Pebblebrook Hotel Trust 10-Q

Item 2. 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 real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (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. 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. These factors include, but are not limited to, the following: • the COVID-19 pandemic has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current and uncertain future impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel, is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity and share price; • as a result of the COVID-19 pandemic, we suspended operations at some of our hotels and resorts, and if we are unable to recommence operations in the near-term, we may become out of compliance with maintenance covenants in certain of our debt facilities; • world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels; • 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, 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 global economy and real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act and similar laws; • interest rate increases; • our possible failure to qualify as a REIT under the Code and the risk of changes in laws affecting REITs; • the timing and availability of potential hotel acquisitions and our ability to identify and complete hotel acquisitions or 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 Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 and under Item 8.01 of our Current Report on Form 8-K filed with the SEC on March 24, 2020. 31 Table of Contents 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. Overview In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand was nearly eliminated. Following the government mandates and health official recommendations, we temporarily suspended operations at a majority of our hotels and resorts and dramatically reduced staffing and expenses at the hotels that remain operational. Throughout the summer months, hotel industry demand improved from its historical lows seen in the second quarter, particularly as leisure customers sought to escape the confines of their homes and travel to safe, clean and trustworthy drive-to hotels and resorts that offer more space and outdoor experiences. In the third quarter, our properties benefited from this trend, and we saw weekly improvements in hotel revenues, excluding Independence Day and Labor Day holiday weeks, which experienced outsized increases and meaningful rate increases over the prior year period. We will continue to monitor business travel demand, which has seen a slight uptick in recent weeks, as we still anticipate group demand will be the slowest to return until there is clarity around a health and immunity solution for the country. As of September 30, 2020, 35 of our hotels were open with operations of the remaining 18 hotels still temporarily suspended. Subsequent to September 30, 2020, we re-opened 4 additional hotels and anticipate re-opening additional hotels when demand recovers. COVID-19 has had a negative impact on our operations and financial results to date and we expect that the COVID-19 pandemic will continue to have a significant negative impact on our results of operations, financial position and cash flow for the remainder of 2020 and into 2021. We cannot estimate when travel demand will recover. As a result of this uncertainty, in March 2020, we fully drew down on our $650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on our common shares to one penny, reduced planned capital expenditures, reduced the compensation of our executive officers, board of trustees and employees, and, working closely with our hotel operating partners, significantly reduced our hotels' operating expenses. On June 29, 2020, we amended our 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. Refer to "Note 5. Debt" for additional information regarding the amendments. Based on these amendments and the expense and cash flow reductions, we believe that we will have sufficient liquidity to meet our obligations for the next twelve months. During the nine months ended September 30, 2020, other significant transactions included: • Sold three hotel properties for an aggregate sales price of $387.0 million and recognized a gain of $117.4 million. • Recognized an impairment loss of $20.6 million for a retail component of a hotel. • Incurred expenses of approximately $10.7 million in connection with suspensions of operations at our hotels. • Cancelled LTIP Class B units and time-based service condition awards granted in February 2020 and incurred full compensation expense of $16.0 million. 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 ("EBITDA re " ) . We evaluate individual hotel and 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 EBIDTA re . 32 Table of Contents Hotel Operating Statistics The following table represents the key same-property hotel operating statistics for our hotels for the three and nine months ended September 30, 2020 and 2019. For the three months ended September 30, For the nine months ended September 30, 2020 2019 2020 2019 Same-Property Occupancy 19.5 % 87.5 % 26.5 % 83.3 % Same-Property ADR $ 215.95 $ 262.63 $ 242.19 $ 261.61 Same-Property RevPAR $ 42.17 $ 229.75 $ 64.15 $ 218.01 Same-Property Total RevPAR $ 63.22 $ 327.44 $ 98.28 $ 315.98 While the operations of many of our hotels were temporarily suspended beginning in March 2020, the above schedule of hotel results for the three and nine months ended September 30 includes information from all hotels owned as of September 30, 2020, except, for the first and second quarters in both 2020 and 2019, Hotel Zena Washington DC, formerly known as Donovan Hotel, because it was closed during the first and second quarters of 2020 for renovation and for the third quarter in both 2020 and 2019, Union Station Hotel Nashville, Autograph Collection, because it was sold in the third quarter of 2020. 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 EBITDA re , 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 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 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 Net income (loss) $ (130,560) $ 29,980 $ (219,406) $ 96,153 Adjustments: Depreciation and amortization 56,587 69,712 167,716 177,195 (Gain) loss on sale of hotel properties 47 — (117,401) — Impairment loss — — 20,570 — FFO $ (73,926) $ 99,692 $ (148,521) $ 273,348 Distribution to preferred shareholders (8,139) (8,139) (24,417) (24,417) FFO available to common share and unit holders $ (82,065) $ 91,553 $ (172,938) $ 248,931 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 EBITDA re 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), 33 Table of Contents 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 EBITDA re 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 EBITDA re 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 Net income (loss) $ (130,560) $ 29,980 $ (219,406) $ 96,153 Adjustments: Interest expense 27,514 26,465 75,196 84,512 Income tax expense (benefit) 5,778 4,382 (8,531) 5,924 Depreciation and amortization 56,696 69,775 168,044 177,376 EBITDA $ (40,572) $ 130,602 $ 15,303 $ 363,965 (Gain) loss on sale of hotel properties 47 — (117,401) — Impairment loss — — 20,570 — EBITDA re $ (40,525) $ 130,602 $ (81,528) $ 363,965 FFO, EBITDA and EBITDA re 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 EBITDA re are not indicative of funds available to fund cash needs, including the ability to make cash distributions. Results of Operations At September 30, 2020 and 2019, we had 53 and 57, respectively, wholly owned properties and leasehold interests. All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition and through the dates of disposition, as applicable. Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three months ended September 30, 2020 and 2019. The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties": Property Location Disposition Date The Liaison Capitol Hill Washington, D.C. February 14, 2019 Hotel Palomar Washington DC Washington, D.C. February 22, 2019 Onyx Hotel Boston, MA May 29, 2019 Hotel Amarano Burbank Burbank, CA July 16, 2019 Rouge Hotel Washington, D.C. September 12, 2019 Hotel Madera Washington, D.C. September 26, 2019 Topaz Hotel Washington, D.C. November 22, 2019 InterContinental Buckhead Atlanta Buckhead, GA March 6, 2020 Sofitel Washington DC Lafayette Square Washington, D.C. March 6, 2020 Union Station Hotel Nashville, Autograph Collection Nashville, TN July 29, 2020 Comparison of the three months ended September 30, 2020 to the three months ended September 30, 2019 Revenues — Total hotel revenues decreased by $346.6 million, of which $25.0 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic. 34 Hotel operating expenses — Total hotel operating expenses decreased by $176.5 million, of which $15.2 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic. Depreciation and amortization — Depreciation and amortization expense decreased by $13.1 million due primarily to a decrease in assets resulting from the sales of hotels. Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $3.6 million primarily due to a decline in percentage ground rent which is based on a percentage of revenues. General and administrative — General and administrative expenses decreased by $0.8 million primarily due to a decline in share-based compensation costs and reductions in compensation and other administrative costs as a result of the cost-cutting program put in place in response to the COVID-19 pandemic. General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses. Transaction costs — Transaction costs increased by $6.3 million due to additional transfer taxes paid in connection with the LaSalle merger. (Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased $0.6 million primarily due to $0.8 million in hotel management transition expenses incurred in 2019 with so such expenses incurred in 2020. Interest expense — Interest expense increased by $1.0 million as a result of increased borrowings compared to the same period in the prior year. Other — Other income increased by $0.1 million due to interest income from higher cash balances from the drawdown on the unsecured revolving credit facility to enhance liquidity. Income tax (expense) benefit — Income tax expense increased by $1.4 million due primarily to a valuation allowance recognized on our deferred tax assets in 2020. As a result of the uncertainty around estimating future taxable income of our TRS, we have placed a valuation allowance on the net operating losses that are no longer more likely than not to be utilized. Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders. Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019 Revenues — Total hotel revenues decreased by $864.1 million, of which $80.9 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic. Hotel operating expenses — Total hotel operating expenses decreased by $422.3 million, of which $48.4 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic offset by an increase of $10.7 million in expenses related to the suspended operations at the hotels. Depreciation and amortization — Depreciation and amortization expense decreased by $9.3 million due to a decrease in assets resulting from sold hotels. Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $8.8 million primarily due to a decline in percentage ground rent which is based on a percentage of revenues. General and administrative — General and administrative expenses increased by $12.5 million primarily due to $16.0 million in share-based compensation costs relating to the cancellation of the retention LTIP unit awards and time-based service condition awards, offset by the cost cutting program put in place in response to COVID-19. General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses. Transaction costs — Transaction costs increased by $2.9 million due to additional transfer taxes paid in connection with the LaSalle merger. Impairment loss — We recognized an impairment loss of $20.6 million related to a retail component of a hotel. There was no comparable transaction in 2019. 35 (Gain) loss on sale of hotel properties — (Gain) loss on sale of hotel properties increased by $117.4 million from the sale of three properties. There was no comparable (gain) loss from disposed properties in 2019. (Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased by $2.5 million due primarily to the $4.8 million in hotel management transition expense incurred in 2019. Interest expense — Interest expense decreased by $9.3 million as a result of using proceeds from property sales to reduce outstanding debt since September 30, 2019 in addition to a decrease in interest rates in 2020. Other — Other income increased by $0.4 million due to interest income from higher cash balances from the drawdown on the unsecured revolving credit facility to enhance liquidity. Income tax (expense) benefit — Income tax (expense) benefit changed from an expense of $(5.9) million to a benefit of $8.5 million due primarily to an increase in taxable losses of our TRS as a result of suspended operations at our hotels during the nine months ended September 30, 2020 compared to the same period in the prior year. Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders. Critical Accounting Policies Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. Recent Accounting Standards See Note 2, “Summary of Significant Accounting Policies,” to our consolidated interim financial statements for additional information relating to recently issued accounting pronouncements. New Accounting Pronouncements Not Yet Implemented See Note 2, “Summary of Significant Accounting Policies,” to our consolidated interim financial statements for additional information relating to recently issued accounting pronouncements. Liquidity and Capital Resources In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand was nearly eliminated. Following the government mandates and health official recommendations, we temporarily suspended operations at a majority of our hotels and resorts and dramatically reduced staffing and expenses at the hotels that remained operational. As travel demand slowly recovered during the third quarter, as of September 30, 2020, 35 of our hotels were open, while operations at the remaining 18 hotels were still temporarily suspended. COVID-19 has had a negative impact on our operations and financial results to date and we expect that the COVID-19 pandemic may ultimately have a significant impact on our results of operations, financial position and cash flow for the remainder of 2020. As a result, in March 2020, we fully drew down on our $650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on our common shares to one penny, reduced planned capital expenditures, reduced the compensation of our executive officers, board of trustees and employees, and, working closely with our hotel operating partners, significantly reduced our hotels' operating expenses. On June 29, 2020, we amended our 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. Refer to "Note 5. Debt" for additional information regarding the amendments. Based on these amendments and the expense and cash flow reductions, we believe that we will have sufficient liquidity to meet our obligations for the next twelve months. 36 Table of Contents Our 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 September 30, 2020 December 31, 2019 Revolving credit facilities Senior unsecured credit facility Floating (1) January 2022 $ 290,000 $ 165,000 PHL unsecured credit facility Floating (2) January 2022 — — Total revolving credit facilities $ 290,000 $ 165,000 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 Fourth Term Loan Floating (3) October 2024 110,000 110,000 Sixth Term Loan: Tranche 2021 Floating (3) November 2021 57,400 300,000 Tranche 2021 Extended Floating (3) November 2022 242,600 — 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 1,500,000 Total term loans at stated value 1,975,000 1,975,000 Deferred financing costs, net (10,499) (10,343) Total term loans $ 1,964,501 $ 1,964,657 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 (435) (437) Total senior unsecured notes $ 99,565 $ 99,563 Total debt $ 2,354,066 $ 2,229,220 __________ (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 September 30, 2020, approximately $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 approximately $345.0 million bore a weighted-average floating interest rate of 2.46%. As of December 31, 2019, approximately $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 approximately $345.0 million bore a weighted-average floating interest rate of 3.32%. 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. In March 2020, as part of our plans to enhance liquidity due to the actual and anticipated impact of the COVID-19 pandemic, we fully drew down on this revolving credit facility. As of September 30, 2020, we had $290.0 million of outstanding borrowings and borrowing capacity of $353.2 million 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 37 Table of Contents base rate, plus an additional margin amount. The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement. As a result of the amendments described in "Note 5. Debt", the spread of the borrowings is fixed at 2.25% during the waiver period. 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 a result of the amendments described in "Note 5. Debt", the spread of the borrowings is fixed at 2.25% during the waiver period. As of September 30, 2020, 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 nine months ended September 30, 2020. As of September 30, 2020, $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 (Used in) and Provided by Operations. Our cash used in operating activities was $(146.9) million for the nine months ended September 30, 2020. Our cash from operations includes the operating activities of the 53 hotels we owned as of September 30, 2020, offset by corporate expenses. Our cash provided by operating activities was $316.1 million for the nine months ended September 30, 2019. Our cash from operations includes the operating activities of the 57 hotels we owned as of September 30, 2019, offset by corporate expenses. Cash Provided by Investing Activities. Our cash provided by investing activities was $264.7 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, we invested $110.4 million in improvements to our hotel properties and received $375.1 million from sales of hotel properties. Our cash provided by investing activities was $319.3 million for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, we invested $118.0 million in improvements to our hotel properties and received $437.9 million from sales of hotel properties. Cash Provided by and Used In Financing Activities. Our cash provided by financing activities was $42.3 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, we borrowed $760.1 million 38 Table of Contents under the revolving credit facilities, repaid $635.1 million under the revolving credit facilities, borrowed and repaid $13.0 million in other debt, repurchased $1.3 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $77.1 million in distributions, paid $3.6 million in financing fees related to the debt amendments and paid $0.7 million in other transactions. For the nine months ended September 30, 2019, cash used in financing activities was $686.4 million. During the nine months ended September 30, 2019, we borrowed $211.9 million under the revolving credit facilities, repaid $281.9 million under the revolving credit facilities, repaid $451.8 million of debt, repurchased $4.0 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $159.5 million in distributions and paid $1.1 million in other transactions. 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 nine months ended September 30, 2020, we invested $110.4 million in capital investments to reposition and improve our properties. Since the beginning of 2020, we have completed the transformational redevelopments of several hotels and resorts that were part of the LaSalle legacy portfolio acquired in late 2018, including Chaminade Resort & Spa, San Diego Mission Bay Resort (formerly Hilton San Diego Resort & Spa), Viceroy Washington DC (formerly Mason & Rook), Hotel Zena Washington DC (formerly Donovan Hotel), Viceroy Santa Monica Hotel and Le Parc Suite Hotel. We expect total capital investments to be approximately $15.0 million to $20.0 million for the remainder of 2020. Contractual Obligations and Off-Balance Sheet Arrangements The table below summarizes our contractual obligations as of September 30, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands): Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Term loans (2) $ 2,146,833 $ 70,668 $ 1,158,304 $ 917,861 $ — Unsecured notes (1) 120,716 4,792 9,584 65,354 40,986 Borrowings under credit facilities (3) 299,506 7,351 292,155 — — Hotel and ground leases (4) 1,214,049 16,801 33,760 34,039 1,129,449 Capital lease obligation 64,818 1,302 2,678 2,759 58,079 Refundable membership initiation deposits (5) 29,914 223 — — 29,691 Purchase commitments (6) 4,291 4,291 — — — Corporate office leases 15,977 1,628 3,461 2,517 8,371 Total $ 3,896,104 $ 107,056 $ 1,499,942 $ 1,022,530 $ 1,266,576 ____________________ (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 September 30, 2020. It is assumed that the outstanding borrowings will be repaid upon maturity with fixed interest-only payments until then. 39 Table of Contents (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 Beach Resort and Club. (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 September 30, 2020, 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. 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 September 30, 2020, the Company had interest rates swaps for an aggregate notional amount of $290.0 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 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).