What changed in this filing

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Item 1. Financial Statements

2020-10-29 compared with 2020-07-30 · 164 added, 118 removed, 735 unchanged (28% of the section changed)

3 unchanged sentences

(In thousands, except share and per-share data)

September 30,

2020 December 31, 2019

Investment in hotel properties, net $ 5,980,580 $ 6,332,587

Hotel held for sale 56,874 —

Cash and cash equivalents 204,553 30,098

1 unchanged sentence

Hotel receivables (net of allowance for doubtful accounts of $ 388 and $ 738 , respectively)

11,312 49,619

Prepaid expenses and other assets 56,922 59,474

6 unchanged sentences

Accrued interest 5,533 4,694

Liabilities related to hotel held for sale 1,772 —

Distribution payable 9,306 58,564

2 unchanged sentences

Shareholders’ equity:

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 510,000 at June 30, 2020 and at December 31, 2019), 100,000,000 shares authorized;

20,400,000 shares issued and outstanding at June 30, 2020 and December 31, 2019

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 510,000 at September 30, 2020 and at December 31, 2019), 100,000,000 shares authorized;

20,400,000 shares issued and outstanding at September 30, 2020 and December 31, 2019

Common shares of beneficial interest, $ .01 par value, 500,000,000 shares authorized;

130,564,060 shares issued and outstanding at June 30, 2020 and 130,484,956 shares issued and outstanding at December 31, 2019

130,673,300 shares issued and outstanding at September 30, 2020 and 130,484,956 shares issued and outstanding at December 31, 2019

Additional paid-in capital 4,092,602 4,069,410

9 unchanged sentences

(In thousands, except share and per-share data)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

11 unchanged sentences

General and administrative 7,466 8,315 38,259 25,753

Transaction costs 10,339 4,035 10,474 7,576

Impairment loss — — 20,570 —

19 unchanged sentences

(In thousands, except share and per-share data)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

10 unchanged sentences

(In thousands, except share data)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

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 March 31, 2020 20,400,000 $ 204 130,563,226 $ 1,306 $ 4,075,727 $ ( 78,980 ) $ ( 391,950 ) $ 3,606,307 $ 21,459 $ 3,627,766

Issuance of shares, net of offering costs — — — — ( 9 ) — — ( 9 ) — ( 9 )

Balance at June 30, 2020 20,400,000 $ 204 130,564,060 $ 1,306 $ 4,077,497 $ ( 79,385 ) $ ( 531,914 ) $ 3,467,708 $ 21,038 $ 3,488,746

Share-based compensation — — — — 1,660 — — 1,660 — 1,660

1 unchanged sentence

Distributions on preferred shares — — — — — — ( 8,139 ) ( 8,139 ) — ( 8,139 )

Redemption of non-controlling interest LTIP units — — 109,240 1 13,445 — — 13,446 ( 13,446 ) —

Other comprehensive income (loss):

1 unchanged sentence

Net income (loss) — — — — — — ( 130,307 ) ( 130,307 ) ( 253 ) ( 130,560 )

Balance at June 30, 2020 20,400,000 $ 204 130,564,060 $ 1,306 $ 4,077,497 $ ( 79,385 ) $ ( 531,914 ) $ 3,467,708 $ 21,038 $ 3,488,746

Three Months Ended June 30, 2019

Balance at September 30, 2020 20,400,000 $ 204 130,673,300 $ 1,307 $ 4,092,602 $ ( 69,663 ) $ ( 671,667 ) $ 3,352,783 $ 7,336 $ 3,360,119

Three Months Ended September 30, 2019

Shares Amount Shares Amount

Balance at March 31, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,063,830 $ ( 7,709 ) $ ( 361,081 ) $ 3,696,549 $ 10,250 $ 3,706,799

Balance at June 30, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,065,672 $ ( 28,798 ) $ ( 358,615 ) $ 3,679,768 $ 10,506 $ 3,690,274

Share-based compensation — — — — 1,857 — — 1,857 277 2,134

4 unchanged sentences

Net income (loss) — — — — — — 29,891 29,891 89 29,980

Balance at June 30, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,065,672 $ ( 28,798 ) $ ( 358,615 ) $ 3,679,768 $ 10,506 $ 3,690,274

Six Months Ended June 30, 2020

Balance at September 30, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,067,529 $ ( 36,672 ) $ ( 386,631 ) $ 3,645,735 $ 10,731 $ 3,656,466

Pebblebrook Hotel Trust

Consolidated Statements of Equity - Continued

(In thousands, except share data)

Nine Months Ended September 30, 2020

7 unchanged sentences

Distributions on preferred shares — — — — — — ( 24,417 ) ( 24,417 ) — ( 24,417 )

Redemption of non-controlling interest LTIP units — — 109,240 1 13,445 — — 13,446 ( 13,446 ) —

Other comprehensive income (loss):

1 unchanged sentence

Net income (loss) — — — — — — ( 218,871 ) ( 218,871 ) ( 535 ) ( 219,406 )

Balance at June 30, 2020 20,400,000 $ 204 130,564,060 $ 1,306 $ 4,077,497 $ ( 79,385 ) $ ( 531,914 ) $ 3,467,708 $ 21,038 $ 3,488,746

Six Months Ended June 30, 2019

Balance at September 30, 2020 20,400,000 $ 204 130,673,300 $ 1,307 $ 4,092,602 $ ( 69,663 ) $ ( 671,667 ) $ 3,352,783 $ 7,336 $ 3,360,119

Nine Months Ended September 30, 2019

10 unchanged sentences

Net income (loss) — — — — — — 95,899 95,899 254 96,153

Balance at June 30, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,065,672 $ ( 28,798 ) $ ( 358,615 ) $ 3,679,768 $ 10,506 $ 3,690,274

Balance at September 30, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,067,529 $ ( 36,672 ) $ ( 386,631 ) $ 3,645,735 $ 10,731 $ 3,656,466

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

2 unchanged sentences

(In thousands)

For the six months ended June 30,

For the nine months ended September 30,

Operating activities:

6 unchanged sentences

Impairment loss 20,570 —

Deferred income taxes ( 14,309 ) 1,542

Non-cash ground rent 4,669 4,921

30 unchanged sentences

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 June 30, 2020, the Company owned 54 hotels with a total of 13,352 guest rooms.

As of September 30, 2020, the Company owned 53 hotels with a total of 13,236 guest rooms.

The hotels are located in the following markets:

5 unchanged sentences

Naples, Florida;

Nashville, Tennessee;

New York, New York;

9 unchanged sentences

The Company is the sole general partner of the Operating Partnership.

At June 30, 2020, the Company owned 99.7 % of the common limited partnership units issued by the Operating Partnership ("common units").

At September 30, 2020, the Company owned 99.8 % of the common limited partnership units issued by the Operating Partnership ("common units").

The remaining 0.2 % of the common units are owned by the other limited partners of the Operating Partnership.

8 unchanged sentences

Travel restrictions have slowly eased in a few markets and leisure demand began to recover late in the second quarter.

As of June 30, 2020, 16 of the Company's hotels, listed below, were open, while the operations at the remaining 38 hotels were still temporarily suspended.

As of September 30, 2020, 35 of the Company's hotels, listed below, were open, while the operations at the remaining 18 hotels were still temporarily suspended.

Property Location

1 unchanged sentence

Hotel Palomar Los Angeles Beverly Hills Los Angeles, CA

W Los Angeles - West Beverly Hills Los Angeles, CA

Mondrian Los Angeles West Hollywood, CA

Le Meridien Delfina Santa Monica Santa Monica, CA

Viceroy Santa Monica Hotel Santa Monica, CA

Le Parc Suite Hotel West Hollywood, CA

Montrose West Hollywood West Hollywood, CA

Chamberlain West Hollywood Hotel West Hollywood, CA

Grafton on Sunset West Hollywood, CA

Embassy Suites San Diego Bay - Downtown San Diego, CA

2 unchanged sentences

The Westin San Diego Gaslamp Quarter San Diego, CA

Hilton San Diego Gaslamp Quarter San Diego, CA

Solamar Hotel San Diego, CA

Hotel Spero San Francisco, CA

2 unchanged sentences

Southernmost Beach Resort Key West, FL

The Marker Key West Key West, FL

The Marker Key West Harbor Resort Key West, FL

LaPlaya Beach Resort and Club Naples, FL

Hotel Colonnade Coral Gables, Autograph Collection Miami, FL

The Liberty, A Luxury Collection Hotel, Boston Boston, MA

Revere Hotel Boston Common Boston, MA

Hyatt Regency Boston Harbor Boston, MA

W Boston Boston, MA

The Westin Copley Place, Boston Boston, MA

George Hotel Washington, DC

Viceroy Washington DC Washington, DC

Skamania Lodge Stevenson, WA

Hotel Monaco Seattle Seattle, WA

The Nines, a Luxury Collection Hotel, Portland Portland, OR

Hotel Chicago Downtown, Autograph Collection Chicago, IL

Sofitel Philadelphia at Rittenhouse Square Philadelphia, PA

Subsequent to September 30, 2020, the Company re-opened 4 additional hotels and anticipates re-opening additional hotels when demand recovers.

COVID-19 has had a significant negative impact on the Company's operations and financial results to date and the Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company's results of operations, financial position and cash flow for the remainder of 2020 and into 2021.

The Company cannot estimate when travel demand will recover.

As a result of this uncertainty, in March 2020, the Company fully drew down on its $ 650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on its common shares to one penny for the first and second quarters of 2020 and likely the remainder of 2020, reduced planned capital expenditures, reduced the compensation of its executive officers, board of trustees and employees, and, working closely with its hotel operating partners, significantly reduced its hotels' operating expenses.

As a result of this uncertainty, in March 2020, the Company fully drew down on its $ 650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on its common shares to one penny, reduced planned capital expenditures, reduced the compensation of its executive officers, board of trustees and employees, and, working closely with its hotel operating partners, significantly reduced its hotels' operating expenses.

On June 29, 2020, the Company amended its existing credit facilities, term loan facilities and senior notes.

Among other things, the amendments extended the maturity of a significant portion of a $ 300.0 million term loan from November 2021 to November 2022, waived existing financial covenants through the end of the first quarter of 2021 and provided substantially less restrictive financial covenants through the end of the second quarter of 2022.

Among other things, the amendments extended the maturity of

a significant portion of a $ 300.0 million term loan from November 2021 to November 2022, waived existing financial covenants through the end of the first quarter of 2021 and provided substantially less restrictive financial covenants through the end of the second quarter of 2022.

Refer to "Note 5.

1 unchanged sentence

Based on these amendments and the expense and cash flow reductions, the Company believes that it will have sufficient liquidity to meet its obligations for the next twelve months.

The negative impact will result in a significant income tax loss in PHL.

Given the continued negative impact of the COVID-19 pandemic on the Company's financial results and uncertainties about the Company's ability to utilize its net operating loss in future years, the Company recognized a valuation allowance of $ 10.0 million during the third quarter of 2020.

As of September 30, 2020, the Company has a tax asset of $ 11.7 million attributable to the net operating loss carryback, which is included in prepaid expenses and other assets in the accompanying consolidated balance sheets.

The Company also adopted an optional remote-work policy and other physical distancing policies at its corporate office and the Company does not anticipate these policies to have any adverse impact on its ability to continue to operate its business.

35 unchanged sentences

Hotel acquisitions are generally considered to be asset acquisitions defined by ASU 2017-01 and transaction costs related to asset acquisitions are capitalized.

Transaction costs related to business combinations are expensed as incurred and included on the consolidated statements of operations and comprehensive income.

Transaction costs related to business combinations are expensed as incurred and included in the consolidated statements of operations and comprehensive income.

Hotel renovations and replacements of assets that improve or extend the life of an asset are recorded at cost and depreciated over their estimated useful lives.

18 unchanged sentences

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.

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.

31 unchanged sentences

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.

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.

16 unchanged sentences

Acquisition and Disposition of Hotel Properties

There were no acquisitions of hotel properties during the three and six months ended June 30, 2020 and 2019.

There were no acquisitions of hotel properties during the three and nine months ended September 30, 2020 and 2019.

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.

As of June 30, 2020, the Company had entered into an agreement to sell the Union Station Hotel Nashville, Autograph Collection for $ 56.0 million.

This hotel was designated as held for sale as it met all of the Company's held for sale criteria.

Accordingly, the Company classified all of the assets and liabilities related to this hotel as assets and liabilities held for sale in the accompanying consolidated balance sheets and ceased depreciating the assets.

On July 29, 2020, the Company completed the sale of the Union Station Hotel Nashville, Autograph Collection.

During the six months ended June 30, 2020, the Company sold two hotel properties in a single transaction for an aggregate sales price of $ 331.0 million.

In connection with this transaction, the Company recorded an aggregate of $ 117.4 million net gain on sale, which is included in (gain) loss on sale of hotel properties, in the accompanying consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2020, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $ 0.1 million and $ 4.4 million, respectively, related to the hotel properties sold.

For the three and six months ended June 30, 2019, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $ 13.9 million and $ 24.2 million, respectively, related to the hotel properties sold.

The following table sets forth information regarding the disposition transactions during the six months ended June 30, 2019 (in thousands):

The following table sets forth information regarding the Company's disposition transactions during the nine months ended September 30, 2020 and 2019 (in thousands):

Hotel Property Name Location Sale Date Sale Price

Sofitel Washington DC Lafayette Square and InterContinental Buckhead Atlanta Washington, DC / Buckhead, GA March 6, 2020 $ 331,000

Union Station Hotel Nashville, Autograph Collection Nashville, TN July 29, 2020 56,000

2020 Total $ 387,000

The Liaison Capitol Hill Washington, D.C.

3 unchanged sentences

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

2019 Total $ 448,821

The Company recognized no gain or loss on these dispositions.

For the three and nine months ended September 30, 2020, the Company recognized a gain on its dispositions of zero and $ 117.4 million, respectively, which is included in (gain) loss on sale of hotel properties, in the accompanying consolidated statements of operations and comprehensive income.

For the three and nine months ended September 30, 2019, the Company recognized no gain or loss on these dispositions.

For the three and nine months ended September 30, 2020, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $( 0.1 ) million and $ 4.9

million, respectively, related to the hotel properties sold.

For the three and nine months ended September 30, 2019, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $ 9.3 million and $ 35.6 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.

Investment in Hotel Properties

Investment in hotel properties as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

Investment in hotel properties as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30,

2020 December 31, 2019

11 unchanged sentences

As a result of the effects of the COVID-19 pandemic on our expected future operating cash flows, we determined certain impairment triggers had occurred and as a result, the Company assessed its investment in hotel properties for recoverability.

Based on the analysis performed, for the six months ended June 30, 2020 the Company recognized an impairment loss of $ 20.6 million related to a retail component of a hotel as a result of the fair value being lower than its carrying value.

Based on the analysis performed, for the nine months ended September 30, 2020 the Company recognized an impairment loss of $ 20.6 million related to a retail component of a hotel as a result of the fair value being lower than its carrying value.

The impairment loss was determined using level 2 inputs under authoritative guidance for fair value measurements.

6 unchanged sentences

The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements.

As of June 30, 2020, the Company's lease liabilities consisted of operating lease liabilities of $ 256.3 million and financing lease liabilities of $ 46.0 million.

As of September 30, 2020, the Company's lease liabilities consisted of operating lease liabilities of $ 255.2 million and financing lease liabilities of $ 46.2 million.

As of December 31, 2019, the Company's lease liabilities consisted of operating lease liabilities of $ 256.3 million and financing lease liabilities of $ 45.6 million.

11 unchanged sentences

• provide limitations during the waiver period on common share repurchases and certain required prepayments following capital issuances or property dispositions.

On June 30, 2020, after the Company voluntarily repaid approximately $ 253.2 million of borrowings under the $ 650.0 million unsecured revolving credit facility, the principal amount outstanding under that facility was $ 390.0 million.

The Company's debt consisted of the following as of June 30, 2020 and December 31, 2019 (dollars in thousands):

The Company's debt consisted of the following as of September 30, 2020 and December 31, 2019 (dollars in thousands):

Balance Outstanding as of

Interest Rate Maturity Date June 30, 2020 December 31, 2019

Interest Rate Maturity Date September 30, 2020 December 31, 2019

Revolving credit facilities

2 unchanged sentences

PHL unsecured credit facility Floating (2)

Janurary 2022 — —

January 2022 — —

Total revolving credit facilities $ 290,000 $ 165,000

32 unchanged sentences

(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.

As of June 30, 2020, $ 1.6 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.21 %, after taking into account interest rate swap agreements, and $ 345.0 million bore a weighted-average floating interest rate of 2.46 %.

As of September 30, 2020, $ 1.6 billion of the borrowings under the term loan

facilities bore an effective weighted-average fixed interest rate of 4.21 %, after taking into account interest rate swap agreements, and $ 345.0 million bore a weighted-average floating interest rate of 2.46 %.

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

1 unchanged sentence

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 June 30, 2020, the Company had $ 390.0 million of outstanding borrowings, $ 6.8 million of outstanding letters of credit and borrowing capacity of $ 253.2 million remaining on its senior unsecured credit facility.

As of September 30, 2020, the Company had $ 290.0 million of outstanding borrowings, $ 6.8 million of outstanding letters of credit and borrowing capacity of $ 353.2 million 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.

7 unchanged sentences

Borrowings on the PHL Credit Facility bear interest at LIBOR plus 1.45 % to 2.25 %, depending on the Company's leverage ratio.

As a result of the amendments described above, the spread of the borrowings is fixed at 2.25 % during the waiver period.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 June 30, 2020, the Company had no borrowings under the PHL Credit Facility and had $ 25.0 million borrowing capacity remaining under the PHL Credit Facility.

As a result of the amendments described above, the spread of the borrowings is fixed at 2.25 % during the waiver period.

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 September 30, 2020, 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.

1 unchanged sentence

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 $ 6.8 million and $ 2.8 million were outstanding as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the Company was in compliance with all debt covenants of the credit agreements that govern the unsecured revolving credit facilities.

Standby letters of credit of $ 6.8 million and $ 2.8 million were outstanding as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, the Company was in compliance with all debt covenants of the credit agreements that govern the unsecured revolving credit facilities.

Unsecured Term Loan Facilities

2 unchanged sentences

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.

As of June 30, 2020, the Company was in compliance with all debt covenants of its term loan facilities.

As of September 30, 2020, 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.

2 unchanged sentences

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 June 30, 2020, the Company was in compliance with all such debt covenants.

As of September 30, 2020, the Company was in compliance with all such debt covenants.

Interest Expense

The components of the Company's interest expense consisted of the following (in thousands):

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

7 unchanged sentences

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 June 30, 2020 and December 31, 2019 was $ 106.9 million and $ 101.2 million, respectively.

The estimated fair value of the Company’s fixed rate debt (unsecured senior notes and mortgage loans) as of September 30, 2020 and December 31, 2019 was $ 106.6 million and $ 101.2 million, respectively.

Derivative and Hedging Activities

2 unchanged sentences

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.

The Company's interest rate swaps at June 30, 2020 and December 31, 2019 consisted of the following (dollars in thousands):

The Company's interest rate swaps at September 30, 2020 and December 31, 2019 consisted of the following (dollars in thousands):

Notional Value as of

Hedge Type Interest Rate Maturity June 30, 2020 December 31, 2019

Hedge Type Interest Rate Maturity September 30, 2020 December 31, 2019

Swap - cash flow 1.63 % January 2020 $ — $ 50,000

35 unchanged sentences

________________________

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

In addition, as of June 30, 2020 and December 31, 2019, the Company had interest rates swaps for aggregate notional amounts of $ 290.0 million and $ 590.0 million, respectively, which will become effective in the future as current swaps mature.

(1) Swaps assumed in connection with the Company's merger with LaSalle Hotel Properties on November 30, 2018.

In addition, as of September 30, 2020 and December 31, 2019, the Company had interest rates swaps for aggregate notional amounts of $ 290.0 million and $ 590.0 million, respectively, 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.

5 unchanged sentences

The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.

As of June 30, 2020, the Company's derivative instruments were in liability positions, with aggregate liability fair values of $ 74.5 million which are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets.

For the three and six months ended June 30, 2020, there was $( 0.4 ) million and $( 54.7 ) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

For the three and six months ended June 30, 2019, there was $( 21.1 ) million and $( 30.1 ) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

For the three and six months ended June 30, 2020, the Company reclassified $ 6.2 million and $ 8.0 million, respectively, from accumulated other comprehensive income (loss) to interest expense.

For the three and six months ended June 30, 2019, the Company reclassified $( 2.3 ) million and $( 4.8 ) million, respectively, from accumulated other comprehensive income (loss) to interest expense.

As of September 30, 2020, the Company's derivative instruments were in liability positions, with aggregate liability fair values of $ 66.2 million which are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets.

For the three and nine months ended September 30, 2020, there was $ 9.7 million and $( 44.9 ) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

For the three and nine months ended September 30, 2019, there was $( 7.9 ) million and $( 38.0 ) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

For the three and nine months ended September 30, 2020, the Company reclassified $ 7.6 million and $ 15.6 million, respectively, from accumulated other comprehensive income (loss) to interest expense.

For the three and nine months ended September 30, 2019, the Company reclassified $( 1.6 ) million and $( 6.4 ) million, respectively, from accumulated other comprehensive income (loss) to interest expense.

The Company expects approximately $ 27.6 million will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months.

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 three and six months ended June 30, 2020 and 2019 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The following table presents revenues by geographic location for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

San Francisco, CA $ 2,963 $ 79,853 $ 63,003 $ 163,096

San Diego, CA $ 31,641 $ 71,572 $ 79,135 $ 191,711

San Francisco, CA 1,591 80,828 64,594 243,924

Southern FL 13,801 18,222 55,736 87,253

20 unchanged sentences

Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares.

For the six months ended June 30, 2020, the Company had no repurchases under this program and as of June 30, 2020, $ 56.6 million of common shares remained available for repurchase under this program.

For the nine months ended September 30, 2020, the Company had no repurchases

under this program and as of September 30, 2020, $ 56.6 million of common shares remained available for repurchase under this program.

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.

3 unchanged sentences

Common Dividends

The Company declared the following dividends on common shares/units for the six months ended June 30, 2020:

The Company declared the following dividends on common shares/units for the nine months ended September 30, 2020:

Share/Unit For the Quarter

2 unchanged sentences

$ 0.01 June 30, 2020 June 30, 2020 July 15, 2020

$ 0.01 September 30, 2020 September 30, 2020 October 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”).

The following Preferred Shares were outstanding as of June 30, 2020 and December 31, 2019:

As of June 30, As of December 31,

The following Preferred Shares were outstanding as of September 30, 2020 and December 31, 2019:

As of September 30, As of December 31,

Security Type 2020 2019

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Preferred Dividends

The Company declared the following dividends on preferred shares for the six months ended June 30, 2020:

The Company declared the following dividends on preferred shares for the nine months ended September 30, 2020:

Security Type Dividend per

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$ 0.41 June 30, 2020 June 30, 2020 July 15, 2020

6.50 % Series C

$ 0.41 September 30, 2020 September 30, 2020 October 15, 2020

6.375 % Series D

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$ 0.40 June 30, 2020 June 30, 2020 July 15, 2020

6.375 % Series D

$ 0.40 September 30, 2020 September 30, 2020 October 15, 2020

6.375 % Series E

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$ 0.40 June 30, 2020 June 30, 2020 July 15, 2020

6.375 % Series E

$ 0.40 September 30, 2020 September 30, 2020 October 15, 2020

6.30 % Series F

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$ 0.39 June 30, 2020 June 30, 2020 July 15, 2020

6.30 % Series F

$ 0.39 September 30, 2020 September 30, 2020 October 15, 2020

Non-controlling Interest of Common Units in Operating Partnership

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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 June 30, 2020, the Operating Partnership had two classes of long-term incentive partnership units ("LTIP") units, LTIP Class A units and LTIP Class B units.

As of September 30, 2020, the Operating Partnership had two classes of long-term incentive partnership units ("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 February 12, 2020, the Board of Trustees granted 415,818 Class B LTIP units to its executive officers.

On February 12, 2020, the Board of Trustees granted 415,818 LTIP Class B units to its executive officers.

These LTIP units were to vest ratably on January 1, 2023, 2024, 2025 and 2026.

In March 2020, the Company cancelled this grant and as a result accelerated and recognized the full expense of $ 10.5 million.

As of June 30, 2020 and December 31, 2019, the Operating Partnership had 236,351 LTIP units outstanding.

As of June 30, 2020, all of such LTIP units outstanding have vested.

On July 24, 2020, 109,240 LTIP Class B units were converted to common shares.

As of September 30, 2020 and December 31, 2019, the Operating Partnership had 127,111 and 236,351 LTIP units outstanding, respectively.

As of September 30, 2020, all of such LTIP units outstanding have vested.

Vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be redeemed for common shares or cash as described above.

On November 30, 2018, in connection with the merger with LaSalle Hotel Properties ("LaSalle"), the Company issued 133,605 OP units in the Operating Partnership to third-party limited partners of LaSalle's operating partnership.

As of June 30, 2020 and December 31, 2019, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units.

As of September 30, 2020 and December 31, 2019, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units.

Share-Based Compensation Plan

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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 June 30, 2020, there were 883,725 common shares available for issuance under the Plan, assuming performance-based equity awards vest at target.

As of September 30, 2020, there were 895,291 common shares available for issuance under the Plan, assuming performance-based equity awards vest at target.

Service Condition Share Awards

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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 June 30, 2020:

The following table provides a summary of service condition restricted share activity as of September 30, 2020:

Shares Weighted-Average

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Vested ( 72,824 ) $ 33.13

Forfeited ( 5,429 ) $ 27.41

Cancelled ( 217,083 ) $ 25.53

Unvested at June 30, 2020 192,192 $ 28.73

Unvested at September 30, 2020 186,763 $ 28.77

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.

In March 2020, the Company cancelled the February 2020 retention grant and as a result accelerated and recognized an expense of $ 5.5 million.

For the three and six months ended June 30, 2020, the Company recognized approximately $ 0.7 million and $ 6.8 million, respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2019, the Company recognized approximately $ 0.6 million and $ 1.1 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 June 30, 2020, there was $ 4.4 million of total unrecognized share-based compensation expense related to unvested restricted shares.

In March 2020, the Company cancelled the February 2020 service condition share award (retention grant) and as a result accelerated and recognized an expense of $ 5.5 million.

For the three and nine months ended September 30, 2020, the Company recognized approximately $ 0.6 million and $ 7.4 million, respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income.

For the three and nine months ended September 30, 2019, the Company recognized approximately $ 0.6 million and $ 1.7 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 September 30, 2020, there was $ 3.6 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.

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These awards will vest, if at all, in 2023.

The actual number of common shares that

ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2023 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2020 through December 31, 2022.

The grant date fair value of the performance awards, with market conditions, were determined using a Monte Carlo simulation method with the following assumptions:

The actual number of common shares that ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2023 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2020 through December 31, 2022.

The grant date fair value of the performance awards, with market conditions, were determined using a Monte Carlo simulation method with the following assumptions (dollars in millions):

Performance Award Grant Date Percentage of Total Award Grant Date Fair Value by Component ($ in millions) Volatility Interest Rate Dividend Yield

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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

Company's estimate of the probable level of achievement, and the accrual of compensation expense will be adjusted as appropriate.

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 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 June 30, 2020, there was approximately $ 7.1 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 2.0 years.

For the three and six months ended June 30, 2020, the Company recognized $ 1.1 million and $ 2.0 million, respectively, in expense related to these awards.

For the three and six months ended June 30, 2019, the Company recognized $ 1.2 million and $ 2.3 million, respectively, in expense related to these awards.

The Company recognizes compensation expense on a straight-

line basis through the vesting date.

As of September 30, 2020, there was approximately $ 5.9 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 1.8 years.

For the three and nine months ended September 30, 2020, the Company recognized $ 1.0 million and $ 3.1 million, respectively, in expense related to these awards.

For the three and nine months ended September 30, 2019, the Company recognized $ 1.2 million and $ 3.5 million, respectively, in expense related to these awards.

Long-Term Incentive Partnership Units

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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 June 30, 2020, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units.

As of September 30, 2020, 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.

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The aggregate grant date fair value of the LTIP Class B units was $ 6.6 million.

On February 12, 2020, the Board of Trustees granted 415,818 Class B LTIP units to executive officers.

On February 12, 2020, the Board of Trustees granted 415,818 LTIP Class B units to executive officers.

These LTIP units were to vest ratably on January 1, 2023, 2024, 2025 and 2026.

In March 2020, the Company cancelled this grant and as a result accelerated and recognized the full expense of $ 10.5 million.

As of June 30, 2020, the Company had 236,351 LTIP units outstanding.

As of June 30, 2020, all of such LTIP units outstanding have vested.

For the three and six months ended June 30, 2020, the Company recognized zero and $ 10.6 million, respectively, in expense related to these LTIP units.

For the three and six months ended June 30, 2019, the Company recognized $ 0.3 million and $ 0.6 million, respectively, in expense related to these LTIP units.

As of June 30, 2020, there was no unrecognized share-based compensation expense related to LTIP units.

On July 24, 2020, 109,240 LTIP Class B units were converted to common shares.

As of September 30, 2020, the Company had 127,111 LTIP units outstanding.

As of September 30, 2020, all of such LTIP units outstanding have vested.

For the three and nine months ended September 30, 2020, the Company recognized zero and $ 10.6 million, respectively, in expense related to these LTIP units.

For the three and nine months ended September 30, 2019, the Company recognized $ 0.3 million and $ 0.8 million, respectively, in expense related to these LTIP units.

As of September 30, 2020, 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.

PHL is subject to federal and state corporate income taxes at statutory tax rates.

The Company has estimated its income tax expense (benefit) of PHL for the six months ended June 30, 2020 using an estimated combined federal and state blended tax rate of 26.0 %.

The Company has estimated its income tax expense (benefit) of PHL for the nine months ended September 30, 2020 using an estimated combined federal and state blended tax rate of 27.5 %.

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 June 30, 2020 and December 31, 2019, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2015.

As of September 30, 2020 and December 31, 2019, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2015.

Earnings Per Share

The following is a reconciliation of basic and diluted earnings per common share (in thousands, except share and per-share data):

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

1 unchanged sentence

dividends paid on unvested share-based compensation ( 2 ) ( 74 ) ( 6 ) ( 220 )

Undistributed earnings attributable to share-based compensation — ( 3 ) — —

Net income (loss) available to common shareholders $ ( 138,448 ) $ 21,678 $ ( 243,294 ) $ 71,262

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Net income (loss) per share available to common shareholders — diluted $ ( 1.06 ) $ 0.17 $ ( 1.86 ) $ 0.55

For the three and six months ended June 30, 2020, 558,769 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.

For the three and six months ended June 30, 2019, 163,100 and 37,137 , 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.

For the three and nine months ended September 30, 2020, 547,203 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.

For the three and nine months ended September 30, 2019, 128,563 and 37,137 , 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.

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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 three and six months ended June 30, 2020, com bined base and incentive management fees were $( 0.4 ) million and $ 6.5 million, respectively.

For the three and six months ended June 30, 2019, com bined base and incentive management fees were $ 13.3 million and $ 22.8 million, respectively.

For the three and nine months ended September 30, 2020, com bined base and incentive management fees were $ 1.5 million and $ 8.0 million, respectively.

For the three and nine months ended September 30, 2019, com bined base and incentive management fees were $ 10.5 million and $ 33.3 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.

2 unchanged sentences

Restricted Cash

At June 30, 2020 and December 31, 2019, the Company had $ 13.0 million and $ 26.8 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.

At September 30, 2020 and December 31, 2019, the Company had $ 12.4 million and $ 26.8 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 June 30, 2020, the following hotels were subject to leases as follows:

As of September 30, 2020, the following hotels were subject to leases as follows:

Lease Properties Lease Type Lease Expiration Date

4 unchanged sentences

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

Restaurant at Southernmost Beach Resort Operating lease April 2029

Hyatt Regency Boston Harbor Operating lease April 2077

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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.

The components of ground rent expense for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

For the three months ended June 30, For the six months ended June 30,

The components of ground rent expense for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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Supplemental Information to Statements of Cash Flows

For the six months ended June 30,

For the nine months ended September 30,

(in thousands)

6 unchanged sentences

Issuance of common shares for Board of Trustees compensation $ 637 $ 740

Issuance of common shares for LTIP unit redemption $ 2,831 $ —

Accrued additions and improvements to hotel properties $ 7,842 $ 6,754

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements