2018, approximately $1.2 billion of the borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.46%, after taking into account interest rate swap agreements, and approximately $1.2 billion was at a weighted-average floating interest rate of 4.26%.

Unsecured Revolving Credit Facilities
The Company has a $650.0 million senior unsecured revolving credit facility maturing in January 2022, with options to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee. As of December 31, 2019, the Company had $165.0 million of outstanding borrowings and $482.2 million borrowing capacity remaining on its senior unsecured credit facility. Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount. The Company has the ability to further increase the aggregate borrowing capacity under the credit agreement to up to $1.3 billion, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.45% to 2.25%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.20% or 0.30% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value.

The Company also has a $25.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in January 2022. Borrowings on the PHL Credit Facility bear interest at LIBOR plus 1.45% to 2.25%, depending on the Company's leverage ratio. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Company's credit agreement that governs the Company's senior unsecured revolving credit facility. As of December 31, 2019, the Company had no borrowings under the PHL Credit Facility and had $25.0 million borrowing capacity remaining under the PHL Credit Facility.

Under the terms of the credit agreement for the unsecured revolving credit facility, one or more standby letters of credit, up to a maximum aggregate outstanding balance of $30.0 million, may be issued on behalf of the Company by the lenders under the unsecured revolving credit facility.  The Company will incur a fee that shall be agreed upon with the issuing bank.  Any outstanding standby letters of credit reduce the available borrowings on the senior unsecured revolving credit facility by a corresponding amount. Standby letters of credit of $2.8 million and zero were outstanding as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, the Company was in compliance with the debt covenants of the credit agreements that govern the unsecured revolving credit facilities.
Unsecured Term Loan Facilities
The Company has senior unsecured term loans with different maturities. Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on the Company's leverage ratio. Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility. During the year ended December 31, 2019, the Company repaid $450.0 million of term loans, consisting of the full repayment of the Company's $200.0 million third term loan and a $250.0 million tranche maturing in 2020 of the Company's sixth term loan. As of December 31, 2019, the Company was in compliance with all debt covenants of its term loan facilities. The Company entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loan facilities, see Derivative and Hedging Activities below.
Senior Unsecured Notes
The Company has outstanding $60.0 million of senior unsecured notes bearing a fixed interest rate of 4.70% per annum and maturing in December 2023 (the "Series A Notes") and $40.0 million of senior unsecured notes bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes"). The debt covenants of the Series A Notes and the Series B Notes are substantially similar to those of the Company's senior unsecured revolving credit facility. As of December 31, 2019, the Company was in compliance with all such debt covenants.
Mortgage Debt
The Company’s sole mortgage loan was secured by a first mortgage lien on the underlying hotel property. The mortgage was non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.

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Table of Contents

On November 29, 2019, the Company repaid the $65.4 million mortgage loan on The Westin San Diego Gaslamp Quarter, without penalty.
Interest Expense
The components of the Company's interest expense consisted of the following (in thousands):
 
 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
Unsecured revolving credit facilities
 
$
4,530

 
$
11,274

 
$
3,914

Unsecured term loan facilities
 
79,813

 
30,479

 
21,396

Senior unsecured notes
 
4,792

 
4,686

 
4,805

Mortgage debt
 
2,293

 
2,592

 
3,600

Amortization of deferred financing fees
 
7,115

 
2,565

 
2,397

Other
 
9,931

 
2,327

 
1,187

Total interest expense
 
$
108,474

 
$
53,923

 
$
37,299


The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within Level 2 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt (unsecured senior notes and mortgage loans) as of December 31, 2019 and 2018 was $101.2 million and $164.3 million, respectively.
Future Minimum Principal Payments
As of December 31, 2019, the future minimum principal payments for the Company's debt are as follows (in thousands):
2020
 
$
—

2021
 
300,000

2022
 
630,000

2023
 
760,000

2024
 
510,000

Thereafter
 
40,000

Total debt principal payments
 
2,240,000

Deferred financing costs
 
(10,780
)
Total debt
 
$
2,229,220


Derivative and Hedging Activities
The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. On January 1, 2018, the Company adopted ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

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Table of Contents

The Company's interest rate swaps at December 31, 2019 and 2018 consisted of the following (in thousands):
 
 
 
 
 
 
Notional Value as of
Hedge Type
 
Interest Rate
 
Maturity
 
December 31, 2019
 
December 31, 2018
Swap - cash flow
 
1.57%
(1) 
May 2019
 
$
—

 
$
100,000

Swap - cash flow
 
1.57%
(1) 
May 2019
 
—

 
62,500

Swap - cash flow
 
1.57%
(1) 
May 2019
 
—

 
15,000

Swap - cash flow
 
1.63%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
1.63%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
2.46%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
2.46%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
1.66%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
1.66%
 
January 2020
 
50,000

 
50,000

Swap - cash flow
 
2.12%
 
December 2020
 
100,000

 
—

Swap - cash flow
 
2.12%
 
December 2020
 
100,000

 
—

Swap - cash flow
 
1.74%
 
January 2021
 
75,000

 
75,000

Swap - cash flow
 
1.75%
 
January 2021
 
50,000

 
50,000

Swap - cash flow
 
1.53%
 
January 2021
 
37,500

 
37,500

Swap - cash flow
 
1.53%
 
January 2021
 
37,500

 
37,500

Swap - cash flow
 
1.46%
(1) 
January 2021
 
100,000

 
100,000

Swap - cash flow
 
1.47%
(1) 
January 2021
 
47,500

 
47,500

Swap - cash flow
 
1.47%
(1) 
January 2021
 
47,500

 
47,500

Swap - cash flow
 
1.47%
(1) 
January 2021
 
47,500

 
47,500

Swap - cash flow
 
1.47%
(1) 
January 2021
 
47,500

 
47,500

Swap - cash flow
 
2.60%
 
October 2021
 
55,000

 
—

Swap - cash flow
 
2.60%
 
October 2021
 
55,000

 
—

Swap - cash flow
 
1.78%
(1) 
January 2022
 
100,000

 
100,000

Swap - cash flow
 
1.78%
(1) 
January 2022
 
50,000

 
50,000

Swap - cash flow
 
1.79%
(1) 
January 2022
 
30,000

 
30,000

Swap - cash flow
 
1.68%
 
April 2022
 
25,000

 
25,000

Swap - cash flow
 
1.68%
 
April 2022
 
25,000

 
25,000

Swap - cash flow
 
1.64%
 
April 2022
 
25,000

 
25,000

Swap - cash flow
 
1.64%
 
April 2022
 
25,000

 
25,000

Swap - cash flow
 
1.99%
 
November 2023
 
85,000

 
—

Swap - cash flow
 
1.99%
 
November 2023
 
85,000

 
—

Swap - cash flow
 
1.99%
 
November 2023
 
50,000

 
—

Swap - cash flow
 
1.99%
 
November 2023
 
30,000

 
—

Total
 
 
 
 
 
$
1,630,000

 
$
1,247,500

________________________ 
(1) Swaps assumed in connection with the LaSalle merger on November 30, 2018.

In addition, as of December 31, 2019, the Company had interest rates swaps for an aggregate notional amount of $590.0 million which will become effective in the future as current swaps mature. The Company records all derivative instruments at fair value in the accompanying consolidated balance sheets. Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (Overnight Index Swap curves) and volatilities (Level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the

F-26
Table of Contents

counterparties under the terms of the interest rate hedge agreements. The Company incorporates these counterparty credit risks in its fair value measurements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.
As of December 31, 2019, the Company's derivative instruments were in both asset and liability positions, with aggregate asset and liability fair values of $3.4 million and $20.5 million, respectively, in the accompanying consolidated balance sheets. For the years ended December 31, 2019 and 2018, there was $(26.0) million and $(2.9) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss). For the years ended December 31, 2019, 2018 and 2017, the Company reclassified $6.4 million, $0.7 million and $3.4 million, respectively, from accumulated other comprehensive income (loss) to interest expense. The Company expects approximately $11.5 million will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months.
Note 6. Revenue
The Company presents revenue on a disaggregated basis in the accompanying consolidated statements of operations and comprehensive income. The following table presents revenues by geographic location for the years ended December 31, 2019, 2018 and 2017 (in thousands):
 
 
For the year ended December 31,
 
 
2019
 
2018
 
2017
San Francisco, CA
 
$
319,195

 
$
193,708

 
$
179,248

Boston, MA
 
273,669

 
85,676

 
73,461

San Diego, CA
 
243,598

 
78,965

 
69,447

Los Angeles, CA
 
200,398

 
128,016

 
124,979

Other (1)
 
128,627

 
108,583

 
111,549

Southern FL
 
115,600

 
63,824

 
50,916

Washington DC
 
111,552

 
34,731

 
27,586

Portland, OR
 
105,571

 
98,265

 
100,070

Chicago, IL
 
82,690

 
3,885

 
—

Seattle, WA
 
31,313

 
33,025

 
32,061

 
 
$
1,612,213

 
$
828,678

 
$
769,317

(1) Other includes: Atlanta (Buckhead), GA, Minneapolis, MN, Nashville, TN, New York City, NY, Philadelphia, PA and Santa Cruz, CA.
Payments from customers are primarily made when services are provided. Due to the short-term nature of the Company's contracts and the almost simultaneous receipt of payment, almost all of the contract liability balance at the beginning of the year is expected to be recognized as revenue over the following 12 months.
Note 7. Equity
Common Shares
The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $0.01 par value per share (“common shares”). Each outstanding common share entitles the holder to one vote on each matter submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company's Board of Trustees.
On February 22, 2016, the Company announced that the Board of Trustees authorized a share repurchase program of up to $150.0 million of the Company's outstanding common shares. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares. For the year ended December 31, 2019, the Company had no repurchases under this program and as of December 31, 2019, $56.6 million of common shares remained available for repurchase under this program.

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Table of Contents

On July 27, 2017, the Company announced that the Board of Trustees authorized a new share repurchase program of up to $100.0 million of the Company's outstanding common shares. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. This $100.0 million share repurchase program will commence upon completion of the Company's $150.0 million share repurchase program.
Common Dividends
The Company declared the following dividends on common shares/units for the year ended December 31, 2019:
Dividend per
Share/Unit
 
For the Quarter
Ended
 
Record Date
 
Payable Date
$
0.38

 
March 31, 2019
 
March 29, 2019
 
April 15, 2019
$
0.38

 
June 30, 2019
 
June 28, 2019
 
July 15, 2019
$
0.38

 
September 30, 2019
 
September 30, 2019
 
October 15, 2019
$
0.38

 
December 31, 2019
 
December 31, 2019
 
January 15, 2020

Preferred Shares
The Company is authorized to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (“preferred shares”).
On November 30, 2018, in connection with the LaSalle merger, the Company issued 4,400,000 of its 6.375% Series E Cumulative Redeemable Preferred Shares ("Series E Preferred Shares") and 6,000,000 of its 6.30% Series F Cumulative Redeemable Preferred Shares ("Series F Preferred Shares").
The following Preferred Shares were outstanding as of December 31, 2019 and 2018:
 
 
As of December 31,
Security Type
 
2019
 
2018
6.50% Series C
 
5,000,000

 
5,000,000

6.375% Series D
 
5,000,000

 
5,000,000

6.375% Series E
 
4,400,000

 
4,400,000

6.30% Series F
 
6,000,000

 
6,000,000

 
 
20,400,000

 
20,400,000


The Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares and Series F Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions. The Preferred Shares are cumulative redeemable preferred shares, do not have any maturity date and are not subject to mandatory redemption. The Company could not redeem the Series C Preferred Shares prior to March 18, 2018, may not redeem the Series D Preferred Shares prior to June 9, 2021, could not redeem the Series E Preferred Shares prior to March 4, 2018 and may not redeem the Series F Preferred Shares prior to May 25, 2021, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below. On or after May 25, 2021 and June 9, 2021, the Company may, at its option, redeem the Series F Preferred Shares and Series D Preferred Shares, respectively, and at any time the Company may, at its option, redeem the Series C Preferred Shares or the Series E Preferred Shares, or both, in each case in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which the Company’s common shares and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on defined formulas subject to share caps. The share cap on each Series C Preferred Share is 2.0325 common shares, on each Series D Preferred Share is 1.9794 common shares, on each Series E Preferred Share is 1.9372 common shares and on each Series F Preferred Share is 2.0649 common shares.
Preferred Dividends

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Table of Contents

The Company declared the following dividends on preferred shares for the year ended December 31, 2019:
 
Security Type
 
Dividend  per
Share/Unit
 
For the Quarter
Ended
 
Record Date
 
Payable Date
6.50% Series C
 
$
0.41

 
March 31, 2019
 
March 29, 2019
 
April 15, 2019
6.50% Series C
 
$
0.41

 
June 30, 2019
 
June 28, 2019
 
July 15, 2019
6.50% Series C
 
$
0.41

 
September 30, 2019
 
September 30, 2019
 
October 15, 2019
6.50% Series C
 
$
0.41

 
December 31, 2019
 
December 31, 2019
 
January 15, 2020
6.375% Series D
 
$
0.40

 
March 31, 2019
 
March 29, 2019
 
April 15, 2019
6.375% Series D
 
$
0.40

 
June 30, 2019
 
June 28, 2019
 
July 15, 2019
6.375% Series D
 
$
0.40

 
September 30, 2019
 
September 30, 2019
 
October 15, 2019
6.375% Series D
 
$
0.40

 
December 31, 2019
 
December 31, 2019
 
January 15, 2020
6.375% Series E
 
$
0.40

 
March 31, 2019
  
March 29, 2019
 
April 15, 2019
6.375% Series E
 
$
0.40

 
June 30, 2019
 
June 28, 2019
 
July 15, 2019
6.375% Series E
 
$
0.40

 
September 30, 2019
 
September 30, 2019
 
October 15, 2019
6.375% Series E
 
$
0.40

 
December 31, 2019
 
December 31, 2019
 
January 15, 2020
6.30% Series F
 
$
0.39

 
March 31, 2019
  
March 29, 2019
 
April 15, 2019
6.30% Series F
 
$
0.39

 
June 30, 2019
 
June 28, 2019
 
July 15, 2019
6.30% Series F
 
$
0.39

 
September 30, 2019
 
September 30, 2019
 
October 15, 2019
6.30% Series F
 
$
0.39

 
December 31, 2019
 
December 31, 2019
 
January 15, 2020

Non-controlling Interest of Common Units in Operating Partnership
Holders of Operating Partnership units have certain redemption rights that enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the time of redemption or the Company’s common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the Operating Partnership's limited partners or the Company's shareholders.
As of December 31, 2019 and 2018, the Operating Partnership had 236,351 long-term incentive partnership units (“LTIP units”) outstanding. Of the 236,351 LTIP units outstanding at December 31, 2019, 190,975 LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above.
On November 30, 2018, in connection with the LaSalle merger, the Company issued 133,605 OP units in the Operating Partnership to third-party limited partners of LaSalle OP. As of December 31, 2019 and 2018, the Operating Partnership had 133,605 and 133,605 OP units held by third parties, respectively, excluding LTIP units.
Note 8. Share-Based Compensation Plan
The Company maintains the 2009 Equity Incentive Plan, as amended and restated (as amended, the "Plan"), to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan vest over a period determined by the Board of Trustees, generally over three to five years, with certain awards vesting over periods of up to six years. The Company pays or accrues for dividends on share-based awards. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. As of December 31, 2019, there were 1,035,909 common shares available for issuance under the Plan, assuming performance-based equity awards vest at target.
Service Condition Share Awards
From time to time, the Company awards restricted common shares under the Plan to members of the Board of Trustees, officers and employees. These shares generally vest over three to five years based on continued service or employment.
The following table provides a summary of service condition restricted share activity as of December 31, 2019:
 

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Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at January 1, 2017
135,891

 
$
30.82

Granted
59,139

 
$
29.68

Vested
(57,559
)
 
$
31.50

Forfeited
(366
)
 
$
28.01

Unvested at December 31, 2017
137,105

 
$
30.05

Granted
52,609

 
$
36.86

Vested
(61,982
)
 
$
31.35

Forfeited
—

 
$
—

Unvested at December 31, 2018
127,732

 
$
32.22

Granted
88,430

 
$
32.64

Vested
(66,276
)
 
$
30.20

Forfeited
(707
)
 
$
32.70

Unvested at December 31, 2019
149,179

 
$
33.37


The fair value of each of these service condition restricted share awards is determined based on the closing price of the Company’s common shares on the grant date and compensation expense is recognized on a straight-line basis over the vesting period. For the years ended December 31, 2019, 2018 and 2017, the Company recognized approximately $2.4 million, $2.0 million and $1.9 million respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 2019, there was $2.7 million of total unrecognized share-based compensation expense related to unvested restricted shares. The unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.8 years.
Performance-Based Equity Awards

On December 13, 2013, the Board of Trustees approved a target award of 252,088 performance-based equity awards to officers and employees of the Company. The awards vest ratably, if at all, on January 1, 2016, 2017, 2018, 2019 and 2020. The actual number of common shares that ultimately vest will range from 0% to 200% of the target award and will be determined on each vesting date based upon the two performance criteria defined in the award agreements for the period of performance beginning on the grant date and ending on the applicable vesting date. In January 2016, the Company issued 25,134 of common shares which represented achieving 49% of the 50,418 target number of shares for that measurement period. In January 2017, the Company issued 12,285 of common shares which represented achieving 25% of the 49,914 target number of shares for that measurement period. In January 2018, the Company issued 72,236 of common shares which represented achieving 145% of the 49,914 target number of shares for that measurement period. In January 2019, the Company issued 35,471 of common shares which represented achieving 71% of the 49,914 target number of shares for that measurement period.
On February 4, 2014, the Board of Trustees approved a target award of 66,483 performance-based equity awards to officers and employees of the Company. In January 2017, these awards vested and the Company issued 112,782 and 25,619 common shares to officers and non-executive management employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2014 through December 31, 2016.
On February 11, 2015, the Board of Trustees approved a target award of 44,962 performance-based equity awards to officers and employees of the Company. In January 2018, these awards vested and the Company issued 14,089 and 2,501 common shares to officers and non-executive management employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2015 through December 31, 2017.
On July 27, 2015, a target award of 771 performance-based equity awards was granted to an employee of the Company. In January 2018, these awards vested and the Company issued 1,079 common shares to the employee. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2016 through December 31, 2017.
On February 10, 2016, the Board of Trustees approved a target award of 100,919 performance-based equity awards to officers and employees of the Company. In January 2019, these awards vested and the Company issued 142,173 and 31,146

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common shares to officers and employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2016 through December 31, 2018.
On February 15, 2017, the Board of Trustees approved a target award of 81,939 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2020. The actual number of common shares that ultimately vest will range from 0% to 200% of the target award and will be determined in 2020 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2017 through December 31, 2019.
On February 14, 2018, the Board of Trustees approved a target award of 78,918 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2021. The actual number of common shares that ultimately vest will range from 0% to 200% of the target award and will be determined in 2021 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2018 through December 31, 2020.
On February 13, 2019, the Board of Trustees approved a target award of 126,891 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2022. The actual number of common shares that ultimately vest will range from 0% to 200% of the target award and will be determined in 2022 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2019 through December 31, 2021.

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The grant date fair value of the performance awards, with market conditions, were determined using a Monte Carlo simulation method with the following assumptions:
Performance Award Grant Date
 
Percentage of Total Award
 
Grant Date Fair Value by Component ($ in millions)
 
Volatility
 
Interest Rate
 
Dividend Yield
December 13, 2013
 
 
 
 
 
 
 
 
 
 
 
Relative Total Shareholder Return
 
50.00%
 
$4.7
 
29.00%
 
0.34% - 2.25%
 
2.40%
 
Absolute Total Shareholder Return
 
50.00%
 
$2.9
 
29.00%
 
0.34% - 2.25%
 
2.40%
 
 
 
 
 
 
 
 
 
 
 
 
February 4, 2014
 
 
 
 
 
 
 
 
 
 
 
Relative Total Shareholder Return
 
30.00%
 
$0.7
 
29.00%
 
0.62%
 
2.40%
 
Absolute Total Shareholder Return
 
30.00%
 
$0.5
 
29.00%
 
0.62%
 
2.40%
 
EBITDA Comparison
 
40.00%
 
$0.8
 
29.00%
 
0.62%
 
2.40%
 
 
 
 
 
 
 
 
 
 
 
 
February 11, 2015
 
 
 
 
 
 
 
 
 
 
 
Relative Total Shareholder Return
 
30.00%
 
$0.9
 
22.00%
 
1.02%
 
2.50%
 
Absolute Total Shareholder Return
 
40.00%
 
$0.7
 
22.00%
 
1.02%
 
2.50%
 
EBITDA Comparison
 
30.00%
 
$0.7
 
22.00%
 
1.02%
 
2.50%
 
 
 
 
 
 
 
 
 
 
 
 
July 27, 2015
 
 
 
 
 
 
 
 
 
 
 
Relative Total Shareholder Return
 
30.00%
 
—
(1) 
22.00%
 
0.68%
 
2.50%
 
Absolute Total Shareholder Return
 
40.00%
 
—
(1) 
22.00%
 
0.68%
 
2.50%
 
EBITDA Comparison
 
30.00%
 
—
(1) 
22.00%
 
0.68%
 
2.50%
 
 
 
 
 
 
 
 
 
 
 
 
February 10, 2016
 
 
 
 
 
 
 
 
 
 
 
Relative Total Shareholder Return
 
70.00%
 
$1.6
 
25.00%
 
0.71%
 
3.00%
 
Absolute Total Shareholder Return
 
15.00%
 
$0.2
 
25.00%
 
0.71%
 
3.00%
 
EBITDA Comparison
 
15.00%
 
$0.4
 
25.00%
 
0.71%
 
3.00%
 
 
 
 
 
 
 
 
 
 
 
 
February 15, 2017
 
 
 
 
 
 
 
 
 
 
 
Relative and Absolute Total Shareholder Return
 
65.00% / 35.00%
 
$2.7
 
28.00%
 
1.27%
 
5.60%
 
 
 
 
 
 
 
 
 
 
 
 
February 14, 2018
 
 
 
 
 
 
 
 
 
 
 
Relative and Absolute Total Shareholder Return
 
65.00% / 35.00%
 
$3.5
 
28.00%
 
2.37%
 
4.70%
 
 
 
 
 
 
 
 
 
 
 
 
February 13, 2019
 
 
 
 
 
 
 
 
 
 
 
Relative and Absolute Total Shareholder Return
 
65.00% / 35.00%
 
$4.5
 
26.00%
 
2.52%
 
4.20%

(1)Amounts round to zero.

In the table above, the Relative Total Shareholder Return and Absolute Total Shareholder Return components are market conditions as defined by ASC 718. The EBITDA Comparison component is a performance condition as defined by ASC 718, and, therefore, compensation expense related to this component will be reassessed at each reporting date based on the

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Company's estimate of the probable level of achievement, and the accrual of compensation expense will be adjusted as appropriate.
 
Dividends on unvested performance-based equity awards accrue over the vesting period and will be paid on the actual number of shares that vest at the end of the applicable period. The Company recognizes compensation expense on a straight-line basis through the vesting date. As of December 31, 2019, there was approximately $4.3 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 1.7 years. For the years ended December 31, 2019, 2018 and 2017, the Company recognized $4.8 million, $3.2 million and $2.6 million, respectively, in expense related to these awards.
Long-Term Incentive Partnership Units
LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Operating Partnership and receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. LTIP units are allocated their pro-rata share of the Company's net income (loss). Vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership.
As of December 31, 2019, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units. All of the outstanding LTIP units are held by officers of the Company.
On December 13, 2013, the Board of Trustees approved a grant of 226,882 LTIP Class B units to executive officers of the Company. These LTIP units are subject to time-based vesting in five equal annual installments beginning January 1, 2016 and ending on January 1, 2020. The fair value of each award was determined based on the closing price of the Company’s common shares on the grant date of $29.19 per unit. The aggregate grant date fair value of the LTIP Class B units was $6.6 million.
As of December 31, 2019, the Company had 236,351 LTIP units outstanding. All unvested LTIP units will vest upon a change in control. As of December 31, 2019, of the 236,351 units outstanding, 190,975 LTIP units have vested.
For the years ended December 31, 2019, 2018 and 2017 the Company recognized $1.1 million, $1.1 million and $1.1 million respectively, in expense related to these LTIP units. As of December 31, 2019, there was no unrecognized share-based compensation expense related to LTIP units. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s accompanying consolidated balance sheets.
Note 9. Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. It is the Company's current intention to adhere to these requirements and maintain the Company's qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income of TRSs, including our TRS lessees, are subject to federal, state and local income taxes.
For federal income tax purposes, the cash distributions paid to the Company’s common shareholders and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions which could result in differences between cash basis and tax basis distribution amounts.
The following characterizes distributions paid per common share and preferred share on a tax basis for the years ended December 31, 2019, 2018 and 2017:

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2019
 
2018
 
2017
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Common Shares:
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5609

 
30.03
%
 
$
1.2040

 
77.57
%
 
$
1.3611

 
95.41
%
Qualified dividend
0.0069

 
0.37
%
 
0.3482

 
22.43
%
 
0.0256

 
1.79
%
Capital gain
1.3000

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
0.0399

 
2.80
%
Total
$
1.8678

 
100.00
%
 
$
1.5522

 
100.00
%
 
$
1.4266

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Series C Preferred Shares:
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.6100

 
30.03
%
 
$
1.2605

 
77.57
%
 
$
1.1969

 
98.20
%
Qualified dividend
0.0075

 
0.37
%
 
0.3645

 
22.43
%
 
0.0219

 
1.80
%
Capital gain
1.4138

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
2.0313

 
100.00
%
 
$
1.6250

 
100.00
%
 
$
1.2188

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Series D Preferred Shares:
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5982

 
30.03
%
 
$
1.2363

 
77.57
%
 
$
1.1739

 
98.21
%
Qualified dividend
0.0074

 
0.37
%
 
0.3575

 
22.43
%
 
0.0214

 
1.79
%
Capital gain
1.3866

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9922

 
100.00
%
 
$
1.5938

 
100.00
%
 
$
1.1953

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Series E Preferred Shares: (1)
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5982

 
30.03
%
 
$
—

 
—
%
 
$
—

 
—
%
Qualified dividend
0.0074

 
0.37
%
 
—

 
—
%
 
—

 
—
%
Capital gain
1.3866

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9922

 
100.00
%
 
$
—

 
—
%
 
$
—

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
Series F Preferred Shares: (1)
 
 
 
 
 
 
 
 
 
 
 
Ordinary non-qualified income
$
0.5912

 
30.03
%
 
$
—

 
—
%
 
$
—

 
—
%
Qualified dividend
0.0073

 
0.37
%
 
—

 
—
%
 
—

 
—
%
Capital gain
1.3703

 
69.60
%
 
—

 
—
%
 
—

 
—
%
Return of capital
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total
$
1.9688

 
100.00
%
 
$
—

 
—
%
 
$
—

 
—
%


(1) Issued upon completion of the Company's merger with LaSalle on November 30, 2018.

Of the common distribution declared on December 15, 2016 and paid on January 17, 2017, $0.2866 was treated as a 2017 distribution for tax purposes. The preferred share distributions declared on December 15, 2016 and paid on January 17, 2017 were treated as 2016 distributions for tax purposes.

Of the common distribution declared on December 15, 2017 and paid on January 12, 2018, $0.3800 was treated as a 2018 distribution for tax purposes. The preferred share distributions declared on December 15, 2017 and paid on January 12, 2018 were treated as 2018 distributions for tax purposes.

Of the common distributions declared on November 19, 2018 and December 14, 2018 and paid on January 15, 2019, $0.3478 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 14, 2018

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Table of Contents

and paid on January 15, 2019, $0.4063 per Series C Preferred Share, $0.3984 per Series D Preferred Share, $0.3984 per Series E Preferred Share and $0.3938 per Series F Preferred Share, were treated as 2019 distributions for tax purposes.

Of the common distribution declared on December 16, 2019 and paid on January 15, 2020, $0.3800 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 16, 2019 and paid on January 15, 2020 were treated as 2019 distributions for tax purposes.
The Company's provision (benefit) for income taxes consists of the following (in thousands):
 
For the year ended December 31,
 
2019
 
2018
 
2017
Federal
 
 
 
 
 
Current
$
3,061

 
$
1,696

 
$
4

Deferred
(106
)
 
(248
)
 
(89
)
State and local
 
 
 
 
 
Current
3,938

 
360

 
42

Deferred
(1,721
)
 
(66
)
 
224

Income tax expense (benefit)
$
5,172

 
$
1,742

 
$
181


A reconciliation of the statutory federal tax expense (benefit) to the Company's income tax expense (benefit) is as follows (in thousands):
 
For the year ended December 31,
 
2019
 
2018
 
2017
Statutory federal tax expense (benefit)
$
25,388

 
$
3,177

 
$
35,155

State income tax expense (benefit), net of federal tax expense (benefit)
943

 
300

 
264

REIT income not subject to tax
(21,522
)
 
(1,828
)
 
(35,573
)
Other
363

 
93

 
335

Income tax expense (benefit)
$
5,172

 
$
1,742

 
$
181


The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. As of December 31, 2019 and 2018, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2015.
Note 10. Earnings Per Share
The following is a reconciliation of basic and diluted earnings per common share (in thousands, except share and per-share data):

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For the year ended December 31,
 
 
2019
 
2018
 
2017
Numerator:
 
 
 
 
 
 
Net income (loss) attributable to common shareholders
 
$
82,886

 
$
(4,073
)
 
$
83,794

Less: dividends paid on unvested share-based compensation
 
(294
)
 
(332
)
 
(415
)
Net income (loss) available to common shareholders
 
$
82,592

 
$
(4,405
)
 
$
83,379

Denominator:
 
 
 
 
 
 
Weighted-average number of common shares — basic
 
130,471,670

 
74,286,307

 
69,591,973

Effect of dilutive share-based compensation
 
246,636

 
—

 
392,864

Weighted-average number of common shares — diluted
 
130,718,306

 
74,286,307

 
69,984,837

 
 
 
 
 
 
 
Net income (loss) per share available to common shareholders — basic
 
$
0.63

 
$
(0.06
)
 
$
1.20

Net income (loss) per share available to common shareholders — diluted
 
$
0.63

 
$
(0.06
)
 
$
1.19


For the years ended December 31, 2019, 2018 and 2017, zero, 343,941 and 6,319, respectively, of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive. The LTIP and OP units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share as there would be no effect on the amounts since the limited partners' share of income (loss) would also be added or subtracted to derive net income (loss) available to common shareholders.
Note 11. Commitments and Contingencies
Management Agreements
The Company’s hotel properties are operated pursuant to management agreements with various management companies. The terms of these management agreements range from 1 year to 22 years, not including renewals, and 1 year to 52 years, including renewals. Many of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with, in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to seven times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company’s management agreements are non-terminable except upon the manager’s breach of a material representation or the manager’s failure to meet performance thresholds as defined in the management agreement.
The management agreements require the payment of a base management fee generally between 1% and 4% of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceed certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. For the years ended December 31, 2019, 2018 and 2017, combined base and incentive management fees were $44.8 million, $24.5 million and $23.4 million, respectively. Base and incentive management fees are included in other direct and indirect expenses in the Company's accompanying consolidated statements of operations and comprehensive income.
Reserve Funds
Certain of the Company’s agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, typically 4.0% of hotel revenues, sufficient to cover the cost of (a) certain non-routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment.

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Restricted Cash
At December 31, 2019 and 2018, the Company had $26.8 million and $24.4 million, respectively, in restricted cash, which consisted of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or loan agreements.
Ground and Hotel Leases
As of December 31, 2019, the following hotels were subject to leases as follows:
Lease Properties
 
Lease Type
 
Lease Expiration Date
 
Hotel Monaco Washington DC
 
Operating lease
 
November 2059
 
Argonaut Hotel
 
Operating lease
 
December 2059
 
Hotel Zelos San Francisco
 
Operating lease
 
June 2097
 
Hotel Zephyr Fisherman's Wharf
 
Operating lease
 
February 2062
 
Hotel Palomar Los Angeles Beverly Hills
 
Operating lease
 
January 2107
(1) 
Union Station Hotel Nashville, Autograph Collection
 
Operating lease
 
December 2105
 
Southernmost Beach Resort
 
Operating lease
 
April 2029
 
Hyatt Regency Boston Harbor
 
Operating lease
 
April 2077
 
San Diego Mission Bay Resort
 
Operating lease
 
July 2068
 
Paradise Point Resort & Spa
 
Operating lease
 
May 2050
 
Hotel Vitale
 
Operating lease
 
March 2056
(2) 
Viceroy Santa Monica Hotel
 
Operating lease
 
September 2065
 
The Westin Copley Place, Boston
 
Operating lease
 
December 2077
(3) 
The Liberty, A Luxury Collection Hotel, Boston
 
Operating lease
 
May 2080
 
Hotel Zeppelin San Francisco
 
Operating and capital lease
 
June 2059
(4) 
Harbor Court Hotel San Francisco
 
Capital lease
 
August 2052
 
The Roger New York
 
Capital lease
 
December 2044
 

(1) The expiration date assumes the exercise of all 19 five-year extension options.
(2) The Company has the option, subject to certain terms and conditions, to extend the ground lease for 14 years to 2070.
(3) No payments are required through maturity.
(4) The Company has an option, subject to certain terms and conditions, to extend the ground lease for 30 years to 2089.

The Company's leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases. Some leases also contain certain restrictions on modifications that can be made to the hotel structures due to their status as national historic landmarks.

The Company records expense on a straight-line basis for leases that provide for minimum rental payments that increase in pre-established amounts over the remaining terms of the leases. For the years ended December 31, 2019, 2018 and 2017, ground rent expense was $31.7 million, $14.5 million and $13.5 million, respectively. For the year ended December 31, 2019, fixed ground rent expense was $17.0 million and variable ground rent expense was $14.7 million. Ground rent expense is included in real estate taxes, personal property taxes, property insurance and ground rent in the Company's accompanying consolidated statements of operations and comprehensive income.

In January 2019, the Company acquired the ground lease underlying the land of the Solamar Hotel for $6.9 million.

Maturity of lease liabilities for the Company's operating leases is as follows (in thousands):

F-37
Table of Contents

Year ending December 31,
 
 
2020
 
$
17,924

2021
 
18,608

2022
 
18,921

2023
 
18,107

2024
 
18,192

Thereafter
 
1,150,613

Total lease payments
 
$
1,242,365

Less: Imputed interest
 
(986,127
)
Present value of lease liabilities
 
$
256,238



Future minimum annual rental payments, including capital lease payments, assuming fixed rent for all periods and excluding percentage rent and CPI adjustments, prior to adoption of ASC 842 is as follows as of December 31, 2018 (in thousands):
Year ending December 31,
 
 
2019
 
$
18,882

2020
 
19,091

2021
 
19,223

2022
 
19,325

2023
 
19,429

Thereafter
 
1,219,303

Total
 
$
1,315,253



Litigation
The nature of the operations of hotels exposes the Company's hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company has insurance to cover certain potential material losses. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.

F-38
Table of Contents

Note 12. Supplemental Information to Statements of Cash Flows
 
 
For the year ended December 31,
 
2019
 
2018
 
2017
 
 
 
 
 
 
 
(in thousands)
Interest paid, net of capitalized interest
$
91,918

 
$
48,658

 
$
33,999

Interest capitalized
$
347

 
$
—

 
$
—

Income taxes paid
$
4,568

 
$
4,047

 
$
575

Non-Cash Investing and Financing Activities:
 
 
 
 
 
Distributions payable on common shares/units
$
51,006

 
$
36,201

 
$
28,381

Distributions payable on preferred shares
$
7,558

 
$
7,558

 
$
3,442

Issuance of common shares for Board of Trustees compensation
$
740

 
$
662

 
$
503

Accrued additions and improvements to hotel properties
$
3,192

 
$
8,620

 
$
961

Right of use assets obtained in exchange for lease liabilities
$
257,167

 
$
—

 
$
—

Purchase of ground lease
$
16,604

 
$
—

 
$
—

Write-off of fully depreciated building, furniture, fixtures and equipment
$
28,120

 
$
—

 
$
14,134

Write-off of deferred financing costs
$
3,013

 
$
—

 
$
5,956

The Company also had the following transactions in connection with the LaSalle merger (1):
 
 
 
 
 
Issuance of common shares
$
—

 
$
2,144,057

 
$
—

Issuance of Series E and F preferred shares
$
—

 
$
234,222

 
$
—

Issuance of OP units
$
—

 
$
4,665

 
$
—

Exchange of LaSalle shares as part of purchase price
$
—

 
$
346,544

 
$
—



(1) Refer to Note 3, Business Combinations and Acquisition and Disposition of Hotel Properties - Merger with LaSalle Hotel Properties, for information related to the non-cash investing and financing activities related to the acquisition of LaSalle.
 
Note 13. Subsequent Events
On January 9, 2020, the Company entered into an agreement to sell InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square for an aggregate sales price of $331.0 million to an unaffiliated third-party. The Company expects the sale of these hotel properties to be completed during the first quarter of 2020, subject to customary closing conditions, although no assurances can be given that the sales will be completed on these terms, or at all.
On February 12, 2020, the Board of Trustees granted awards of an aggregate of 278,429 service condition restricted common shares and target performance-based equity to executive officers and employees of the Company. These awards will vest over 3 years. The actual number of common shares to be issued under the performance-based equity awards will be determined in early 2023 and and will be based on certain performance criteria stipulated in the agreements for the period January 1, 2020 through December 31, 2022.
On February 12, 2020, the Board of Trustees granted awards of 415,818 LTIP Class B units to executive officers and 217,083 service condition restricted common shares to employees of the Company. These awards will vest ratably on January 1, 2023, 2024, 2025, and 2026.

Note 14. Quarterly Operating Results (Unaudited)

The Company's unaudited consolidated quarterly operating data for the years ended December 31, 2019 and 2018 (in thousands, except per-share data) is below. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel properties are not indicative of results to be achieved in succeeding quarters or years.

F-39

 
 
Year Ended December 31, 2019
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
Total revenues
 
$
367,169

 
$
442,083

 
$
423,552

 
$
379,409

Net income (loss)
 
5,655

 
60,518

 
29,980

 
19,572

Net income (loss) attributable to the Company
 
5,635

 
60,373

 
29,891

 
19,543

Net income (loss) attributable to common shareholders
 
(2,504
)
 
52,234

 
21,752

 
11,404

Net income (loss) per share available to common shareholders, basic
 
$
(0.02
)
 
$
0.40

 
$
0.17

 
$
0.08

Net income (loss) per share available to common shareholders, diluted
 
$
(0.02
)
 
$
0.40

 
$
0.17

 
$
0.08

 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2018
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
Total revenues
 
$
181,055

 
$
206,501

 
$
205,480

 
$
235,642

Net income (loss)
 
24,516

 
58,295

 
29,917

 
(99,343
)
Net income (loss) attributable to the Company
 
24,409

 
58,103

 
29,792

 
(98,911
)
Net income (loss) attributable to common shareholders
 
20,386

 
54,079

 
25,769

 
(104,307
)
Net income (loss) per share available to common shareholders, basic
 
$
0.29

 
$
0.78

 
$
0.37

 
$
(1.16
)
Net income (loss) per share available to common shareholders, diluted
 
$
0.29

 
$
0.78

 
$
0.37

 
$
(1.16
)


F-40

Pebblebrook Hotel Trust
Schedule III--Real Estate and Accumulated Depreciation
As of December 31, 2019
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial Costs
 
 
 
Gross Amount at End of Year
 
 
 
 
 
 
 
 
 
 
Description
 
Land
 
Building and Improvements
 
Furniture, Fixtures and Equipment
 
Cost Capitalized Subsequent to Acquisition (1)
 
Land
 
Building and Improvements
 
Furniture, Fixtures and Equipment
 
Total
 
Accumulated Depreciation
 
Net Book Value
 
Year of Original Construction
 
Date of Acquisition
 
Depreciation Life
Sir Francis Drake
 
$
22,500

 
$
60,547

 
$
6,953

 
$
38,927

 
$
22,500

 
$
87,069

 
$
19,358

 
$
128,927

 
$
35,560

 
$
93,367

 
1928
 
6/22/2010
 
3-40 years
InterContinental Buckhead Atlanta
 
25,000

 
68,844

 
11,000

 
16,822

 
25,000

 
75,874

 
20,792

 
121,666

 
36,558

 
85,108

 
2004
 
7/1/2010
 
3-40 years
Hotel Monaco Washington DC
 
—

 
60,630

 
2,441

 
20,974

 
—

 
76,105

 
7,940

 
84,045

 
23,038

 
61,007

 
1839
 
9/9/2010
 
3-40 years
Skamania Lodge
 
7,130

 
44,987

 
3,523

 
20,829

 
7,153

 
59,839

 
9,477

 
76,469

 
17,328

 
59,141

 
1993
 
11/3/2010
 
3-40 years
Le Meridien Delfina Santa Monica
 
18,784

 
81,580

 
2,295

 
18,403

 
18,784

 
92,247

 
10,031

 
121,062

 
31,043

 
90,019

 
1972
 
11/19/2010
 
3-40 years
Sofitel Philadelphia at Rittenhouse Square
 
18,000

 
64,256

 
4,639

 
20,147

 
18,000

 
75,833

 
13,209

 
107,042

 
26,030

 
81,012

 
2000
 
12/3/2010
 
3-40 years
Argonaut Hotel
 
—

 
79,492

 
4,247

 
8,737

 
—

 
83,630

 
8,846

 
92,476

 
26,781

 
65,695

 
1907
 
2/16/2011
 
3-40 years
Westin San Diego Gaslamp Quarter
 
25,537

 
86,089

 
6,850

 
32,753

 
25,537

 
109,216

 
16,476

 
151,229

 
34,086

 
117,143

 
1987
 
4/6/2011
 
1-40 years
Hotel Monaco Seattle
 
10,105

 
38,888

 
2,073

 
12,173

 
10,105

 
45,306

 
7,828

 
63,239

 
16,988

 
46,251

 
1969
 
4/7/2011
 
3-40 years
Mondrian Los Angeles
 
20,306

 
110,283

 
6,091

 
31,352

 
20,306

 
127,234

 
20,492

 
168,032

 
39,538

 
128,494

 
1959
 
5/3/2011
 
3-40 years
W Boston
 
19,453

 
63,893

 
5,887

 
16,676

 
19,453

 
76,231

 
10,225

 
105,909

 
20,518

 
85,391

 
2009
 
6/8/2011
 
2-40 years
Hotel Zetta San Francisco
 
7,294

 
22,166

 
290

 
17,610

 
7,294

 
35,195

 
4,871

 
47,360

 
11,557

 
35,803

 
1913
 
4/4/2012
 
3-40 years
Hotel Vintage Seattle
 
8,170

 
23,557

 
706

 
8,814

 
8,170

 
29,471

 
3,606

 
41,247

 
8,953

 
32,294

 
1922
 
7/9/2012
 
3-40 years
Hotel Vintage Portland
 
6,222

 
23,012

 
1,093

 
16,246

 
6,222

 
34,877

 
5,474

 
46,573

 
11,220

 
35,353

 
1894
 
7/9/2012
 
3-40 years
W Los Angeles - West Beverly Hills
 
24,403

 
93,203

 
3,600

 
28,254

 
24,403

 
115,902

 
9,155

 
149,460

 
29,199

 
120,261

 
1969
 
8/23/2012
 
3-40 years
Hotel Zelos San Francisco
 
—

 
63,430

 
3,780

 
13,034

 
—

 
74,467

 
5,777

 
80,244

 
16,439

 
63,805

 
1907
 
10/25/2012
 
3-40 years
Embassy Suites San Diego Bay - Downtown
 
20,103

 
90,162

 
6,881

 
28,474

 
20,103

 
108,621

 
16,896

 
145,620

 
28,829

 
116,791

 
1988
 
1/29/2013
 
3-40 years
The Hotel Zags (formerly Hotel Modera)
 
8,215

 
37,874

 
1,500

 
7,316

 
8,215

 
43,528

 
3,162

 
54,905

 
8,670

 
46,235

 
1962
 
8/28/2013
 
3-40 years

F-41

Pebblebrook Hotel Trust
Schedule III--Real Estate and Accumulated Depreciation
As of December 31, 2019
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Zephyr Fisherman's Wharf
 
—

 
116,445

 
3,550

 
40,179

 
—

 
152,896

 
7,278

 
160,174

 
31,963

 
128,211

 
1964
 
12/9/2013
 
3-40 years
Hotel Zeppelin San Francisco
 
12,561

 
43,665

 
1,094

 
36,126

 
12,561

 
74,643

 
6,242

 
93,446

 
17,398

 
76,048

 
1913
 
5/22/2014
 
1-45 years
The Nines, a Luxury Collection Hotel, Portland
 
18,493

 
92,339

 
8,757

 
12,117

 
18,493

 
98,620

 
14,593

 
131,706

 
23,365

 
108,341

 
1909
 
7/17/2014
 
3-40 years
Hotel Colonnade Coral Gables, Autograph Collection
 
12,108

 
46,317

 
1,271

 
17,975

 
12,108

 
58,731

 
6,832

 
77,671

 
12,545

 
65,126

 
1989
 
11/12/2014
 
2-40 years
Hotel Palomar Los Angeles Beverly Hills
 
—

 
90,675

 
1,500

 
13,958

 
—

 
99,711

 
6,422

 
106,133

 
16,462

 
89,671

 
1972
 
11/20/2014
 
3-40 years
Union Station Hotel Nashville, Autograph Collection
 
—

 
37,803

 
6,833

 
22,233

 
—

 
55,292

 
11,577

 
66,869

 
16,711

 
50,158

 
1900
 
12/10/2014
 
3-40 years
Revere Hotel Boston Common
 
41,857

 
207,817

 
10,596

 
(44,317
)
 
17,367

 
180,456

 
18,130

 
215,953

 
35,574

 
180,379

 
1972
 
12/18/2014
 
3-40 years
LaPLaya Beach Resort & Club
 
112,575

 
82,117

 
6,733

 
29,186

 
112,575

 
108,412

 
9,624

 
230,611

 
17,793

 
212,818

 
1968
 
5/21/2015
 
3-40 years
Hotel Zoe Fisherman's Wharf
 
29,125

 
90,323

 
2,500

 
16,521

 
29,125

 
104,958

 
4,386

 
138,469

 
14,620

 
123,849

 
1990
 
6/11/2015
 
2-40 years
Villa Florence San Francisco on Union Square
 
41,272

 
94,257

 
2,994

 
623

 
41,272

 
94,434

 
3,440

 
139,146

 
4,185

 
134,961

 
1908
 
11/30/2018
 
3-40 years
Hotel Vitale
 
—

 
105,693

 
3,896

 
842

 
—

 
106,020

 
4,411

 
110,431

 
5,003

 
105,428

 
2005
 
11/30/2018
 
3-40 years
The Marker San Francisco
 
45,243

 
68,244

 
5,453

 
1,167

 
45,243

 
68,474

 
6,390

 
120,107

 
3,859

 
116,248

 
1910/1995
 
11/30/2018
 
3-40 years
Hotel Spero
 
39,363

 
64,804

 
11,235

 
576

 
39,363

 
65,002

 
11,613

 
115,978

 
3,525

 
112,453

 
1928/1999
 
11/30/2018
 
3-40 years
Chaminade Resort & Spa
 
22,590

 
37,114

 
6,009

 
5,457

 
22,590

 
40,039

 
8,541

 
71,170

 
2,385

 
68,785

 
1985
 
11/30/2018
 
3-40 years
Harbor Court Hotel San Francisco
 
—

 
79,009

 
6,190

 
301

 
—

 
79,058

 
6,442

 
85,500

 
3,121

 
82,379

 
1926/1991
 
11/30/2018
 
3-40 years
Viceroy Santa Monica Hotel
 
—

 
91,442

 
5,257

 
2,990

 
—

 
93,098

 
6,591

 
99,689

 
3,976

 
95,713

 
1967/2002
 
11/30/2018
 
3-40 years
Le Parc Suite Hotel
 
17,876

 
65,515

 
2,496

 
3,817

 
17,876

 
66,943

 
4,885

 
89,704

 
2,730

 
86,974

 
1970
 
11/30/2018
 
3-40 years
Montrose West Hollywood
 
16,842

 
58,729

 
6,499

 
507

 
16,842

 
58,752

 
6,983

 
82,577

 
2,608

 
79,969

 
1976
 
11/30/2018
 
3-40 years
Chamberlain West Hollywood Hotel
 
14,462

 
43,157

 
5,983

 
1,096

 
14,462

 
43,776

 
6,460

 
64,698

 
2,132

 
62,566

 
1970/2005
 
11/30/2018
 
3-40 years
Grafton on Sunset
 
12,440

 
36,932

 
3,951

 
506

 
12,440

 
37,236

 
4,153

 
53,829

 
2,095

 
51,734

 
1954
 
11/30/2018
 
3-40 years
The Westin Copley Place, Boston
 
—

 
291,754

 
35,780

 
1,963

 
—

 
293,126

 
36,371

 
329,497

 
13,518

 
315,979

 
1983
 
11/30/2018
 
3-40 years

F-42

Pebblebrook Hotel Trust
Schedule III--Real Estate and Accumulated Depreciation
As of December 31, 2019
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Liberty, A Luxury Collection Hotel, Boston
 
—

 
195,797

 
15,126

 
1,547

 
—

 
196,446

 
16,024

 
212,470

 
7,701

 
204,769

 
1851/2007
 
11/30/2018
 
3-40 years
Hyatt Regency Boston Harbor
 
—

 
122,344

 
6,862

 
3,785

 
—

 
125,596

 
7,395

 
132,991

 
4,877

 
128,114

 
1993
 
11/30/2018
 
3-40 years
Sofitel Washington DC Lafayette Square
 
35,304

 
82,089

 
7,691

 
384

 
35,304

 
82,310

 
7,854

 
125,468

 
4,314

 
121,154

 
2002
 
11/30/2018
 
3-40 years
George Hotel
 
15,373

 
65,529

 
4,489

 
255

 
15,373

 
65,542

 
4,731

 
85,646

 
2,997

 
82,649

 
1928
 
11/30/2018
 
3-40 years
Mason & Rook Hotel
 
18,686

 
60,927

 
2,838

 
2,818

 
18,686

 
61,807

 
4,776

 
85,269

 
2,322

 
82,947

 
1962
 
11/30/2018
 
3-40 years
Donovan Hotel
 
19,035

 
60,402

 
2,066

 
7,592

 
19,035

 
62,288

 
7,772

 
89,095

 
1,605

 
87,490

 
1972
 
11/30/2018
 
3-40 years
Paradise Point Resort & Spa
 
—

 
199,304

 
22,032

 
5,459

 
20

 
201,544

 
25,231

 
226,795

 
9,020

 
217,775

 
1962
 
11/30/2018
 
3-40 years
Hilton San Diego Gaslamp Quarter
 
33,017

 
131,926

 
7,741

 
1,245

 
33,046

 
132,474

 
8,409

 
173,929

 
5,704

 
168,225

 
2000
 
11/30/2018
 
3-40 years
Solamar Hotel
 
—

 
74,768

 
8,830

 
24,212

 
23,472

 
74,904

 
9,434

 
107,810

 
3,961

 
103,849

 
2005
 
11/30/2018
 
3-40 years
L'Auberge Del Mar
 
33,304

 
92,297

 
5,393

 
1,351

 
33,304

 
92,839

 
6,202

 
132,345

 
3,386

 
128,959

 
1989
 
11/30/2018
 
3-40 years
San Diego Mission Bay Resort
 
—

 
80,733

 
9,458

 
17,868

 
—

 
91,107

 
16,952

 
108,059

 
4,519

 
103,540

 
1962
 
11/30/2018
 
3-40 years
The Heathman Hotel
 
14,243

 
38,694

 
7,062

 
1,016

 
14,243

 
39,277

 
7,495

 
61,015

 
2,193

 
58,822

 
1927
 
11/30/2018
 
3-40 years
Southernmost Beach Resort
 
86,131

 
238,470

 
8,366

 
5,020

 
86,131

 
242,273

 
9,583

 
337,987

 
8,861

 
329,126

 
1958-2008
 
11/30/2018
 
3-40 years
The Marker Resort Key West
 
25,463

 
66,903

 
2,486

 
3,175

 
25,463

 
68,887

 
3,677

 
98,027

 
2,555

 
95,472

 
2014
 
11/30/2018
 
3-40 years
The Roger New York
 
—

 
42,882

 
3,060

 
1,851

 
—

 
43,822

 
3,971

 
47,793

 
2,018

 
45,775

 
1930/1998
 
11/30/2018
 
3-40 years
Hotel Chicago Downtown, Autograph Collection
 
39,576

 
114,014

 
7,608

 
2,246

 
39,576

 
115,587

 
8,281

 
163,444

 
4,791

 
158,653

 
1998
 
11/30/2018
 
3-40 years
The Westin Michigan Avenue Chicago
 
44,983

 
103,160

 
23,744

 
3,744

 
44,983

 
105,146

 
25,502

 
175,631

 
6,595

 
169,036

 
1963/1972
 
11/30/2018
 
3-40 years
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,043,144

 
$
4,727,283

 
$
357,278

 
$
604,932

 
$
1,042,198

 
$
5,132,171

 
$
558,268

 
$
6,732,637

 
$
735,322

 
$
5,997,315

 

 

 


(1) Disposals are reflected as reductions to cost capitalized subsequent to acquisition.
(2) The Company had no encumbrances on any of its hotel properties at December 31, 2019.



F-43

Pebblebrook Hotel Trust
Schedule III--Real Estate and Accumulated Depreciation - Continued
As of December 31, 2019
(In thousands)
 
 
Reconciliation of Real Estate and Accumulated Depreciation:
 
Reconciliation of Real Estate:
 
Balance at December 31, 2016
$
3,031,139

          Acquisitions
—

          Capital expenditures
80,737

          Disposal of Assets
(207,804
)
Balance at December 31, 2017
$
2,904,072

          Acquisitions
4,120,641

          Capital expenditures
95,348

          Disposal of Assets
(42,438
)
Balance at December 31, 2018
$
7,077,623

          Acquisitions
23,472

          Capital expenditures
159,574

          Disposal of Assets
(503,383
)
          Other
(24,649
)
Balance at December 31, 2019
$
6,732,637

 
 
 
 
Reconciliation of Accumulated Depreciation:
 
Balance at December 31, 2016
$
358,485

          Depreciation
101,157

          Disposal of Assets
(12,020
)
Balance at December 31, 2017
$
447,622

          Depreciation
107,496

          Disposal of Assets
(11,688
)
Balance at December 31, 2018
$
543,430

          Depreciation
226,953

          Disposal of Assets
(35,061
)
Balance at December 31, 2019
$
735,322


The aggregate cost of properties for federal income tax purposes is approximately $6.4 billion as of December 31, 2019.



F-44



Exhibit 4.1


DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934


As of December 31, 2019, Pebblebrook Hotel Trust, which is referred to herein is Pebblebrook, the Company, we, our or us, had five classes of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as follows, each of which is a class or series of our shares of beneficial interest:
(i)
common shares of beneficial interest, $0.01 par value per share, or common shares, listed on the New York Stock Exchange, or the NYSE, under the trading symbol “PEB”;
(ii)
6.3% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, or the Series F Preferred Shares, of which there were 6,000,000 outstanding, having an aggregate liquidation preference of $150,000,000, listed on the NYSE under the trading symbol “PEB-PF”;
(iii)
6.375% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, or the Series E Preferred Shares, of which there were 4,400,000 outstanding, having an aggregate liquidation preference of $110,000,000, listed on the NYSE under the trading symbol “PEB-PE”;
(iv)
6.375% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, or the Series D Preferred Shares, of which there were 5,000,000 outstanding, having an aggregate liquidation preference of $125,000,000, listed on the NYSE under the trading symbol “PEB-PD”; and
(v)
6.50% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, or the Series C Preferred Shares, of which there were 5,000,000 outstanding, having an aggregate liquidation preference of $125,000,000, listed on the NYSE under the trading symbol “PEB-PC.”
Although the following summary describes the material terms of our shares of beneficial interest, and each class or series thereof, it is not a complete description of the Maryland REIT Law, or the MRL, the Maryland General Corporation Law, or the MGCL, provisions applicable to a Maryland real estate investment trust or our declaration of trust and bylaws. This summary is qualified in its entirety by, and should be read in conjunction with, our declaration of trust, our bylaws, the MRL and the MGCL. We have incorporated by reference our declaration of trust and bylaws as exhibits to the Annual Report on Form 10-K with which this exhibit was filed.
All Classes and Series of Shares of Beneficial Interest
General
Our declaration of trust provides that we may issue up to 500,000,000 common shares and 100,000,000 preferred shares of beneficial interest, $0.01 par value per share, or preferred shares. Our declaration of trust authorizes our board of trustees to amend our declaration of trust to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series without shareholder approval.
Under Maryland law, shareholders are not personally liable for the obligations of a real estate investment trust solely as a result of their status as shareholders.
The transfer agent, registrar and distribution disbursement agent for each class or series of our outstanding shares of beneficial interest is Equiniti Trust Company.
Restrictions on Ownership and Transfer
For us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, our shares of beneficial interest must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of our outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
Our declaration of trust, subject to certain exceptions, contains restrictions on the ownership and transfer of our shares that are intended to assist us in complying with these requirements and continuing to qualify as a REIT, among other purposes.




Our declaration of trust provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares of beneficial interest.
Our declaration of trust also prohibits any person from (i) beneficially owning shares of beneficial interest to the extent that such beneficial ownership would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year), (ii) transferring our shares of beneficial interest to the extent that such transfer would result in our shares of beneficial interest being beneficially owned by less than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (iii) beneficially or constructively owning our shares of beneficial interest to the extent such beneficial or constructive ownership would cause us to constructively own ten percent or more of the ownership interests in a tenant (other than a taxable REIT subsidiary, or TRS) of our real property within the meaning of Section 856(d)(2)(B) of the Code or (iv) beneficially or constructively owning our shares of beneficial interest if such ownership or transfer would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any hotel management companies failing to qualify as “eligible independent contractors” under the REIT rules. Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our shares of beneficial interest that will or may violate any of the foregoing restrictions on ownership and transfer, or any person who would have owned our shares of beneficial interest that resulted in a transfer of shares to a charitable trust, is required to give written notice immediately to us, or in the case of a proposed or attempted transaction, to give at least 15 days prior written notice, and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing restrictions on ownership and transfer will not apply if our board of trustees determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT or that compliance with any restriction is no longer required for REIT qualification.
Our board of trustees, in its sole discretion, may prospectively or retroactively exempt a person from certain of the limits described in the paragraph above and may establish or increase an excepted holder percentage limit for such person. The person seeking an exemption must provide to our board of trustees such representations, covenants and undertakings as our board of trustees may deem appropriate in order to conclude that granting the exemption will not cause us to lose our status as a REIT. Our board of trustees may not grant such an exemption to any person if such exemption would result in our failing to qualify as a REIT. Our board of trustees may require a ruling from the IRS or an opinion of counsel, in either case in form and substance satisfactory to the board of trustees, in its sole discretion, in order to determine or ensure our status as a REIT.
Any attempted transfer of our shares of beneficial interest which, if effective, would violate any of the restrictions described above will result in the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, except that any transfer that results in the violation of the restriction relating to our shares of beneficial interest being beneficially owned by fewer than 100 persons will be void ab initio. In either case, the proposed transferee will not acquire any rights in such shares. The automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of the purported transfer or other event that results in the transfer to the trust. Shares held in the trust will remain issued and outstanding shares. The proposed transferee will not benefit economically from ownership of any shares held in the trust, will have no rights to dividends or other distributions and will have no rights to vote or other rights attributable to the shares held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any distribution authorized but unpaid will be paid when due to the trustee. Any dividend or other distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have the authority (i) to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and (ii) to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
Within 20 days of receiving notice from us that shares of beneficial interest have been transferred to the trust, the trustee will sell the shares to a person designated by the trustee, whose ownership of the shares will not violate the above ownership and transfer restrictions. Upon the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (i) the price paid by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price (as defined in our declaration of trust) of the shares on the trading day immediately preceding the day of the event causing the shares to be held in the trust and (ii) the price received by the trustee (net of any commission and other expenses of sale) from the sale or other disposition of the shares. The trustee may reduce the




amount payable to the proposed transferee by the amount of dividends or other distributions that have been paid to the proposed transferee and are owed by the proposed transferee to the trustee. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that our shares have been transferred to the trust, the shares are sold by the proposed transferee, then (i) the shares shall be deemed to have been sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for the shares that exceeds the amount he or she was entitled to receive, the excess shall be paid to the trustee upon demand.
In addition, shares of beneficial interest held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise, gift or similar transaction, the market price on the trading day immediately preceding the day of the event causing the shares to be held in the trust) and (ii) the market price on the date we, or our designee, accept the offer, which we may reduce by the amount of dividends and other distributions paid to the proposed transferee and owed by the proposed transferee to the trustee. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and the charitable beneficiary and any dividends or other distributions held by the trustee shall be paid to the charitable beneficiary.
If a transfer to a charitable trust, as described above, would be ineffective for any reason to prevent a violation of a restriction, the transfer that would have resulted in such violation will be void ab initio, and the proposed transferee shall acquire no rights in such shares.
Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of our shares of beneficial interest, within 30 days after the end of each taxable year, is required to give us written notice, stating his or her name and address, the number of shares of each class and series of our shares of beneficial interest that he or she beneficially owns and a description of the manner in which the shares are held. Each such owner will provide us with such additional information as we may request in order to determine the effect, if any, of his or her beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, each shareholder will upon demand be required to provide us with such information as we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.
These ownership limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for our shares or otherwise be in the best interest of our shareholders.
Power to Increase Authorized Shares and Issue Additional Shares of Beneficial Interest
Our board of trustees has the power to amend our declaration of trust from time to time without shareholder approval to increase or decrease the aggregate number of authorized shares or the number of authorized shares of any issued series of shares, to issue additional authorized but unissued shares and to classify or reclassify unissued common shares into other classes or series of shares and thereafter to cause Pebblebrook to issue such classified or reclassified shares. Subject to the limited rights of holders of the Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares and Series F Preferred Shares and each other parity class or series of preferred shares, voting together as a single class, to approve certain issuances of senior classes or series of shares, the additional classes or series, as well as the common shares, will be available for issuance without further action by the shareholders, unless shareholder consent is required by applicable law or the rules of any shares exchange or automated quotation system on which the securities may be listed or traded.
Common Shares of Beneficial Interest
All outstanding common shares are duly authorized, fully paid and nonassessable and are listed on the NYSE under the symbol “PEB.” Subject to the preferential rights of any other class or series of shares of beneficial interest and to the provisions of our declaration of trust regarding the restrictions on transfer of shares of beneficial interest, holders of common shares are entitled to receive dividends on such shares if, as and when authorized by our board of trustees out of assets legally available therefor and declared by Pebblebrook and to share ratably in the assets of Pebblebrook legally available for distribution to its shareholders in the event of its liquidation, dissolution or winding up after payment or establishment of reserves for all known debts and liabilities.
Subject to the provisions of our declaration of trust regarding the restrictions on transfer of shares, and except as may be otherwise specified therein, with respect to any class or series of common shares, each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders, including the election of trustees and, except as provided with respect to any other class or series of shares, the holders of such shares will possess the exclusive voting power. There is no cumulative voting in the election of the board of trustees, which means that the holders of a majority of the




outstanding common shares can elect all of the trustees then standing for election and the holders of the remaining shares will not be able to elect any trustees.
Holders of common shares have no preference, conversion, exchange, sinking fund or redemption rights, have no preemptive rights to subscribe for any securities of Pebblebrook and generally have no appraisal rights unless our board of trustees determines that appraisal rights apply, with respect to all or any classes or series of shares, to one or more transactions occurring after the date of such determination in connection with which shareholders would otherwise be entitled to exercise appraisal rights. Subject to the provisions of our declaration of trust regarding the restrictions on transfer of shares, the common shares will have equal distribution, liquidation and other rights.
Under the MRL, a Maryland trust generally cannot dissolve, amend its declaration of trust, merge, convert, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless the action is approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the real estate investment trust’s declaration of trust. Except for certain amendments to their declaration of trust relating to the removal of trustees and the vote required for certain amendments, our declaration of trust provides that these actions may be taken if declared advisable by a majority of the board of trustees and approved by the vote of shareholders entitled to cast a majority of the votes entitled to be cast on the matter. However, Maryland law permits a trust to transfer all or substantially all of its assets without the approval of the shareholders to one or more persons if all of the equity interests of the person or persons are owned, directly or indirectly, by the trust. In addition, operating assets may be held by a trust’s subsidiaries and these subsidiaries may be able to transfer all or substantially all of such assets without a vote of the shareholders.
Our declaration of trust authorizes our board of trustees to reclassify any unissued common shares into other classes or series of shares and to establish the number of shares in each class or series and to set the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions or other distributions, qualifications or terms or conditions of redemption for each such class or series.
Preferred Shares of Beneficial Interest
6.3% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest
General.    The outstanding Series F Preferred Shares are validly issued, fully paid and nonassessable and are listed on the NYSE under the symbol “PEBPrF.” Our board of trustees may, without notice to or the consent of holders of Series F Preferred Shares, authorize the issuance and sale of additional Series F Preferred Shares from time to time. For purposes of this section “6.3% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest,” terms that are defined in this section have such meanings in this section only.
Ranking.    The Series F Preferred Shares will rank, with respect to distribution rights and rights upon our liquidation, dissolution or winding-up:
•
senior to all classes or series of common shares, and to any other class or series of shares expressly designated as ranking junior to the Series F preferred shares;
•
on parity with any class or series of shares expressly designated as ranking on parity with the Series F Preferred Shares, including the Series C Preferred Shares, the Series D Preferred Shares and the Series E Preferred Shares; and
•
junior to any other class or series of shares expressly designated as ranking senior to the Series E Preferred Shares.
Distribution Rate and Payment Date.    Holders of the Series F Preferred Shares will be entitled to receive cumulative cash distributions on the Series F Preferred Shares from and including the date of original issue, payable quarterly in arrears on or about the last calendar day of January, April, July and October of each year, commencing on January 15, 2019, at the rate of 6.3% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.575 per share). Distributions on the Series F Preferred Shares will accrue whether or not Pebblebrook has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized or declared.
Liquidation Preference.    In the event of a liquidation, dissolution or winding up, holders of the Series F Preferred Shares will have the right to receive $25.00 per share, plus accrued and unpaid distributions (whether or not earned or declared) up to but excluding the date of payment, before any payment is made to holders of the common shares and any other class or series of shares ranking junior to the Series F Preferred Shares as to liquidation rights. The rights of holders of Series F Preferred Shares to receive their liquidation preference will be subject to the proportionate rights of any other class or series of shares ranking on parity with the Series F Preferred Shares as to liquidation.
Optional Redemption.    The Series F preferred shares may not be redeemed prior to May 25, 2021, except in limited circumstances to preserve our status as a REIT and pursuant to the special optional redemption right described below. On and




after May 15, 2021, the Series F preferred shares will be redeemable at our option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid distributions (whether or not authorized or declared) up to but excluding the redemption date. However, unless full cumulative distributions on the Series F Preferred Shares for all past distribution periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set apart, no Series F Preferred Shares may be redeemed unless all outstanding Series F Preferred Shares are simultaneously redeemed; provided, that the foregoing restriction does not prevent Pebblebrook from taking action necessary to preserve its status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption.    Upon the occurrence of a change of control (as defined in our declaration of trust), Pebblebrook may, at its option, redeem the Series F Preferred Shares, in whole or in part within 120 days after the first date on which such change of control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption. If, prior to the conversion rate (as defined below), Pebblebrook exercises any of its redemption rights relating to the Series F Preferred Shares (whether its optional redemption right or its special optional redemption right), the holders of Series F Preferred Shares will not have the conversion right described below.
No Maturity, Sinking Fund or Mandatory Redemption.    The Series F Preferred Shares do not have a stated maturity date and Pebblebrook will not be required to redeem the Series F Preferred Shares at any time. Accordingly, the Series F Preferred Shares will remain outstanding indefinitely, unless Pebblebrook decides, at its option, to exercise its redemption right or, under circumstances where the holders of the Series F Preferred Shares have a conversion right, such holders decide to convert the Series F Preferred Shares into common shares. The Series F Preferred Shares are not subject to any sinking fund.
Voting Rights.    Holders of the Series F Preferred Shares generally have no voting rights. However, if Pebblebrook is in arrears on distributions on the Series F Preferred Shares for six or more quarterly periods, whether or not consecutive, holders of the Series F Preferred Shares (voting together as a class with the holders of all other classes or series of parity preferred shares upon which like voting rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the next annual meeting of shareholders and each subsequent annual meeting of shareholders for the election of two additional trustees to serve on our board of trustees until all unpaid distributions with respect to the Series F Preferred Shares and any other class or series of parity preferred shares have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, Pebblebrook may not make certain material and adverse changes to the terms of the Series F Preferred Shares without the affirmative vote of the holders of at least two-thirds of the outstanding Series F Preferred Shares and all other shares of any class or series ranking on parity with the Series F Preferred Shares that are entitled to similar voting rights (voting together as a single class).
Conversion.    Upon the occurrence of a change of control, each holder of Series F Preferred Shares will have the right (unless, prior to the change of control conversion date, Pebblebrook has provided or provides notice of its election to redeem the Series F Preferred Shares) to convert some or all of the Series F Preferred Shares held by such holder on the date the Series F Preferred Shares is to be converted, which Pebblebrook refers to as the change of control conversion date, into a number of shares of common shares per share of the Series F Preferred Shares to be converted equal to the lesser of:
•
the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference per Pebblebrook Series F preferred share to be converted, plus (y) the amount of any accrued and unpaid distributions to and including the change of control conversion date (unless the change of control conversion date is after a distribution record date (as defined in our declaration of trust) and prior to the corresponding distribution payment date (as defined in our declaration of trust), in which case no additional amount for such accrued and unpaid distribution will be included in such sum), by (ii) the common share price (as defined below) (we refer to such quotient as the “conversion rate”); and
•
2.0649 (the “Share Cap”);
subject, in each case, to provisions for the receipt of alternative consideration as described in our declaration of trust.
The common share price shall be (i) if the consideration to be received in the change of control by holders of common shares is solely cash, the amount of cash consideration per common share, and (ii) if the consideration to be received in the change of control by holders of common shares is other than solely cash, the average of the closing price per common share on the ten consecutive trading days immediately preceding, but not including, the effective date of the change of control.
If, prior to the change of control conversion date, Pebblebrook has provided or provides a redemption notice, whether pursuant to its special optional redemption right in connection with a change of control or its optional redemption right, holders of Series F Preferred Shares will not have any right to convert the Series F Preferred Shares into shares of our common shares in connection with the change of control and any Series F Preferred Shares selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the change of control conversion date.
Except as provided above in connection with a change of control, the Series F Preferred Shares are not convertible into or exchangeable for any other securities or property.




Restrictions on Ownership and Transfer.    For information regarding restrictions on ownership and transfer of the Series F Preferred Shares, see “All Classes and Series of Shares of Beneficial Interest-Restrictions on Ownership and Transfer” above.
Notwithstanding any other provision of the Series F Preferred Shares, no holder of the Series F Preferred Shares will be entitled to convert any Series F Preferred Shares into our common shares to the extent that receipt of our common shares would cause such holder or any other person to exceed the ownership limits contained in our declaration of trust.
6.375% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest
General.    The outstanding Series E Preferred Shares are validly issued, fully paid and nonassessable and are listed on the NYSE under the symbol “PEBPrE.” Our board of trustees may, without notice to or the consent of holders of Series E Preferred Shares, authorize the issuance and sale of additional Series E Preferred Shares from time to time. For purposes of this section “6.375% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest,” terms that are defined in this section have such meanings in this section only.
Ranking.    The Series E Preferred Shares will rank, with respect to distribution rights and rights upon our liquidation, dissolution or winding-up:
•
senior to all classes or series of common shares, and to any other class or series of shares expressly designated as ranking junior to the Series E preferred shares;
•
on parity with any class or series of shares expressly designated as ranking on parity with the Series E Preferred Shares, including the Series C Preferred Shares, the Series D Preferred Shares and the Series F Preferred Shares; and
•
junior to any other class or series of shares expressly designated as ranking senior to the Series E Preferred Shares.
Distribution Rate and Payment Date.    Holders of the Series E Preferred Shares will be entitled to receive cumulative cash distributions on the Series E Preferred Shares from and including the date of original issue, payable quarterly in arrears on or about the last calendar day of January, April, July and October of each year, commencing on January 15, 2019, at the rate of 6.375% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.59375 per share). Distributions on the Series E Preferred Shares will accrue whether or not Pebblebrook has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized or declared.
Liquidation Preference.    In the event of a liquidation, dissolution or winding up, holders of the Series E Preferred Shares will have the right to receive $25.00 per share, plus accrued and unpaid distributions (whether or not earned or declared) up to but excluding the date of payment, before any payment is made to holders of the common shares and any other class or series of shares ranking junior to the Series E Preferred Shares as to liquidation rights. The rights of holders of Series E Preferred Shares to receive their liquidation preference will be subject to the proportionate rights of any other class or series of shares ranking on parity with the Series E Preferred Shares as to liquidation.
Optional Redemption.    The Series E preferred shares are redeemable at our option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid distributions (whether or not authorized or declared) up to and including the redemption date. However, unless full cumulative distributions on the Series E Preferred Shares for all past distribution periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set apart, no Series E Preferred Shares may be redeemed unless all outstanding Series E Preferred Shares are simultaneously redeemed; provided, that the foregoing restriction does not prevent Pebblebrook from taking action necessary to preserve its status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption.    Upon the occurrence of a change of control (as defined in our declaration of trust), Pebblebrook may, at its option, redeem the Series E Preferred Shares, in whole or in part within 120 days after the first date on which such change of control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions up to and including the date of redemption. If, prior to the conversion rate (as defined below), Pebblebrook exercises any of its redemption rights relating to the Series E Preferred Shares (whether its optional redemption right or its special optional redemption right), the holders of Series E Preferred Shares will not have the conversion right described below.
No Maturity, Sinking Fund or Mandatory Redemption.    The Series E Preferred Shares do not have a stated maturity date and Pebblebrook will not be required to redeem the Series E Preferred Shares at any time. Accordingly, the Series E Preferred Shares will remain outstanding indefinitely, unless Pebblebrook decides, at its option, to exercise its redemption right or, under circumstances where the holders of the Series E Preferred Shares have a conversion right, such holders decide to convert the Series E Preferred Shares into common shares. The Series E Preferred Shares are not subject to any sinking fund.
Voting Rights.    Holders of the Series E Preferred Shares generally have no voting rights. However, if Pebblebrook is in arrears on distributions on the Series E Preferred Shares for six or more quarterly periods, whether or not consecutive, holders of the Series E Preferred Shares (voting together as a class with the holders of all other classes or series of parity preferred shares upon which like voting rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the next annual meeting of shareholders and each




subsequent annual meeting of shareholders for the election of two additional trustees to serve on our board of trustees until all unpaid distributions with respect to the Series E Preferred Shares and any other class or series of parity preferred shares have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, Pebblebrook may not make certain material and adverse changes to the terms of the Series E Preferred Shares without the affirmative vote of the holders of at least two-thirds of the outstanding Series E Preferred Shares and all other shares of any class or series ranking on parity with the Series E Preferred Shares that are entitled to similar voting rights (voting together as a single class).
Conversion.    Upon the occurrence of a change of control, each holder of Series E Preferred Shares will have the right (unless, prior to the change of control conversion date, Pebblebrook has provided or provides notice of its election to redeem the Series E Preferred Shares) to convert some or all of the Series E Preferred Shares held by such holder on the date the Series E Preferred Shares is to be converted, which Pebblebrook refers to as the change of control conversion date, into a number of shares of common shares per Pebblebrook Series E preferred share to be converted equal to the lesser of:
•
the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference per Pebblebrook Series E preferred share to be converted, plus (y) the amount of any accrued and unpaid distributions to and including the change of control conversion date (unless the change of control conversion date is after a distribution record date (as defined in our declaration of trust) and prior to the corresponding distribution payment date (as defined in our declaration of trust), in which case no additional amount for such accrued and unpaid distribution will be included in such sum), by (ii) the common share price (as defined below) (we refer to such quotient as the “conversion rate”); and
•
1.9372 (the “Share Cap”);
subject, in each case, to provisions for the receipt of alternative consideration as described in our declaration of trust.
The common share price shall be (i) if the consideration to be received in the change of control by holders of common shares is solely cash, the amount of cash consideration per common share, and (ii) if the consideration to be received in the change of control by holders of common shares is other than solely cash, the average of the closing price per common share on the ten consecutive trading days immediately preceding, but not including, the effective date of the change of control.
If, prior to the change of control conversion date, Pebblebrook has provided or provides a redemption notice, whether pursuant to its special optional redemption right in connection with a change of control or its optional redemption right, holders of Series E Preferred Shares will not have any right to convert the Series E Preferred Shares into shares of our common shares in connection with the change of control and any Series E Preferred Shares selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the change of control conversion date.
Except as provided above in connection with a change of control, the Series E Preferred Shares are not convertible into or exchangeable for any other securities or property.
Restrictions on Ownership and Transfer.    For information regarding restrictions on ownership and transfer of the Series E Preferred Shares, see “All Classes and Series of Shares of Beneficial Interest-Restrictions on Ownership and Transfer” above.
Notwithstanding any other provision of the Series E Preferred Shares, no holder of the Series E Preferred Shares will be entitled to convert any Series E Preferred Shares into our common shares to the extent that receipt of our common shares would cause such holder or any other person to exceed the ownership limits contained in our declaration of trust.
6.375% Series D Cumulative Redeemable Preferred Shares
General.    The outstanding Series D Preferred Shares are validly issued, fully paid and nonassessable and are listed on the NYSE under the symbol “PEBPrD.” Our board of trustees may, without notice to or the consent of holders of Series D Preferred Shares, authorize the issuance and sale of additional Series D Preferred Shares from time to time. For purposes of this section “6.375% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest”: (1) the term Parity Preferred Shares means the Series C Preferred Shares, the Series E Preferred Shares, the Series F Preferred Shares and any other of our future equity securities that we may later authorize or issue that by their terms are on a parity with the Series D Preferred Shares; and (2) terms that are defined in this section have such meanings in this section only.
Ranking.    The Series D Preferred Shares rank senior to our common shares and to any other of our future equity securities that we may later authorize or issue that by their terms rank junior to the Series D Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. The Series D Preferred Shares rank pari passu with any Parity Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. The Series D Preferred Shares rank junior to any equity securities that we may later authorize or issue that by their terms rank senior to the Series D Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. Any such authorization or issuance of such senior equity securities would require the affirmative vote of the holders of at least two-thirds of the outstanding Series D Preferred Shares. Any convertible debt securities that we may issue are not considered to be equity securities for these purposes. The Series D Preferred Shares rank junior to all of our existing and future indebtedness.




Distributions.    Holders of the Series D Preferred Shares will be entitled to receive, when and as authorized by our board of trustees, out of assets legally available for the payment of distributions, cumulative cash distributions at the rate of 6.375% per annum of the $25.00 per share liquidation preference, equivalent to $1.59375 per annum per Series D Preferred Share. Distributions on the Series D Preferred Shares will accumulate on a daily basis and be cumulative from and including the original date of issuance and be payable quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not on a business day, on the next succeeding business day). Distributions payable on the Series D Preferred Shares for any partial period will be computed on the basis of a 360-day year consisting of twelve 30-day months. We will pay distributions to holders of record as they appear in our share records at the close of business on the applicable record date, which will be the first day of the calendar month in which the applicable distribution payment date falls, or such other date as designated by our board of trustees for the payment of distributions that is not more than 90 days nor fewer than 10 days prior to the distribution payment date.
Our board of trustees will not authorize, and we will not pay, any distributions on the Series D Preferred Shares or set apart assets for the payment of distributions if the terms of any of our agreements, including agreements relating to our indebtedness, prohibit that authorization, payment or setting aside of assets or provide that the authorization, payment or setting aside of assets is a breach of or a default under that agreement, or if the authorization, payment or setting aside of assets is restricted or prohibited by law. We are and may in the future become a party to agreements that restrict or prevent the payment of distributions on, or the purchase or redemption of, our shares of beneficial interest. Under certain circumstances, these agreements could restrict or prevent the payment of distributions on or the purchase or redemption of Series D Preferred Shares. These restrictions may be indirect (for example, covenants requiring us to maintain specified levels of net worth or assets) or direct. We do not believe that these restrictions currently have any adverse impact on our ability to pay distributions on the Series D Preferred Shares.
Notwithstanding the foregoing, distributions on the Series D Preferred Shares will accrue whether or not we have earnings, whether or not there are assets legally available for the payment of distributions and whether or not distributions are authorized or declared. Accrued but unpaid distributions on the Series D Preferred Shares will not bear interest, and the holders of the Series D Preferred Shares will not be entitled to any distributions in excess of full cumulative distributions as described above. All of our distributions on Series D Preferred Shares, including any capital gain distributions, will be credited to the previously accrued distributions on the Series D Preferred Shares. We will credit any distribution made on Series D Preferred Shares first to the earliest accrued and unpaid distribution due.
We will not declare or pay any distributions, or set apart any assets for the payment of distributions (other than in common shares or other shares ranking junior to the Series D Preferred Shares as to distributions and upon liquidation), on our common shares or any other shares that rank on a parity with or junior to the Series D Preferred Shares as to distributions or upon liquidation, if any, or redeem, purchase or otherwise acquire our common shares or any other shares that rank on a parity with or junior to the Series D Preferred Shares as to distributions or upon liquidation, unless we also have declared and either paid or set apart for payment the full cumulative distributions on the Series D Preferred Shares for all past distribution periods. This restriction will not limit conversion into or exchange for any of our other shares ranking junior to the Series D Preferred Shares as to distributions and upon liquidation or our redemption, purchase or other acquisition of shares under incentive, benefit or share purchase plans for officers, trustees or employees or others performing or providing similar services or for the purposes of enforcing restrictions upon ownership and transfer of our equity securities contained in our declaration of trust in order to preserve our status as a REIT.
If we do not declare and either pay or set apart for payment the full cumulative distributions on the Series D Preferred Shares and all shares that rank on a parity with Series D Preferred Shares, the amount which we have declared will be allocated pro rata to the Series D Preferred Shares and to each parity series of shares so that the amount declared for each Series D Preferred Share and for each share of each parity series is proportionate to the accrued and unpaid distributions on those shares.
Liquidation Rights.    In the event of our liquidation, dissolution or winding up, the holders of the Series D Preferred Shares will be entitled to be paid out of our assets legally available for distribution to our shareholders (after payment or provision for payment of all of our debts and other liabilities) liquidating distributions in cash equal to a liquidation preference of $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of the payment. Holders of Series D Preferred Shares will be entitled to receive this liquidating distribution before we distribute any assets to holders of our common shares or any other shares of beneficial interest that rank junior to the Series D Preferred Shares. The rights of holders of Series D Preferred Shares to receive their liquidation preference would be subject to preferential rights of the holders of any series of shares that is senior to the Series D Preferred Shares. Written notice will be given to each holder of Series D Preferred Shares of any such liquidation no fewer than 30 days and no more than 60 days prior to the payment date. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of Series D Preferred Shares will have no right or claim to any of our remaining assets. If we consolidate, merge or convert with or into any other entity, sell, lease, transfer or convey all or substantially all of our property or business, or engage in a statutory share exchange, we will not be deemed to have liquidated. In the event our assets are insufficient to pay the full liquidating distributions to the holders of Series D Preferred Shares and all the Parity Preferred Shares, then we will distribute our assets to the holders of Series D Preferred




Shares and all the Parity Preferred Shares ratably in proportion to the full liquidating distributions they would have otherwise received,
Redemption.    We may not redeem the Series D Preferred Shares prior to June 9, 2021, except as described below under “- Special Optional Redemption” and “- Restrictions on Ownership and Transfer.” On and after June 9, 2021, upon no fewer than 30 days’ nor more than 60 days’ written notice, we may, at our option, redeem the Series D Preferred Shares, in whole or from time to time in part, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption. Unless full cumulative distributions on all Series D Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods, no Series D Preferred Shares shall be redeemed unless all outstanding Series D Preferred Shares are simultaneously redeemed.
We will give notice of redemption by mail to each holder of record of Series D Preferred Shares at the address shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series D Preferred Shares except as to the holder to whom notice was defective or not given. Each notice will state the following:
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the redemption date;
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the redemption price;
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the number of Series D Preferred Shares to be redeemed;
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the place or places where the certificates for the Series D Preferred Shares are to be surrendered for payment; and
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that distributions on the Series D Preferred Shares to be redeemed will cease to accrue on such redemption date.
If we redeem fewer than all of the Series D Preferred Shares, the notice of redemption mailed to each shareholder will also specify the number of Series D Preferred Shares that we will redeem from each shareholder. In this case, we will determine the number of Series D Preferred Shares to be redeemed on a pro rata basis or by lot.
If we have given a notice of redemption and have set apart sufficient assets for the redemption in trust for the benefit of the holders of the Series D Preferred Shares called for redemption, then from and after the redemption date, those Series D Preferred Shares will be treated as no longer being outstanding, no further distributions will accrue and all other rights of the holders of those Series D Preferred Shares will terminate. The holders of those Series D Preferred Shares will retain their right to receive the redemption price for their shares and any accrued and unpaid distributions to, but not including, the redemption date.
The holders of Series D Preferred Shares at the close of business on a distribution record date will be entitled to receive the distribution payable with respect to the Series D Preferred Shares on the corresponding payment date notwithstanding the redemption of the Series D Preferred Shares between such record date and the corresponding payment date. Except as provided above, we will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series D Preferred Shares to be redeemed.
The Series D Preferred Shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions, except as provided under “- Restrictions on Ownership and Transfer” below. In order to ensure that we continue to meet the requirements for qualification as a REIT, the Series D Preferred Shares will be subject to the restrictions on ownership and transfer in Article VII of our declaration of trust.
Subject to applicable law, we may purchase Series D Preferred Shares in the open market, by tender or by private agreement. We are permitted to return any Series D Preferred Shares that we reacquire to the status of authorized but unissued shares.
Special Optional Redemption.    Upon the occurrence of a Change of Control, we may, at our option, redeem the Series D Preferred Shares, in whole or in part and within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date, we have provided or provide notice of redemption with respect to the Series D Preferred Shares (whether pursuant to our optional redemption right or our special optional redemption right), the holders of Series D Preferred Shares to which such notice of redemption relates will not have the conversion right described below under “- Conversion Rights” and such Series D Preferred Shares will instead be redeemed in accordance with such notice.
We will mail to you, if you are a record holder of Series D Preferred Shares, a notice of redemption no fewer than 30 days nor more than 60 days before the redemption date. We will send the notice to your address shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series D Preferred Shares except as to the holder to whom notice was defective or not given. Each notice will state the following:




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the redemption date;
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the redemption price;
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the number of Series D Preferred Shares to be redeemed;
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the place or places where the certificates for the Series D Preferred Shares are to be surrendered for payment, to the extent such shares are certificated;
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that the Series D Preferred Shares are being redeemed pursuant to our special optional redemption right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control;
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that the holders of the Series D Preferred Shares to which the notice relates will not be able to tender such Series D Preferred Shares for conversion in connection with the Change of Control and each Series D Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date; and
•
that distributions on the Series D Preferred Shares to be redeemed will cease to accrue on such redemption date.
If we redeem fewer than all of the Series D Preferred Shares, the notice of redemption mailed to each shareholder will also specify the number of Series D Preferred Shares that we will redeem from each shareholder. In this case, we will determine the number of Series D Preferred Shares to be redeemed on a pro rata basis or by lot.
If we have given a notice of redemption and have set apart sufficient assets for the redemption in trust for the benefit of the holders of the Series D Preferred Shares called for redemption, then from and after the redemption date, those Series D Preferred Shares will be treated as no longer being outstanding, no further distributions will accrue and all other rights of the holders of those Series D Preferred Shares will terminate. The holders of those Series D Preferred Shares will retain their right to receive the redemption price for their shares and any accrued and unpaid distributions to, but not including, the redemption date.
The holders of Series D Preferred Shares at the close of business on a distribution record date will be entitled to receive the distribution payable with respect to the Series D Preferred Shares on the corresponding payment date notwithstanding the redemption of the Series D Preferred Shares between such record date and the corresponding payment date. Except as provided above, we will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series D Preferred Shares to be redeemed.
A “Change of Control” is when, after the original issuance of the Series D Preferred Shares, the following have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of our company entitling that person to exercise more than 50% of the total voting power of all shares of our company entitled to vote generally in elections of trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
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following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE MKT or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ.
Conversion Rights.    Upon the occurrence of a Change of Control, each holder of Series D Preferred Shares will have the right, unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem the Series D Preferred Shares as described under “- Redemption” or “- Special Optional Redemption” above to convert some or all of the Series D Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of our common shares per Series D Preferred Share (the “Common Share Conversion Consideration”) equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid distributions to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series D Preferred Share distribution payment and prior to the corresponding Series D Preferred Share distribution payment date, in which case no additional amount for such accrued and unpaid distribution will be included in this sum) by (ii) the Common Share Price; and
•
1.9794 (i.e., the Share Cap), subject to the adjustments described below.





The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of our common shares), subdivisions or combinations (in each case, a “Share Split”) with respect to our common shares as follows: the adjusted Share Cap as the result of a Share Split will be the number of our common shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of our common shares outstanding after giving effect to such Share Split and the denominator of which is the number of our common shares outstanding immediately prior to such Share Split.
For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of our common shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right will not exceed 9,897,070 (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap and for additional issuances of Series D Preferred Shares, if any.
In the case of a Change of Control pursuant to which our common shares will be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series D Preferred Shares will receive upon conversion of such Series D Preferred Shares the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of our common shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration,” and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, is referred to as the “Conversion Consideration”).
If the holders of our common shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of the Series D Preferred Shares will receive will be the form of consideration elected by the holders of our common shares who participate in the determination (based on the weighted average of elections) and will be subject to any limitations to which all holders of our common shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.
We will not issue fractional common shares upon the conversion of the Series D Preferred Shares. Instead, we will pay the cash value of such fractional shares.
Within 15 days following the occurrence of a Change of Control, we will provide to holders of Series D Preferred Shares a notice of occurrence of the Change of Control that describes the resulting Change of Control Conversion Right. This notice will state the following:
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the events constituting the Change of Control;
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the date of the Change of Control;
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the last date on which the holders of Series D Preferred Shares may exercise their Change of Control Conversion Right;
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the method and period for calculating the Common Share Price;
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the Change of Control Conversion Date;
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that if, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem all or any portion of the Series D Preferred Shares, the holders will not be able to convert Series D Preferred Shares and such shares will be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control Conversion Right;
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if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series D Preferred Share;
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the name and address of the paying agent and the conversion agent; and
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the procedures that the holders of Series D Preferred Shares must follow to exercise the Change of Control Conversion Right.

We will issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on our website, in any event prior to the opening of business on the first business day following any date on which we provide the notice described above to the holders of Series D Preferred Shares.




To exercise the Change of Control Conversion Right, a holder of Series D Preferred Shares will be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) evidencing Series D Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to our transfer agent. The conversion notice must state:
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the relevant Change of Control Conversion Date;
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the number of Series D Preferred Shares to be converted; and
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that the Series D Preferred Shares are to be converted pursuant to the applicable provisions of the Series D Preferred Shares.

The “Change of Control Conversion Date” is the date the Series D Preferred Shares are to be converted, which will be a business day that is no fewer than 20 days nor more than 35 days after the date on which we provide the notice described above to the holders of Series D Preferred Shares.
The “Common Share Price” will be: (i) the amount of cash consideration per common share, if the consideration to be received in the Change of Control by the holders of our common shares is solely cash; and (ii) the average of the closing prices for our common shares on the NYSE for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the consideration to be received in the Change of Control by the holders of our common shares is other than solely cash.
Holders of Series D Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to our transfer agent prior to the close of business on the business day prior to the Change of Control Conversion Date. The notice of withdrawal must state:
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the number of withdrawn Series D Preferred Shares;
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if certificated Series D Preferred Shares have been issued, the certificate numbers of the withdrawn Series D Preferred Shares; and
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the number of Series D Preferred Shares, if any, which remain subject to the conversion notice.
Notwithstanding the foregoing, if the Series D Preferred Shares are held in global form, the conversion notice and/or the notice of withdrawal, as applicable, must comply with applicable procedures of The Depository Trust Company, or DTC.
Series D Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem such Series D Preferred Shares, whether pursuant to our optional redemption right or our special optional redemption right. If we elect to redeem Series D Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series D Preferred Shares will not be so converted and the holders of such shares will be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to, but not including, the redemption date.
We will deliver amounts owing upon conversion no later than the third business day following the Change of Control Conversion Date.
In connection with the exercise of any Change of Control Conversion Right, we will comply with all federal and state securities laws and stock exchange rules in connection with any conversion of Series D Preferred Shares into our common shares. Notwithstanding any other provision of the Series D Preferred Shares, no holder of Series D Preferred Shares will be entitled to convert such Series D Preferred Shares for our common shares to the extent that receipt of such common shares would cause such holder (or any other person) to exceed the share ownership limits contained in our declaration of trust unless we provide an exemption from this limitation for such holder.
These Change of Control conversion and redemption features may discourage a party from taking over our company or make it more difficult for a party to take over our company.
Except as provided above in connection with a Change of Control, the Series D Preferred Shares are not convertible into or exchangeable for any other securities or property.
Voting Rights.    Holders of Series D Preferred Shares have no voting rights, except as set forth below.




Whenever distributions on the Series D Preferred Shares are due but unpaid for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the number of trustees then constituting our board of trustees shall be increased by two and the holders of the Series D Preferred Shares, voting together as a single class with the holders of any other Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, will be entitled to vote for the election of two additional trustees to serve on our board of trustees (the “Preferred Shares Trustees”) at a special meeting called by the holders of at least 33% of the outstanding Series D Preferred Shares or the holders of at least 33% of any such other class or series of Parity Preferred Shares so in arrears if the request is received 90 or more days before the next annual or special meeting of shareholders, or at the next annual or special meeting of shareholders, and at each subsequent annual or special meeting of shareholders until all distributions accumulated on the Series D Preferred Shares for the past distribution periods have been fully paid or declared and set apart for payment in full.
If and when all accumulated distributions in arrears on the Series D Preferred Shares shall have been paid in full or declared and set apart for payment in full, the holders of the Series D Preferred Shares shall be divested of the voting rights as described in this section (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions in arrears have been paid in full or declared and set apart for payment in full on all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Shares Trustee so elected shall terminate. Any Preferred Shares Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series D Preferred Shares when they have the voting rights set forth as described in this section (voting together as a single class with all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Shares Trustee may be filled by written consent of the Preferred Shares Trustee remaining in office or, if none remains in office, by a vote of the holders of record of a majority of the outstanding Series D Preferred Shares when they have the voting rights set forth in this section (voting together as a single class with all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable). The Preferred Shares Trustees shall each be entitled to one vote per trustee on any matter.
So long as any Series D Preferred Shares remain outstanding, we shall not, without the affirmative vote of the holders of at least two-thirds of the Series D Preferred Shares outstanding at the time: (i) authorize or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series D Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding up of our company, or reclassify any authorized shares of our company into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of our declaration of trust, whether by merger, consolidation or otherwise, in each case in such a way that would materially and adversely affect any right, preference, privilege or voting power of the Series D Preferred Shares; provided, however, that with respect to the occurrence of any event set forth in (ii) above, so long as (a) the Series D Preferred Shares remain outstanding with the terms thereof materially unchanged, or (b) the holders of the Series D Preferred Shares receive equity securities with rights, preferences, privileges and voting powers substantially the same as those of the Series D Preferred Shares, then the occurrence of any such event shall not be deemed to materially and adversely affect the rights, privileges or voting powers of the holders of the Series D Preferred Shares. In addition, any increase in the amount of authorized Series D Preferred Shares or the creation or issuance, or increase in the amounts authorized, of any other equity securities ranking on a parity with or junior to the Series D Preferred Shares with respect to payment of distributions and the distribution of assets upon liquidation, dissolution or winding up of our company, shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series D Preferred Shares.
In any matter in which the Series D Preferred Shares are entitled to vote, each Series D Preferred Share will be entitled to one vote. If the holders of Series D Preferred Shares and another class or series of preferred shares, including our Series B Preferred Shares and our Series C Preferred Shares, are entitled to vote together as a single class on any matter, the Series D Preferred Shares and the shares of such other series will have one vote for each $25.00 of liquidation preference.
Information Rights.    During any period in which we are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series D Preferred Shares are outstanding, we will (i) transmit by mail to all holders of Series D Preferred Shares as their names and addresses appear in our record books and without cost to such holders, copies of reports containing substantially the same information as would have appeared in the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits that would have been required) and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series D Preferred Shares. We will mail (or otherwise provide) the reports to the holders of Series D Preferred Shares within 15 days after the respective dates by




which we would have been required to file such reports with the SEC if we were subject to Section 13 or 15(d) of the Exchange Act.
Restrictions on Ownership and Transfer.    For information regarding restrictions on ownership and transfer of the Series D Preferred Shares, see “All Classes and Series of Shares of Beneficial Interest-Restrictions on Ownership and Transfer” above.
Notwithstanding any other provision of the Series D Preferred Shares, no holder of the Series D Preferred Shares will be entitled to convert any Series D Preferred Shares into our common shares to the extent that receipt of our common shares would cause such holder or any other person to exceed the ownership limits contained in our declaration of trust.
Preemptive Rights.    No holders of the Series D Preferred Shares shall, as the holders, have any preemptive rights to purchase or subscribe for our common shares or any other security of our company.
6.3% Series C Cumulative Redeemable Preferred Shares
General.    The outstanding Series C Preferred Shares are validly issued, fully paid and nonassessable and are listed on the NYSE under the symbol “PEBPrC.” Our board of trustees may, without notice to or the consent of holders of Series C Preferred Shares, authorize the issuance and sale of additional Series C Preferred Shares from time to time. For purposes of this section “6.3% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest”: (1) the term Parity Preferred Shares means the Series D Preferred Shares, the Series E Preferred Shares, the Series F Preferred Shares and any other of our future equity securities that we may later authorize or issue that by their terms are on a parity with the Series C Preferred Shares; and (2) terms that are defined in this section have such meanings in this section only.
Ranking.    The Series C Preferred Shares rank senior to our common shares and to any other of our future equity securities that we may later authorize or issue that by their terms rank junior to the Series C Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. The Series C Preferred Shares rank pari passu with any Parity Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. The Series C Preferred Shares rank junior to any equity securities that we may later authorize or issue that by their terms rank senior to the Series C Preferred Shares with respect to the payment of distributions and the distribution of assets in the event of our liquidation, dissolution or winding up. Any such authorization or issuance of such senior equity securities would require the affirmative vote of the holders of at least two-thirds of the outstanding Series C Preferred Shares. Any convertible debt securities that we may issue are not considered to be equity securities for these purposes. The Series C Preferred Shares rank junior to all of our existing and future indebtedness.
Distributions.    Holders of the Series C Preferred Shares will be entitled to receive, when and as authorized by our board of trustees, out of funds legally available for the payment of distributions, cumulative cash distributions at the rate of 6.50% per annum of the $25.00 per share liquidation preference, equivalent to $1.625 per annum per Series C Preferred Share. Distributions on the Series C Preferred Shares will be payable quarterly in arrears on or about the 15th day of January, April, July and October of each year. Distributions payable on the Series C Preferred Shares for any partial period will be computed on the basis of a 360-day year consisting of twelve 30-day months. We will pay distributions to holders of record as they appear in our share records at the close of business on the applicable record date, which will be the first day of the calendar month in which the applicable distribution falls, or such other date as designated by our board of trustees for the payment of distributions that is not more than 90 days nor fewer than 10 days prior to the distribution payment date.
Our board of trustees will not authorize, and we will not pay, any distributions on the Series C Preferred Shares or set aside funds for the payment of distributions if the terms of any of our agreements, including agreements relating to our indebtedness, prohibit that authorization, payment or setting aside of funds or provide that the authorization, payment or setting aside of funds is a breach of or a default under that agreement, or if the authorization, payment or setting aside of funds is restricted or prohibited by law. We are and may in the future become a party to agreements that restrict or prevent the payment of distributions on, or the purchase or redemption of, our shares of beneficial interest. Under certain circumstances, these agreements could restrict or prevent the payment of distributions on or the purchase or redemption of Series C Preferred Shares. These restrictions may be indirect (for example, covenants requiring us to maintain specified levels of net worth or assets) or direct. We do not believe that these restrictions currently have any adverse impact on our ability to pay distributions on the Series C Preferred Shares.
Notwithstanding the foregoing, distributions on the Series C Preferred Shares will accrue whether or not we have earnings, whether or not there are funds legally available for the payment of distributions and whether or not distributions are authorized. Accrued but unpaid distributions on the Series C Preferred Shares will not bear interest, and the holders of the




Series C Preferred Shares will not be entitled to any distributions in excess of full cumulative distributions as described above. All of our distributions on Series C Preferred Shares, including any capital gain distributions, will be credited to the previously accrued distributions on the Series C Preferred Shares. We will credit any distribution made on Series C Preferred Shares first to the earliest accrued and unpaid distribution due.
We will not declare or pay any distributions, or set aside any funds for the payment of distributions, on our common shares or any other shares that rank junior to the Series C Preferred Shares, if any, or redeem or otherwise acquire our common shares or other junior shares, unless we also have declared and either paid or set aside for payment the full cumulative distributions on the Series C Preferred Shares for the current and all past dividend periods. This restriction will not limit our redemption or other acquisition of shares under incentive, benefit or share purchase plans for officers, trustees or employees or others performing or providing similar services or for the purposes of enforcing restrictions upon ownership and transfer of our equity securities contained in our declaration of trust in order to preserve our status as a REIT.
If we do not declare and either pay or set aside for payment the full cumulative distributions on the Series C Preferred Shares and all shares that rank on a parity with Series C Preferred Shares, the amount which we have declared will be allocated pro rata to the Series C Preferred Shares and to each parity series of shares so that the amount declared for each Series C Preferred Share and for each share of each parity series is proportionate to the accrued and unpaid distributions on those shares.
Liquidation Rights.    In the event of our liquidation, dissolution or winding up, the holders of the Series C Preferred Shares will be entitled to be paid out of our assets legally available for distribution to our shareholders liquidating distributions in cash or property at fair market value as determined by our board of trustees equal to a liquidation preference of $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of the payment. Holders of Series C Preferred Shares will be entitled to receive this liquidating distribution before we distribute any assets to holders of our common shares or any other shares of beneficial interest that rank junior to the Series C Preferred Shares. The rights of holders of Series C Preferred Shares to receive their liquidation preference would be subject to preferential rights of the holders of any series of shares that is senior to the Series C Preferred Shares. Written notice will be given to each holder of Series C Preferred Shares of any such liquidation no fewer than 30 days and no more than 60 days prior to the payment date. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of Series C Preferred Shares will have no right or claim to any of our remaining assets. If we consolidate or merge with any other entity, sell, lease, transfer or convey all or substantially all of our property or business, or engage in a statutory share exchange, we will not be deemed to have liquidated. In the event our assets are insufficient to pay the full liquidating distributions to the holders of Series C Preferred Shares and all the Parity Preferred Shares then we will distribute our assets to the holders of Series C Preferred Shares and all the Parity Preferred Shares ratably in proportion to the full liquidating distributions they would have otherwise received.
Redemption.    Upon no fewer than 30 days’ nor more than 60 days’ written notice, we may, at our option, redeem the Series C Preferred Shares, in whole or from time to time in part, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption.
We will give notice of redemption by publication in a newspaper of general circulation in the City of New York and by mail to each holder of record of Series C Preferred Shares at the address shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series C Preferred Shares except as to the holder to whom notice was defective. Each notice will state the following:
•
the redemption date;
•
the redemption price;
•
the number of Series C Preferred Shares to be redeemed;
•
the place or places where the certificates for the Series C Preferred Shares are to be surrendered for payment; and
•
that distributions on the Series C Preferred Shares to be redeemed will cease to accrue on the redemption date.

If we redeem fewer than all of the Series C Preferred Shares, the notice of redemption mailed to each shareholder will also specify the number of Series C Preferred Shares that we will redeem from each shareholder. In this case, we will determine the number of Series C Preferred Shares to be redeemed on a pro rata basis, by lot or by any other equitable method we may choose in our sole discretion.
If we have given a notice of redemption and have set aside sufficient funds for the redemption in trust for the benefit of the holders of the Series C Preferred Shares called for redemption, then from and after the redemption date, those Series C Preferred Shares will be treated as no longer being outstanding, no further distributions will accrue and all other rights of the




holders of those Series C Preferred Shares will terminate. The holders of those Series C Preferred Shares will retain their right to receive the redemption price for their shares and any accrued and unpaid distributions through the redemption date.
The holders of Series C Preferred Shares at the close of business on a distribution record date will be entitled to receive the distribution payable with respect to the Series C Preferred Shares on the corresponding payment date notwithstanding the redemption of the Series C Preferred Shares between such record date and the corresponding payment date or our default in the payment of the distribution due. Except as provided above, we will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series C Preferred Shares to be redeemed.
The Series C Preferred Shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions, except as provided under “-Restrictions on Ownership and Transfer” below. In order to ensure that we continue to meet the requirements for qualification as a REIT, the Series C Preferred Shares will be subject to the restrictions on ownership and transfer in Article VII of our declaration of trust.
Subject to applicable law, we may purchase Series C Preferred Shares in the open market, by tender or by private agreement. We are permitted to return any Series C Preferred Shares that we reacquire to the status of authorized but unissued shares.
Special Optional Redemption.    Upon the occurrence of a Change of Control, we may, at our option, redeem the Series C Preferred Shares, in whole or in part and within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date, we have provided or provide notice of redemption with respect to the Series C Preferred Shares (whether pursuant to our optional redemption right or our special optional redemption right), the holders of Series C Preferred Shares to which such notice of redemption relates will not have the conversion right described below under “-Conversion Rights” and such Series C Preferred Shares will instead be redeemed in accordance with such notice.
We will mail to you, if you are a record holder of Series C Preferred Shares, a notice of redemption no fewer than 30 days nor more than 60 days before the redemption date. We will send the notice to your address shown on our share transfer books. A failure to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series C Preferred Shares except as to the holder to whom notice was defective. Each notice will state the following:
•
the redemption date;
•
the redemption price;
•
the number of Series C Preferred Shares to be redeemed;
•
the place or places where the certificates for the Series C Preferred Shares are to be surrendered for payment;
•
that the Series C Preferred Shares are being redeemed pursuant to our special optional redemption right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control;
•
that the holders of the Series C Preferred Shares to which the notice relates will not be able to tender such Series C Preferred Shares for conversion in connection with the Change of Control and each Series C Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date; and
•
that distributions on the Series C Preferred Shares to be redeemed will cease to accrue on the redemption date.

If we redeem fewer than all of the Series C Preferred Shares, the notice of redemption mailed to each shareholder will also specify the number of Series C Preferred Shares that we will redeem from each shareholder. In this case, we will determine the number of Series C Preferred Shares to be redeemed on a pro rata basis, by lot or by any other equitable method we may choose.
If we have given a notice of redemption and have set aside sufficient funds for the redemption in trust for the benefit of the holders of the Series C Preferred Shares called for redemption, then from and after the redemption date, those Series C Preferred Shares will be treated as no longer being outstanding, no further distributions will accrue and all other rights of the holders of those Series C Preferred Shares will terminate. The holders of those Series C Preferred Shares will retain their right to receive the redemption price for their shares and any accrued and unpaid distributions through the redemption date.
The holders of Series C Preferred Shares at the close of business on a distribution record date will be entitled to receive the distribution payable with respect to the Series C Preferred Shares on the corresponding payment date




notwithstanding the redemption of the Series C Preferred Shares between such record date and the corresponding payment date or our default in the payment of the distribution due. Except as provided above, we will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series C Preferred Shares to be redeemed.
A “Change of Control” is when, after the original issuance of the Series C Preferred Shares, the following have occurred and are continuing:
•
the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of our company entitling that person to exercise more than 50% of the total voting power of all shares of our company entitled to vote generally in elections of trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
•
following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE MKT or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ.

Conversion Rights.    Upon the occurrence of a Change of Control, each holder of Series C Preferred Shares will have the right, unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem the Series C Preferred Shares as described under “- Redemption” or “- Special Optional Redemption,” to convert some or all of the Series C Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of our common shares per Series C Preferred Share (the “Common Share Conversion Consideration”) equal to the lesser of:
•
the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid distributions to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series C Preferred Share distribution payment and prior to the corresponding Series C Preferred Share distribution payment date, in which case no additional amount for such accrued and unpaid distribution will be included in this sum) by (ii) the Common Share Price; and
•
2.0325 (i.e., the Share Cap), subject to the adjustments described below.
The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of our common shares), subdivisions or combinations (in each case, a “Share Split”) with respect to our common shares as follows: the adjusted Share Cap as the result of a Share Split will be the number of our common shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of our common shares outstanding after giving effect to such Share Split and the denominator of which is the number of our common shares outstanding immediately prior to such Share Split.
For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of our common shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right will not exceed 8,130,000 (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap and for additional issuances of Series C Preferred Shares, if any.
In the case of a Change of Control pursuant to which our common shares will be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series C Preferred Shares will receive upon conversion of such Series C Preferred Shares the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of our common shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration,” and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, is referred to as the “Conversion Consideration”).
If the holders of our common shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of the Series C Preferred Shares will receive will be the form and proportion of the aggregate consideration elected by the holders of our common shares who participate in the determination




(based on the weighted average of elections) and will be subject to any limitations to which all holders of our common shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.
We will not issue fractional common shares upon the conversion of the Series C Preferred Shares. Instead, we will pay the cash value of such fractional shares.
Within 15 days following the occurrence of a Change of Control, we will provide to holders of Series C Preferred Shares a notice of occurrence of the Change of Control that describes the resulting Change of Control Conversion Right. This notice will state the following:
•
the events constituting the Change of Control;
•
the date of the Change of Control;
•
the last date on which the holders of Series C Preferred Shares may exercise their Change of Control Conversion Right;
•
the method and period for calculating the Common Share Price;
•
the Change of Control Conversion Date;
•
that if, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem all or any portion of the Series C Preferred Shares, holders will not be able to convert Series C Preferred Shares and such shares will be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control Conversion Right;
•
if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series C Preferred Share;
•
the name and address of the paying agent and the conversion agent; and
•
the procedures that the holders of Series C Preferred Shares must follow to exercise the Change of Control Conversion Right.

We will issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on our website, in any event prior to the opening of business on the first business day following any date on which we provide the notice described above to the holders of Series C Preferred Shares.
To exercise the Change of Control Conversion Right, a holder of Series C Preferred Shares will be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) evidencing Series C Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to our transfer agent. The conversion notice must state:
•
the relevant Change of Control Conversion Date;
•
the number of Series C Preferred Shares to be converted; and
•
that the Series C Preferred Shares are to be converted pursuant to the applicable provisions of the Series C Preferred Shares.
The “Change of Control Conversion Date” is the date the Series C Preferred Shares are to be converted, which will be a business day that is no fewer than 20 days nor more than 35 days after the date on which we provide the notice described above to the holders of Series C Preferred Shares.
The “Common Share Price” will be: (i) the amount of cash consideration per common share, if the consideration to be received in the Change of Control by the holders of our common shares is solely cash; and (ii) the average of the closing prices for our common shares on the NYSE for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the consideration to be received in the Change of Control by the holders of our common shares is other than solely cash.
Holders of Series C Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to our transfer agent prior to the close of business on the business day prior to the Change of Control Conversion Date. The notice of withdrawal must state:
•
the number of withdrawn Series C Preferred Shares;




•
if certificated Series C Preferred Shares have been issued, the certificate numbers of the withdrawn Series C Preferred Shares; and
•
the number of Series C Preferred Shares, if any, which remain subject to the conversion notice.
Notwithstanding the foregoing, if the Series C Preferred Shares are held in global form, the conversion notice and/or the notice of withdrawal, as applicable, must comply with applicable procedures of DTC.
Series C Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless prior to the Change of Control Conversion Date we have provided or provide notice of our election to redeem such Series C Preferred Shares, whether pursuant to our optional redemption right or our special optional redemption right. If we elect to redeem Series C Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series C Preferred Shares will not be so converted and the holders of such shares will be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to, but not including, the redemption date.
We will deliver amounts owing upon conversion no later than the third business day following the Change of Control Conversion Date.
In connection with the exercise of any Change of Control Conversion Right, we will comply with all federal and state securities laws and stock exchange rules in connection with any conversion of Series C Preferred Shares into our common shares. Notwithstanding any other provision of the Series C Preferred Shares, no holder of Series C Preferred Shares will be entitled to convert such Series C Preferred Shares for our common shares to the extent that receipt of such common shares would cause such holder (or any other person) to exceed the share ownership limits contained in our declaration of trust, unless we provide an exemption from this limitation for such holder.
These Change of Control conversion and redemption features may make it more difficult for a party to take over our company or discourage a party from taking over our company.
Except as provided above in connection with a Change of Control, the Series C Preferred Shares are not convertible into or exchangeable for any other securities or property.
Voting Rights.    Holders of Series C Preferred Shares have no voting rights, except as set forth below.
Whenever distributions on the Series C Preferred Shares are due but unpaid for six quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the number of trustees then constituting our board of trustees shall be increased by two and holders of the Series C Preferred Shares, voting as a single class with the holders of any other Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, will be entitled to vote for the election of two additional trustees to serve on our board of trustees (the “Preferred Shares Trustees”) at a special meeting called by the holders of at least 33% of the outstanding Series C Preferred Shares or the holders of at least 33% of any such other series of Parity Preferred Shares if the request is received 90 or more days before the next annual or special meeting of shareholders, or at the next annual or special meeting of shareholders, and at each subsequent annual or special meeting of shareholders until all distributions accumulated on the Series C Preferred Shares for the past distribution periods and the then-current distribution period have been paid or declared and set aside for payment in full.
If and when all accumulated distributions in arrears and distributions for the then-current distribution period on the Series C Preferred Shares shall have been paid in full or a sum sufficient for the payment is irrevocably deposited in trust for payment, the holders of the Series C Preferred Shares shall be divested of the voting rights as described in this section (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Shares Trustee so elected shall terminate. Any Preferred Shares Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series C Preferred Shares when they have the voting rights set forth as described in this section (voting together as a single class with all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Shares Trustee may be filled by written consent of the Preferred Shares Trustee remaining in office or, if none remains in office, by a vote of the holders of record of a majority of the outstanding Series C Preferred Shares when they have the voting rights set forth in this section (voting together as a single class with all other classes or series of Parity Preferred Shares upon which




like voting rights have been conferred and are exercisable). The Preferred Shares Trustees shall each be entitled to one vote per trustee on any matter.
So long as any Series C Preferred Shares remain outstanding, we shall not, without the affirmative vote of the holders of at least two-thirds of the Series C Preferred Shares outstanding at the time: (i) authorize or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series C Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding up of our company, or reclassify any authorized shares of our company into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of our declaration of trust, whether by merger, consolidation or otherwise, in each case in such a way that would materially and adversely affect any right, preference, privilege or voting power of the Series C Preferred Shares; provided, however, that with respect to the occurrence of a merger, consolidation or a sale or lease of all of our assets as an entirety, so long as (a) the Series C Preferred Shares remain outstanding with the terms thereof materially unchanged, or (b) the holders of the Series C Preferred Shares receive equity securities with rights, preferences, privileges and voting powers substantially the same as those of the Series C Preferred Shares, then the occurrence of any such event shall not be deemed to materially and adversely affect the rights, privileges or voting powers of the holders of the Series C Preferred Shares. In addition, any increase in the amount of authorized Series C Preferred Shares or the creation or issuance, or increase in the amounts authorized, of any other equity securities ranking on a parity with or junior to the Series C Preferred Shares with respect to payment of distributions and the distribution of assets upon liquidation, dissolution or winding up of our company, shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series C Preferred Shares.
In any matter in which the Series C Preferred Shares are entitled to vote, each Series C Preferred Share will be entitled to one vote. If the holders of Series C Preferred Shares and another series of preferred shares, including our Series A Preferred Shares, are entitled to vote together as a single class on any matter, the Series C Preferred Shares and the shares of the other series will have one vote for each $25.00 of liquidation preference.
Information Rights.    During any period in which we are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series C Preferred Shares are outstanding, we will (i) transmit by mail to all holders of Series C Preferred Shares as their names and addresses appear in our record books and without cost to such holders, copies of reports containing substantially the same information as would have appeared in the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits that would have been required) and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series C Preferred Shares. We will mail (or otherwise provide) the reports to the holders of Series C Preferred Shares within 15 days after the respective dates by which we would have been required to file such reports with the SEC if we were subject to Section 13 or 15(d) of the Exchange Act.
Restrictions on Ownership and Transfer.    For information regarding restrictions on ownership and transfer of the Series C Preferred Shares, see “All Classes and Series of Shares of Beneficial Interest-Restrictions on Ownership and Transfer” above.
Notwithstanding any other provision of the Series C Preferred Shares, no holder of the Series C Preferred Shares will be entitled to convert any Series C Preferred Shares into our common shares to the extent that receipt of our common shares would cause such holder or any other person to exceed the ownership limits contained in our declaration of trust.
Preemptive Rights.    No holders of the Series C Preferred Shares shall, as the holders, have any preemptive rights to purchase or subscribe for our common shares or any other security of our company.





Exhibit 21.1
List of Subsidiaries of Pebblebrook Hotel Trust

 
Name
 
State of Incorporation or Organization
1.
Pebblebrook Hotel, L.P.
 
Delaware
2.
Pebblebrook Hotel Lessee, Inc.
 
Delaware
3.
Huskies Owner LLC
 
Delaware
4.
Huskies Lessee LLC
 
Delaware
5.
Orangemen Owner LLC
 
Delaware
6.
Orangemen Lessee LLC
 
Delaware
7.
Gator Owner LLC
 
Delaware
8.
Gator Lessee LLC
 
Delaware
9.
Jayhawk Owner LLC
 
Delaware
10.
Jayhawk Lessee LLC
 
Delaware
11.
Blue Devils Owner LLC
 
Delaware
12.
Blue Devils Lessee LLC
 
Delaware
13.
Wildcats Owner LLC
 
Delaware
14.
Wildcats Lessee LLC
 
Delaware
15.
Terrapins Owner LLC
 
Delaware
16.
Skamania Lodge Furnishings LLC
 
Delaware
17.
Terrapins Lessee LLC
 
Delaware
18.
Spartans Owner LLC
 
Delaware
19.
Spartans Lessee LLC
 
Delaware
20.
South 17th Street OwnerCo Mezzanine, L.P.
 
Delaware
21.
South 17th Street OwnerCo, L.P.
 
Delaware
22.
South 17th Street LeaseCo LLC
 
Delaware
23.
South 17th Street LeaseCo Mezzanine LLC
 
Delaware
24.
Bruins Owner LLC
 
Delaware
25.
Bruins Hotel Owner LP
 
Delaware
26.
Bruins Lessee LLC
 
Delaware
27.
Running Rebels Owner LLC
 
Delaware
28.
Running Rebels Lessee LLC
 
Delaware
29.
Wolverines Owner LLC
 
Delaware
30.
Wolverines Lessee LLC
 
Delaware
31.
Razorbacks Owner LLC
 
Delaware
32.
Razorbacks Lessee LLC
 
Delaware
33.
Cardinals Owner LLC
 
Delaware
34.
Cardinals Lessee LLC
 
Delaware
35.
Hoyas Owner LLC
 
Delaware
36.
Hoyas Lessee LLC
 
Delaware
37.
Wolfpack Owner LLC
 
Delaware
38.
Wolfpack Lessee LLC
 
Delaware
39.
Golden Eagles Owner LLC
 
Delaware
40.
Golden Eagles Lessee LLC
 
Delaware
41.
Miners Owner LLC
 
Delaware




42.
Miners Hotel Owner LP
 
Delaware
43.
Miners Lessee LLC
 
Delaware
44.
Ramblers Owner LLC
 
Delaware
45.
Ramblers Hotel Owner LP
 
Delaware
46.
Ramblers Lessee LLC
 
Delaware
47.
Bearcats Owner LLC
 
Delaware
48.
Bearcats Hotel Owner LP
 
Delaware
49.
Bearcats Lessee LLC
 
Delaware
50.
Buckeyes Owner LLC
 
Delaware
51.
Buckeyes Hotel Owner LP
 
Delaware
52.
Buckeyes Lessee LLC
 
Delaware
53.
Golden Bears Owner LLC
 
Delaware
54.
Golden Bears Lessee LLC
 
Delaware
55.
Dons Owner LLC
 
Delaware
56.
Dons Hotel Owner LP
 
Delaware
57.
Dons Lessee LLC
 
Delaware
58.
Crusaders Owner LLC
 
Delaware
59.
Crusaders Hotel Owner LP
 
Delaware
60.
Crusaders Lessee LLC
 
Delaware
61.
Beavers Owner LLC
 
Delaware
62.
Beavers Lessee LLC
 
Delaware
63.
Menudo Owner LLC
 
Delaware
64.
Menudo Lessee LLC
 
Delaware
65.
RHCP Owner LLC
 
Delaware
66.
RHCP Hotel Owner LP
 
Delaware
67.
RHCP Lessee LLC
 
Delaware
68.
Flatts Owner LLC
 
Delaware
69.
Flatts Lessee LLC
 
Delaware
70.
NKOTB Owner LLC
 
Delaware
71.
NKOTB Lessee LLC
 
Delaware
72.
Hazel Owner LLC
 
Delaware
73.
Hazel Lessee LLC
 
Delaware
74.
Creedence Owner LLC
 
Delaware
75.
Creedence Hotel Owner LP
 
Delaware
76.
Creedence Lessee LLC
 
Delaware
77.
Portland Hotel Trust
 
Maryland
78.
371 Seventh Avenue Co. LLC
 
Delaware
79.
371 Seventh Avenue Co. Lessee LLC
 
Delaware
80.
150 East 34th Street Co. LLC
 
Delaware
81.
150 East 34th Street Co. Lessee LLC
 
Delaware
82.
LaSalle Hotel Operating Partnership L.P.
 
Delaware
83.
Ping Merger OP GP LLC
 
Delaware
84.
Glass Houses
 
Maryland
85.
LaSalle Washington One Lessee, Inc.
 
Delaware
86.
Westban Hotel Investors LLC
 
Delaware
87.
LHO Backstreets LLC
 
Delaware




88.
LHO Backstreets Lessee LLC
 
Delaware
89.
Harborside LLC
 
Florida
90.
Harborside lessee LLC
 
Delaware
91.
PDX Pioneer LLC
 
Delaware
92.
PDX Pioneer Lessee LLC
 
Delaware
93.
Sunset City LLC
 
Delaware
94.
Sunset City Lessee LLC
 
Delaware
95.
PC Festivus LLC
 
Delaware
96.
PC Festivus Lessee LLC
 
Delaware
97.
LHO Onyx Hotel One LLC
 
Delaware
98.
LHO Onyx One Lessee LLC
 
Delaware
99.
RW New York LLC
 
Delaware
100.
RW New York Lessee LLC
 
Delaware
101.
LHO Michigan Avenue Freezeout LLC
 
Delaware
102.
LHO Michigan Avenue Freezeout Lessee LLC
 
Delaware
103.
LHO Chicago River LLC
 
Delaware
104.
LHO Chicago River Lessee LLC
 
Delaware
105.
LHO Harborside Hotel LLC
 
Delaware
106.
Don't Look Back LLC
 
Delaware
107.
Don't Look Back Lessee LLC
 
Delaware
108.
Look Forward lessee LLC
 
Delaware
109.
Look Forward LLC
 
Delaware
110.
NYC Serenade LLC
 
Delaware
111.
NYC Serenade Lessee LLC
 
Delaware
112.
Viva Soma LP
 
Delaware
113.
Viva Soma Lessee Inc.
 
Delaware
114.
Viva Soma LLC
 
Delaware
115.
LHO Hollywood LM LP
 
Delaware
116.
Ramrod Lessee Inc.
 
Delaware
117.
SF Treat LP
 
Delaware
118.
Fun to Stay LP
 
Delaware
119.
Fun to Stay Lessee Inc.
 
Delaware
120.
Fun to Stay LLC
 
Delaware
121.
LHOBerge LP
 
Delaware
122.
LHOBerge Lessee Inc.
 
Delaware
123.
LHOBerge LLC
 
Delaware
124.
Serenity Now LP
 
Delaware
125.
Serenity Now Lessee Inc.
 
Delaware
126.
Serenity Now LLC
 
Delaware
127.
Let It FLHO LP
 
Delaware
128.
Let It FLHO Lessee Inc.
 
Delaware
129.
Let It FLHO LLC
 
Delaware
130.
Seaside Hotel LP
 
Delaware
131.
Seaside Hotel Lessee Inc.
 
Delaware
132.
Seaside Hotel LLC
 
Delaware
133.
Chamber Maid LP
 
Delaware




134.
Chamber Maid Lessee Inc.
 
Delaware
135.
Chamber Maid LLC
 
Delaware
136.
Geary Darling LP
 
Delaware
137.
Geary Darling Lessee Inc.
 
Delaware
138.
Geary Darling LLC
 
Delaware
139.
Lucky Town Burbank LP
 
Delaware
140.
Lucky Town Burbank Lessee Inc.
 
Delaware
141.
Lucky Town Burbank LLC
 
Delaware
142.
Souldriver LP
 
Delaware
143.
Souldriver Lessee Inc.
 
Delaware
144.
Souldriver LLC
 
Delaware
145.
LHO Grafton Hotel LP
 
Delaware
146.
LHO Grafton Hotel Lessee Inc.
 
Delaware
147.
LHO Grafton Hotel LLC
 
Delaware
148.
Park Sunset LLC
 
Delaware
149.
LHO Mission Bay Hotel LP
 
Delaware
150.
Paradise Lessee Inc.
 
Delaware
151.
LHO San Diego Financing LLC
 
Delaware
152.
LHO Mission Bay Rosie Hotel LP
 
Delaware
153.
LHO Mission Bay Rosie Lessee Inc.
 
Delaware
154.
LHO Mission Bay Rosie Hotel LLC
 
Delaware
155.
LHO Le Parc LP
 
Delaware
156.
LHO Le Parc Lessee Inc.
 
Delaware
157.
LHO Le Parc LLC
 
Delaware
158.
LHO Santa Cruz Hotel One LP
 
Delaware
159.
LHO Santa Cruz One Lessee Inc.
 
Delaware
160.
LHO Santa Cruz Hotel One LLC
 
Delaware
161.
LHO San Diego One LP
 
Delaware
162.
LHO San Diego One Lessee Inc
 
Delaware
163.
LHO San Diego Hotel One LLC
 
Delaware
164.
Wild I LLC
 
Delaware
165.
Wild Innocent I LP
 
Delaware
166.
Wild Innocent I Lessee LLC
 
Delaware
167.
Innocent I LLC
 
Delaware
168.
LHO Washington Hotel One LLC
 
Delaware
169.
DC One Lessee LLC
 
Delaware
170.
LHO Washington Hotel Two LLC
 
Delaware
171.
DC Two Lessee LLC
 
Delaware
172.
LHO Washington Hotel Three LLC
 
Delaware
173.
DC Three Lessee LLC
 
Delaware
174.
LHO Washington Hotel Four LLC
 
Delaware
175.
DC Four Lessee LLC
 
Delaware
176.
I&G Capitol LLC
 
Delaware
177.
DC I&G Capital Lessee LLC
 
Delaware
178.
LHO Washington Hotel Six LLC
 
Delaware
179.
DC Six Lessee LLC
 
Delaware




180.
LHO Tom Joad Circle DC LLC
 
Delaware
181.
LHO Tom Joad Circle DC Lessee LLC
 
Delaware
182.
H Street Shuffle LLC
 
Delaware
183.
H Street Shuffle Lessee
 
Delaware
184.
Silver LP LLC
 
Delaware
185.
Silver P Lessee LLC
 
Delaware





Exhibit 23.1


Consent of Independent Registered Public Accounting Firm

The Board of Trustees
Pebblebrook Hotel Trust:

We consent to the incorporation by reference in the registration statements (File No. 333-216353) on Form S-3 and (File Nos. 333-163638, 333-186324 and 333-214345) on Form S-8 of Pebblebrook Hotel Trust of our reports dated February 20, 2020, with respect to the consolidated balance sheets of Pebblebrook Hotel Trust as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in the December 31, 2019 Annual Report on Form 10-K of Pebblebrook Hotel Trust.

Our report on the consolidated financial statements refers to a change in the method of accounting for leases.

/s/ KPMG LLP

McLean, Virginia
February 20, 2020





Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jon E. Bortz, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pebblebrook Hotel Trust;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
 
 
 
 
 
 
Date:
February 20, 2020
 
/s/ JON E. BORTZ
 
 
 
Jon E. Bortz
 
 
 
Chairman, President and Chief Executive Officer
(principal executive officer)





Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Raymond D. Martz, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Pebblebrook Hotel Trust;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
 
 
 
 
 
 
Date:
February 20, 2020
 
/s/ RAYMOND D. MARTZ
 
 
 
Raymond D. Martz
 
 
 
Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)





Exhibit 32.1
Certification Pursuant To
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Pebblebrook Hotel Trust (the “Company”) on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon E. Bortz, Chairman, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
 
 
 
 
 
 
Date:
February 20, 2020
 
/s/ JON E. BORTZ
 
 
 
Jon E. Bortz
 
 
 
Chairman, President and Chief Executive Officer
(principal executive officer)





Exhibit 32.2
Certification Pursuant To
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Pebblebrook Hotel Trust (the “Company”) on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond D. Martz, Executive Vice President, Chief Financial Officer, Treasurer and Secretary, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
 
 
 
 
 
 
Date:
February 20, 2020
 
/s/ RAYMOND D. MARTZ
 
 
 
Raymond D. Martz
 
 
 
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary (principal
financial officer and principal accounting officer)