Pebblebrook Hotel Trust 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. 52 Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the original framework in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2020. KPMG LLP, a registered independent accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-4, on the effectiveness of our internal control over financial reporting. There was no change to our internal control over financial reporting during the fourth quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 53 PART III Item 10. Trustees, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2021 Annual Meeting of Shareholders. Item 11. Executive Compensation. The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2021 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2021 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions, and Trustee Independence. The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2021 Annual Meeting of Shareholders. Item 14. Principal Accountant Fees and Services. The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2021 Annual Meeting of Shareholders. 54 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this report: 1. Financial Statements Included herein on pages F-1 through F-39. 2. Financial Statement Schedules The following financial statement schedule is included herein on pages F-40 through F-43. Schedule III--Real Estate and Accumulated Depreciation All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15. 3. Exhibits The following exhibits are filed or furnished, as the case may be, as part of this Annual Report on Form 10-K: 55 Exhibit Number Description of Exhibit 3.1 Declaration of Trust, as amended and supplemented through November 30, 2018, of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.1 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on March 1, 2019 (File No. 001-34571)). 3.2 Amended and Restated Bylaws of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on November 14, 2016 (File No. 001‑34571)). 3.3 First Amendment to Amended and Restated Bylaws of Pebblebrook Hotel Trust (incorporated by reference to Exhibit 3.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 21, 2017 (File No. 001‑34571)). 3.4 Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of December 13, 2013 (incorporated by reference to Exhibit 3.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)). 3.5 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of September 30, 2014 (incorporated by reference to Exhibit 3.4 to Pebblebrook Hotel Trust’s Annual Report on Form 10‑K filed with the SEC on February 17, 2015 (File No. 001‑34571)). 3.6 Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of June 8, 2016 (incorporated by reference to Exhibit 3.5 to Pebblebrook Hotel Trust’s Current Report on Form 8‑K filed with the SEC on June 8, 2016 (File No. 001‑34571)). 3.7 Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., dated as of November 30, 2018 (incorporated by reference to Exhibit 3.3 to Pebblebrook Hotel Trust’s Current Report on Form 8‑K filed with the SEC on December 3, 2018 (File No. 001‑34571)). 4.1 Description of the Registrant's Securities (incorporated by reference to Exhibit 4.1 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 20, 2020 (File No. 001-34571)). 4.2 Indenture, dated December 15, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 4.3 First Supplemental Indenture, dated December 15, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 10.1* Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on August 2, 2012 (File No. 001-34571)). 10.2* Amendment No. 1 to the Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012, effective July 7, 2016 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Quarterly Report on Form 10‑Q filed with the SEC on July 25, 2016 (File No. 001‑34571)). 10.3* Amendment No. 2 to the Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012, effective February 15, 2017 (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 22, 2017 (File No. 001‑34571)). 10.4* Change in Control Severance Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)). 10.5* Change in Control Severance Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)). 10.6* Change in Control Severance Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)). 10.7* Form of Indemnification Agreement between Pebblebrook Hotel Trust and its officers and trustees (incorporated by reference to Exhibit 10.4 of Amendment No. 1 to Pebblebrook Hotel Trust's Registration Statement on Form S-11/A filed with the SEC on November 10, 2009 (File No. 333-162412)). 10.8* Form of Share Award Agreement for trustees (incorporated by reference to Exhibit 10.6 of Amendment No. 2 to Pebblebrook Hotel Trust's Registration Statement on Form S-11/A filed with the SEC on November 25, 2009 (File No. 333-162412)). 56 10.9* Form of Share Award Agreement (Performance Vesting) for executive officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)). 10.10* Form of LTIP Unit Vesting Agreement (supersedes Exhibits 10.11, 10.12 and 10.13 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on March 24, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)). 10.11* Form of Share Award Agreement for executive officers (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 26, 2012 (File No. 001-34571)). 10.12 Lease, dated December 1, 1999, by and between the United States of America, acting through the Administrator of General Services, and Tariff Building Associates, L.P. (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on September 13, 2010 (File No. 001-34571)). 10.13 Assignment and Assumption of GSA Lease, dated September 9, 2010, by and among the United States of America, acting by and through the Administrator of General Services and Authorized Representatives, Tariff Building Associates, L.P., and Jayhawk Owner LLC (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on September 13, 2010 (File No. 001-34571)). 10.14 Historical Lease, dated October 16, 2000, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)). 10.15 Seventh Amendment to Historic Lease, dated February 6, 2001, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)). 10.16 Tenth Amendment to Historic Lease, dated December 9, 2008, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)). 10.17 Eleventh Amendment to Historic Lease, dated February 16, 2011, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)). 10.18 Assignment and Assumption of Historical Lease, dated February 16, 2011, by and among the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an Agency of the United States of America, Maritime Hotel Associates, L.P., and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.5 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on February 22, 2011 (File No. 001-34571)). 10.19* Form of LTIP Class B Unit Vesting Agreement (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)). 10.20* Form of Performance Unit Retention Award Agreement (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 17, 2013 (File No. 001-34571)). 10.21* Form of Performance Unit Award Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Quarterly Report on Form 10-Q filed with the SEC on April 23, 2015 (File No. 001-34571)). 10.22 Fourth Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.22 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)). 57 10.23 First Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.6 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001 34571)). 10.24 Second Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001 34571)). 10.25 Third Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 10.2 6 Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, PNC Bank, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.25 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)). 10.27 First Amendment to Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, U.S. Bank National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001 34571)). 10.28 Second Amendment to Amended and Restated Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, U.S. Bank National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 10.29 Credit Agreement, dated as of October 13, 2017, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Capital One, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.24 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)). 10.3 0 First Amendment to Credit Agreement, dated as of November 12, 2015, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Capital One, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001‑34571)). 10.31 Second Amendment to Credit Agreement, dated as of November 12, 2015, among Pebblebrook Hotel, L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Capital One, National Association, as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 10.32 Note Purchase and Guarantee Agreement, dated November 12, 2015, by and among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.33 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on February 22, 2016 (File No. 001-34571)). 10.33 First Amendment to Note Purchase Agreement, dated as of October 13, 2017, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.27 to Pebblebrook Hotel Trust's Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-34571)). 1 0.34 Second Amendment to Note Purchase Agreement, dated as of October 13, 2017, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.5 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001 34571)). 58 10.35 Third Amendment to Note Purchase Agreement, dated as of October 13, 2017, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, Allianz Life Insurance Company of North America and The Guardian Life Insurance Company of America (incorporated by reference to Exhibit 10.5 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 16, 2020 (File No. 001 34571)). 10. 3 6 * Form of Share Award Agreement (time-based vesting) for Executive Officers (incorporated by reference to Exhibit 10.1 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 16, 2018). 10. 37 * Form of Performance Unit Award Agreement for Executive Officers (incorporated by reference to (incorporated by reference to Exhibit 10.2 to Pebblebrook Hotel Trust’s Current Report on Form 8-K filed with the SEC on February 16, 2018). 10.38 Credit Agreement, dated as of October 31, 2018, among Pebblebrook Hotel L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.34 to Pebblebrook Hotel Trust’s Annual Report on Form 10-K filed with the SEC on March 1, 2019 (File No. 001-34571)). 10.39 First Amendment to Credit Agreement, dated as of October 31, 2018, among Pebblebrook Hotel L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on July 2, 2020 (File No. 001 34571)). 10.40 Second Amendment to Credit Agreement, dated as of October 31, 2018, among Pebblebrook Hotel L.P., as the borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.4 to Pebblebrook Hotel Trust's Current Report on Form 8-K filed with the SEC on December 10, 2020 (File No. 001 34571)). 21.1† List of Subsidiaries of Pebblebrook Hotel Trust. 23.1† Consent of KPMG LLP. 31.1† Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2† Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1†† Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2†† Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.SCH Inline XBRL Taxonomy Extension Schema Document (1) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document(1) 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (1) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) (1) ________________ * Management agreement or compensatory plan or arrangement. † Filed herewith. †† Furnished herewith. (1) Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; (v) Notes to Consolidated Financial Statements; and (vi) Cover Page (in connection with Exhibit 104). 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PEBBLEBROOK HOTEL TRUST Date: February 23, 2021 /s/ J ON E. B ORTZ Jon E. Bortz Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ JON E. BORTZ Chairman of the Board, President and Chief Executive Officer (principal executive officer) February 23, 2021 Jon E. Bortz /s/ RAYMOND D. MARTZ Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer) February 23, 2021 Raymond D. Martz /s/ CYDNEY C. DONNELL Trustee February 23, 2021 Cydney C. Donnell /s/ RON E. JACKSON Trustee February 23, 2021 Ron E. Jackson /s/ PHILLIP M. MILLER Trustee February 23, 2021 Phillip M. Miller /s/ MICHAEL J. SCHALL Trustee February 23, 2021 Michael J. Schall /s/ BONNY W. SIMI Trustee February 23, 2021 Bonny W. Simi /s/ EARL E. WEBB Trustee February 23, 2021 Earl E. Webb PEBBLEBROOK HOTEL TRUST INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Reports of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets F- 5 Consolidated Statements of Operations and Comprehensive Income F- 6 Consolidated Statements of Equity F- 8 Consolidated Statements of Cash Flows F- 10 Notes to Consolidated Financial Statements F- 12 Schedule III - Real Estate and Accumulated Depreciation F- 40 F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees Pebblebrook Hotel Trust: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Pebblebrook Hotel Trust and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. The assessment of hotel properties for impairment As discussed in Note 2 and 4 to the consolidated financial statements, the Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. For hotel properties that have an indication that its carrying value may not be recoverable, an undiscounted cash flow analysis is prepared using various inputs and assumptions, including estimated holding period and expected terminal capitalization rate. To the extent that the carrying value of a hotel property exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over its fair value. The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry and resulted in recoverability analyses being performed on all of the Company’s hotel properties. In addition, COVID-19 has increased uncertainty in future cash flow projections and hold periods. The Company determined that the carrying F-2 value of certain hotel properties exceeded its fair value, and recognized an impairment loss of $74.6 million. Investment in hotel properties was $5.9 billion, or 97% of total assets as of December 31, 2020. We identified the assessment of hotel properties for impairment as a critical audit matter. Significant auditor judgment was required to evaluate certain key assumptions, specifically, the judgments related to the Company’s estimated holding period, expected terminal capitalization rate, discount rate, and projected cash flows from operations and eventual disposition, including the effects of COVID-19 and the resulting duration of the economic downturn. Changes in the key assumptions could have a significant impact on the determination of recoverability of the carrying value and determination of fair value in hotel properties. Furthermore, in determining the fair value of certain hotel properties, involvement of valuation professionals with specialized skills and knowledge was required to evaluate discount rates and expected terminal capitalization rates used in the determination of the fair value. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to evaluate hotel properties for impairment, including the specific assumptions described above. We inquired of Company officials and inspected documents, such as meeting minutes of the board of trustees, to identify Company strategies that may indicate it was more-likely-than not that a property will be sold significantly before the end of its previously estimated useful life. We read publicly available information in order to identify information regarding potential sales of the Company’s properties. We also performed sensitivity analyses over the estimated holding period of certain of the Company’s hotel properties by changing the Company’s estimates to assess the impact on the analysis. We evaluated the Company’s expected terminal capitalization rates by comparing to published third-party industry reports as well as the Company’s historical hotel property sales. For certain of the hotel properties, we performed sensitivity analyses over the estimated terminal capitalization rate by considering points within the ranges we obtained from published third-party industry reports. We evaluated the Company’s projected cash flows from operations, by comparing to published third-party industry reports evaluating the impact of COVID-19 on the hotel industry. We inquired and obtained representations from the Company regarding the status and evaluation of any potential disposal of properties and read minutes of the board of trustees. We corroborated that information with others in the organization who are responsible for, and have authority over, disposition activities. We also involved valuation professionals with specialized skills and knowledge who assisted in: • assessing the projected future cash flows from operations of each hotel property by comparing the expected duration and financial impact of the economic downturn to publicly available market data, and • evaluating the discount rates and expected terminal capitalization rates used in the determination of the fair value of certain hotel properties, by comparing against ranges that were independently developed using publicly available market data for comparable properties. /s/ KPMG LLP We have served as the Company's auditor since 2009. McLean, Virginia February 23, 2021 F-3 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees Pebblebrook Hotel Trust: Opinion on Internal Control Over Financial Reporting We have audited Pebblebrook Hotel Trust and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 23, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP McLean, Virginia February 23, 2021 F-4 Pebblebrook Hotel Trust Consolidated Balance Sheets (In thousands, except share and per-share data) December 31, 2020 December 31, 2019 ASSETS Investment in hotel properties, net $ 5,882,022 $ 6,332,587 Cash and cash equivalents 124,274 30,098 Restricted cash 12,026 26,777 Hotel receivables (net of allowance for doubtful accounts of $ 183 and $ 738 , respectively) 10,225 49,619 Prepaid expenses and other assets 47,819 59,474 Total assets $ 6,076,366 $ 6,498,555 LIABILITIES AND EQUITY Debt $ 2,280,471 $ 2,229,220 Accounts payable, accrued expenses and other liabilities 226,446 260,166 Lease liabilities - operating leases 255,106 256,271 Deferred revenues 36,057 57,704 Accrued interest 4,653 4,694 Distribution payable 9,307 58,564 Total liabilities 2,812,040 2,866,619 Commitments and contingencies (Note 11) Shareholders’ equity: Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 510,000 at December 31, 2020 and December 31, 2019), 100,000,000 shares authorized; 20,400,000 shares issued and outstanding at December 31, 2020 and December 31, 2019 204 204 Common shares of beneficial interest, $ .01 par value, 500,000,000 shares authorized; 130,673,300 shares issued and outstanding at December 31, 2020 and 130,484,956 shares issued and outstanding at December 31, 2019 1,307 1,305 Additional paid-in capital 4,169,870 4,069,410 Accumulated other comprehensive income (loss) ( 60,071 ) ( 24,715 ) Distributions in excess of retained earnings ( 853,973 ) ( 424,996 ) Total shareholders’ equity 3,257,337 3,621,208 Non-controlling interests 6,989 10,728 Total equity 3,264,326 3,631,936 Total liabilities and equity $ 6,076,366 $ 6,498,555 The accompanying notes are an integral part of these financial statements. F-5 Table of Contents Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income (In thousands, except share and per-share data) For the year ended December 31, 2020 2019 2018 Revenues: Room $ 287,439 $ 1,103,947 $ 565,107 Food and beverage 95,892 370,584 199,089 Other operating 59,557 137,682 64,482 Total revenues 442,888 1,612,213 828,678 Expenses: Hotel operating expenses: Room 91,771 275,855 143,171 Food and beverage 77,698 260,278 136,845 Other direct and indirect 209,957 438,035 231,818 Total hotel operating expenses 379,426 974,168 511,834 Depreciation and amortization 224,560 234,880 108,475 Real estate taxes, personal property taxes, property insurance, and ground rent 114,333 125,013 54,191 General and administrative 45,158 34,047 20,945 Transaction costs 10,544 8,679 75,049 Impairment loss 74,556 — — (Gain) loss on sale of hotel properties ( 117,401 ) ( 2,819 ) 2,147 (Gain) loss and other operating expenses 4,421 8,903 ( 10,935 ) Total operating expenses 735,597 1,382,871 761,706 Operating income (loss) ( 292,709 ) 229,342 66,972 Interest expense ( 104,098 ) ( 108,474 ) ( 53,923 ) Other 517 29 2,078 Income (loss) before income taxes ( 396,290 ) 120,897 15,127 Income tax (expense) benefit 3,697 ( 5,172 ) ( 1,742 ) Net income (loss) ( 392,593 ) 115,725 13,385 Net income (loss) attributable to non-controlling interests ( 864 ) 283 ( 8 ) Net income (loss) attributable to the Company ( 391,729 ) 115,442 13,393 Distributions to preferred shareholders ( 32,556 ) ( 32,556 ) ( 17,466 ) Net income (loss) attributable to common shareholders $ ( 424,285 ) $ 82,886 $ ( 4,073 ) Net income (loss) per share available to common shareholders, basic $ ( 3.25 ) $ 0.63 $ ( 0.06 ) Net income (loss) per share available to common shareholders, diluted $ ( 3.25 ) $ 0.63 $ ( 0.06 ) Weighted-average number of common shares, basic 130,610,015 130,471,670 74,286,307 Weighted-average number of common shares, diluted 130,610,015 130,718,306 74,286,307 F-6 Table of Contents Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income - Continued (In thousands, except share and per-share data) For the year ended December 31, 2020 2019 2018 Comprehensive Income: Net income (loss) $ ( 392,593 ) $ 115,725 $ 13,385 Other comprehensive income (loss): Change in fair value of derivative instruments ( 63,861 ) ( 25,785 ) ( 1,929 ) Amounts reclassified from other comprehensive income 28,505 ( 260 ) ( 978 ) Comprehensive income (loss) ( 427,949 ) 89,680 10,478 Comprehensive income (loss) attributable to non-controlling interests ( 934 ) 209 ( 16 ) Comprehensive income (loss) attributable to the Company $ ( 427,015 ) $ 89,471 $ 10,494 The accompanying notes are an integral part of these financial statements. F-7 Table of Contents Pebblebrook Hotel Trust Consolidated Statements of Equity (In thousands, except share data) Preferred Shares Common Shares Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Distributions in Excess of Retained Earnings Total Shareholders' Equity Non-Controlling Interests Total Equity Shares Amount Shares Amount Balance at December 31, 2017 10,000,000 $ 100 68,812,575 $ 688 $ 1,685,437 $ 3,689 $ ( 191,013 ) $ 1,498,901 $ 4,625 $ 1,503,526 Issuance of shares, net of offering costs 10,400,000 104 61,399,104 614 2,377,089 — — 2,377,807 — 2,377,807 Issuance of operating partnership units — — — — — — — — 4,665 4,665 Issuance of common shares for Board of Trustees compensation — — 17,410 1 661 — — 662 — 662 Repurchase of common shares — — ( 69,687 ) ( 1 ) ( 2,506 ) — — ( 2,507 ) — ( 2,507 ) Share-based compensation — — 151,887 1 5,123 — — 5,124 1,104 6,228 Distributions on common shares/units — — — — — — ( 113,172 ) ( 113,172 ) ( 377 ) ( 113,549 ) Distributions on preferred shares — — — — — — ( 17,466 ) ( 17,466 ) ( 39 ) ( 17,505 ) Net contribution from non-controlling interests — — — — — — — — 125 125 Other comprehensive income (loss): Change in fair value of derivative instruments — — — — — ( 1,929 ) — ( 1,929 ) — ( 1,929 ) Amounts reclassified from other comprehensive income — — — — — ( 978 ) — ( 978 ) — ( 978 ) Cumulative effect adjustment from adoption of new accounting standard — — — — — 548 ( 548 ) — — — Net income (loss) — — — — — — 13,393 13,393 ( 8 ) 13,385 Balance at December 31, 2018 20,400,000 $ 204 130,311,289 $ 1,303 $ 4,065,804 $ 1,330 $ ( 308,806 ) $ 3,759,835 $ 10,095 $ 3,769,930 Issuance of shares, net of offering costs — — — — ( 275 ) — — ( 275 ) — ( 275 ) Issuance of common shares for Board of Trustees compensation — — 25,282 1 739 — — 740 — 740 Repurchase of common shares — — ( 126,681 ) ( 1 ) ( 4,008 ) — — ( 4,009 ) — ( 4,009 ) Share-based compensation — — 275,066 2 7,180 — — 7,182 1,057 8,239 Distributions on common shares/units — — — — — — ( 199,076 ) ( 199,076 ) ( 562 ) ( 199,638 ) Distributions on preferred shares — — — — — — ( 32,556 ) ( 32,556 ) ( 50 ) ( 32,606 ) Redemption of non-controlling interests — — — — ( 30 ) — — ( 30 ) ( 95 ) ( 125 ) Other comprehensive income (loss): F-8 Table of Contents Change in fair value of derivative instruments — — — — — ( 25,785 ) — ( 25,785 ) — ( 25,785 ) Amounts reclassified from other comprehensive income — — — — — ( 260 ) — ( 260 ) — ( 260 ) Net income (loss) — — — — — — 115,442 115,442 283 115,725 Balance at December 31, 2019 20,400,000 $ 204 130,484,956 $ 1,305 $ 4,069,410 $ ( 24,715 ) $ ( 424,996 ) $ 3,621,208 $ 10,728 $ 3,631,936 Issuance of shares, net of offering costs — — — — ( 119 ) — — ( 119 ) — ( 119 ) Issuance of common shares for Board of Trustees compensation — — 23,528 1 636 — — 637 — 637 Repurchase of common shares — — ( 47,507 ) ( 1 ) ( 1,254 ) — — ( 1,255 ) — ( 1,255 ) Share-based compensation — — 103,083 1 12,162 — — 12,163 10,616 22,779 Distributions on common shares/units — — — — — — ( 4,692 ) ( 4,692 ) ( 45 ) ( 4,737 ) Distributions on preferred shares — — — — — — ( 32,556 ) ( 32,556 ) — ( 32,556 ) Redemption of non-controlling interest LTIP units — — 109,240 1 13,445 — — 13,446 ( 13,446 ) — Equity component of convertible senior notes — — — — 113,890 — — 113,890 — 113,890 Purchases of capped calls in connection with convertible senior notes — — — — ( 38,300 ) — — ( 38,300 ) — ( 38,300 ) Other comprehensive income (loss): Change in fair value of derivative instruments — — — — — ( 63,861 ) — ( 63,861 ) — ( 63,861 ) Amounts reclassified from other comprehensive income — — — — — 28,505 — 28,505 — 28,505 Net income (loss) — — — — — — ( 391,729 ) ( 391,729 ) ( 864 ) ( 392,593 ) Balance at December 31, 2020 20,400,000 $ 204 130,673,300 $ 1,307 $ 4,169,870 $ ( 60,071 ) $ ( 853,973 ) $ 3,257,337 $ 6,989 $ 3,264,326 The accompanying notes are an integral part of these financial statements. F-9 Table of Contents Pebblebrook Hotel Trust Consolidated Statements of Cash Flows (In thousands) For the year ended December 31, 2020 2019 2018 Operating activities: Net income (loss) $ ( 392,593 ) $ 115,725 $ 13,385 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 224,560 234,880 108,475 Share-based compensation 22,779 8,239 6,228 (Gain) loss on marketable securities — — 2,978 Amortization of deferred financing costs, non-cash interest and mortgage loan premiums 17,200 17,349 18,256 (Gain) loss on sale of hotel properties ( 117,401 ) ( 2,819 ) 2,147 Impairment loss 74,556 — — Non-cash ground rent 6,198 6,395 3,062 Other 347 2,365 2,939 Changes in assets and liabilities: Hotel receivables 38,509 8,648 3,684 Prepaid expenses and other assets 3,358 1,061 5,031 Accounts payable and accrued expenses ( 60,673 ) ( 605 ) ( 34,517 ) Deferred revenues ( 18,616 ) 3,964 4,029 Net cash provided by (used in) operating activities ( 201,776 ) 395,202 135,697 Investing activities: Acquisition of LaSalle, net of cash acquired — — ( 1,372,584 ) Improvements and additions to hotel properties ( 125,014 ) ( 169,632 ) ( 89,605 ) Proceeds from sales of hotel properties 375,131 470,352 28,551 Investment in marketable securities — — ( 356,180 ) Sale of marketable securities — — 6,658 Purchase of corporate office equipment, software, and furniture — ( 752 ) ( 164 ) Property insurance proceeds — — 5,162 Net cash provided by (used in) investing activities 250,117 299,968 ( 1,778,162 ) Financing activities: Payment of offering costs — common and preferred shares ( 119 ) ( 275 ) ( 470 ) Payment of deferred financing costs ( 16,372 ) ( 461 ) ( 29,366 ) (Distributions) contributions from non-controlling interest — ( 125 ) — Borrowings under revolving credit facilities 760,115 414,771 550,181 Repayments under revolving credit facilities ( 885,115 ) ( 419,771 ) ( 425,181 ) Proceeds from debt 512,965 — 1,850,000 Repayments of debt ( 212,965 ) ( 518,207 ) ( 102,366 ) Purchases of capped calls for convertible senior notes ( 38,300 ) — — Repurchases of common shares ( 1,255 ) ( 4,009 ) ( 2,507 ) Distributions — common shares/units ( 53,960 ) ( 184,836 ) ( 105,729 ) Distributions — preferred shares ( 32,556 ) ( 32,556 ) ( 16,094 ) Proceeds from refundable membership deposits — — 29 F-10 Table of Contents Pebblebrook Hotel Trust Consolidated Statements of Cash Flows (In thousands) Repayments of refundable membership deposits ( 1,354 ) ( 637 ) ( 754 ) Net cash provided by (used in) financing activities 31,084 ( 746,106 ) 1,717,743 Net change in cash and cash equivalents and restricted cash 79,425 ( 50,936 ) 75,278 Cash and cash equivalents and restricted cash, beginning of year 56,875 107,811 32,533 Cash and cash equivalents and restricted cash, end of year $ 136,300 $ 56,875 $ 107,811 The accompanying notes are an integral part of these financial statements. F-11 Table of Contents PEBBLEBROOK HOTEL TRUST NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets. As of December 31, 2020, the Company owned 53 hotels with a total of 13,236 guest rooms. The hotels are located in the following markets: Boston, Massachusetts; Chicago, Illinois; Key West, Florida; Miami (Coral Gables), Florida; Los Angeles, California (Beverly Hills, Santa Monica, and West Hollywood); Naples, Florida; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; San Diego, California; San Francisco, California; Seattle, Washington; Stevenson, Washington; and Washington, D.C. Substantially all of the Company’s assets are held by, and all of the Company's operations are conducted through, Pebblebrook Hotel, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At December 31, 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. For the Company to maintain its qualification as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "PHL"), a taxable REIT subsidiary ("TRS"), which in turn engage third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company’s financial statements. COVID-19 Operations and Liquidity Update 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, health official recommendations, corporate policy changes and individual responses, hotel demand was dramatically reduced. Following government mandates and health official recommendations, the Company temporarily suspended operations at 47 of its hotels and resorts and working with its operators, dramatically reduced staffing and expenses at the hotels that remained operational. Throughout the summer months, hotel industry demand improved from its historical lows seen in the second quarter, particularly as leisure customers sought to travel to drive-to hotels and resorts that could offer more space and outdoor experiences. The monthly revenue increased slowly through October as the Company reopened several of its hotels and resorts between May and October. November and December had declining revenue at most of its opened hotels, except its South Florida properties, as leisure demand declined and business travel did not return in a meaningful manner. The South Florida properties experienced slightly increasing revenue late in the year which is consistent with the seasonal pattern for these warm weather resort properties. The Company anticipates leisure travel will return as vaccine distribution becomes more widely available, followed by business travel. The Company still anticipates group demand will be the slowest to return until there is more certainty around health and immunity solution for the country. As of December 31, 2020, 37 of the Company's hotels and resorts listed below were open, with operations at the remaining 16 hotels still temporarily suspended. The Company anticipates reopening additional hotels as demand returns and it determines that the Company would lose less money with the hotels open versus remaining closed. F-12 Table of Contents Property Location 1. L'Auberge Del Mar Del Mar, CA 2. Hotel Palomar Los Angeles Beverly Hills Los Angeles, CA 3. W Los Angeles - West Beverly Hills Los Angeles, CA 4. Mondrian Los Angeles West Hollywood, CA 5. Le Meridien Delfina Santa Monica Santa Monica, CA 6. Viceroy Santa Monica Hotel Santa Monica, CA 7. Le Parc Suite Hotel West Hollywood, CA 8. Montrose West Hollywood West Hollywood, CA 9. Chamberlain West Hollywood Hotel West Hollywood, CA 10. Grafton on Sunset West Hollywood, CA 11. Embassy Suites San Diego Bay - Downtown San Diego, CA 12. Paradise Point Resort & Spa San Diego, CA 13. San Diego Mission Bay Resort (formerly Hilton San Diego Mission Bay Resort) San Diego, CA 14. The Westin San Diego Gaslamp Quarter San Diego, CA 15. Hilton San Diego Gaslamp Quarter San Diego, CA 16. Solamar Hotel San Diego, CA 17. Hotel Spero San Francisco, CA 18. Hotel Zetta San Francisco San Francisco, CA 19. Chaminade Resort & Spa Santa Cruz, CA 20. Southernmost Beach Resort Key West, FL 21. The Marker Key West Harbor Resort Key West, FL 22. LaPlaya Beach Resort and Club Naples, FL 23. Hotel Colonnade Coral Gables, Autograph Collection Miami, FL 24. The Liberty, A Luxury Collection Hotel, Boston Boston, MA 25. Hyatt Regency Boston Harbor Boston, MA 26. W Boston Boston, MA 27. The Westin Copley Place, Boston Boston, MA 28. George Hotel Washington, DC 29. Hotel Zena Washington DC (formerly Donovan Hotel) Washington, DC 30. Viceroy Washington DC (formerly Mason & Rook Hotel) Washington, DC 31. Skamania Lodge Stevenson, WA 32. Hotel Monaco Seattle Seattle, WA 33. Hotel Vintage Seattle Seattle, WA 34. Hotel Vintage Portland Portland, OR 35. The Heathman Hotel Portland, OR 36. The Nines, a Luxury Collection Hotel, Portland Portland, OR 37. Sofitel Philadelphia at Rittenhouse Square Philadelphia, PA The COVID-19 pandemic has had a significant negative impact on the Company's operations and financial results to date and the Company expects that it will continue to have a significant negative impact on the Company's results of operations, financial position and cash flow in 2021. The Company cannot estimate when travel demand will recover. As a result of uncertainty at the beginning of the pandemic, 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 per share, reduced planned capital expenditures, reduced the compensation of its executive officers, 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 F-13 Table of Contents existing credit facilities, term loan facilities and senior notes. Among other things, the amendments extended the maturity of a significant portion of the term loan due in 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. In addition, the Company repaid approximately $ 250.0 million on its unsecured revolving credit facility. In December 2020, the Company issued $ 500.0 million of convertible notes and used the proceeds to repay an additional $ 250.0 million of its unsecured revolving credit facility and $ 200.0 million of its unsecured term loans. As of December 31, 2020, the Company had a balance of $ 40.0 million on its unsecured revolving credit facility. In February 2021, the Company issued an additional $ 250.0 million of convertible notes under the same terms as the December 2020 offering, at a 5.5 % premium to par. In connection with the pricing of the convertible notes, the Company entered into privately negotiated capped call transactions with certain of the underwriters, their respective affiliates and/or other counterparties. The Company used the net proceeds to reduce amounts outstanding under the Company’s senior unsecured revolving credit facility, unsecured term loans, and for general corporate purposes. In February 2021, the Company further amended the agreements governing the existing credit facilities, term loan facilities and senior notes to, among other items, waive financial covenants through the end of the first quarter of 2022 except for the minimum fixed charge coverage and minimum unsecured interest coverage ratio which were extended through December 31, 2021 and to increase the interest rate spread. Refer to "Note 5. Debt" for additional information regarding these amendments and convertible debt. Based on these amendments and expense and cash burn rate reductions, the Company believes that it has sufficient liquidity to meet its obligations for the next twelve months. The negative impact of the demand loss caused by COVID-19 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 had a valuation allowance of $ 20.9 million as of December 31, 2020. As of December 31, 2020, the Company had an income tax receivable of $ 6.9 million attributable to the net operating loss carry-back, 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. Transitioning to a remote-work environment has not had a material adverse impact on the Company's financial reporting system, internal controls or disclosure controls and procedures. F-14 Table of Contents Note 2. Summary of Significant Accounting Policies Basis of Presentation The Company and its subsidiaries are separate legal entities and maintain records and books of account separate and apart from each other. The consolidated financial statements include all of the accounts of the Company and its subsidiaries and are presented in accordance with accounting principles generally accepted in the United States of America, ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities that the Company does not control, but over which the Company has the ability to exercise significant influence regarding operating and financial policies, are accounted for under the equity method. Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates. Risks and Uncertainties The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company's financial position. As discussed above, the impact of COVID-19 has significantly impacted the hotels' operational performance and therefore the Company has significantly reduced distributions to our shareholders in addition to taking other measures in order to reduce operating expenses. A continued reduction in travel may impact the Company's ability to service debt or meet other financial obligations. Fair Value Measurements A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows: 1. Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. 2. Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable. 3. Level 3 – Model-derived valuations with unobservable inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 5 to the accompanying consolidated financial statements for disclosures on the fair value of debt and derivative instruments. Investment in Hotel Properties Upon acquiring a business or hotel property, the Company measures and recognizes the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties. Transaction costs related to business combinations are expensed as incurred and included on the consolidated statements of operations and comprehensive income. Hotel renovations and replacements of assets that improve or extend the life of the asset are recorded at cost and depreciated over their estimated useful lives. Furniture, fixtures and equipment under finance leases are recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred. F-15 Table of Contents Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. Intangible assets arising from contractual arrangements are typically amortized over the life of the contract. The Company is required to make subjective assessments as to the useful lives and classification of properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets. These assessments may impact the Company’s results of operations. The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and estimated holding period, future required capital expenditures, and fair values, including consideration of expected terminal capitalization rates, discount rates, and comparable selling prices. The Company will adjust its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life. The Company will classify a hotel as held for sale and will cease recording depreciation expense when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, approval of the Company's board of trustees (the "Board of Trustees") has been obtained, no significant financing contingencies exist, and the sale is expected to close within one year. If the fair value less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. The Company will classify the loss, together with the related operating results, as continuing or discontinuing operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet. Intangible Assets and Liabilities Intangible assets or liabilities are recorded on non-market contracts assumed as part of the acquisition of certain hotels. The Company reviews the terms of agreements assumed in conjunction with the purchase of a hotel to determine if the terms are over or under market compared to an estimated market agreement at the acquisition date. Under market lease assets or over market contract liabilities are recorded at the acquisition date and amortized using the straight-line method over the term of the agreement. The Company does not amortize intangible assets with indefinite useful lives, but reviews these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term liquid investments with an original maturity of three months or less. The Company maintains cash and cash equivalents balances in excess of insured limits with various financial institutions. This may subject the Company to significant concentrations of credit risk. The Company performs periodic evaluations of the credit quality of these financial institutions. Restricted Cash Restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property insurance. Prepaid Expenses and Other Assets The Company's prepaid expenses and other assets consist of prepaid real estate taxes, prepaid insurance, inventories, over or under market leases, and corporate office equipment and furniture. Derivative Instruments In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. Unrealized gains and losses of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. F-16 Table of Contents Revenue Recognition Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over the length of a customer's hotel stay. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied. The Company recognizes revenue related to nonrefundable membership initiation fees and refundable membership initiation deposits over the expected life of an active membership. For refundable membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as other operating revenues on the consolidated statements of operations and comprehensive income over the expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method using the Company's incremental borrowing rate. The accretion is included in interest expense. Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties. Lease revenue is recognized on a straight-line basis over the life of the lease and included in other operating revenues in the Company's consolidated statements of operations and comprehensive income. The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations and comprehensive income. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses. Income Taxes To qualify as a REIT for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, the Company's TRS lessees are subject to federal and state income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Share-based Compensation The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share-based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available to common shareholders, as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation. F-17 Table of Contents Comprehensive Income The purpose of reporting comprehensive income is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income consists of all components of income, including other comprehensive income, which is excluded from net income. Segment Information The Company separately evaluates the performance of each of its hotel properties. However, because each of the hotels has similar economic characteristics, facilities, and services, the hotel properties have been aggregated into a single operating segment. Recent Accounting Standards In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases , which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases , to clarify how to apply certain aspects of the new leases standard. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The Company adopted this standard on January 1, 2019. The Company elected the practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the impact of the adoption of the new standard. The adoption of this standard has resulted in the recognition of right-of-use assets and related liabilities to account for the Company's future obligations under the ground lease and corporate office arrangements for which the Company is the lessee. See Notes 4 and 11 below for additional disclosures of the adoption of this standard. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which, among other things, simplifies the accounting for convertible instruments by eliminating the requirement to separate conversion features from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods. The Company early adopted ASU 2020-06 on January 1, 2021. As such, beginning January 1, 2021, the convertible debt will be recorded entirely as a single liability with no portion of the proceeds from the issuance of the convertible debt instrument recorded as attributable to the conversion feature. In addition, the Company will cease recording non-cash interest expense associated with amortization of the debt discount and will calculate earnings per share using the if-converted method. The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. As a result, in more cases, convertible debt will be accounted for as a single instrument. The guidance also removes certain conditions for equity classification related to contracts in an entity’s own equity and requires the application of the if-converted method for calculating diluted earnings per share. Note 3. Acquisition and Disposition of Hotel Properties There were no acquisitions of hotel properties during the years ended December 31, 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. F-18 Table of Contents The following table sets forth information regarding the Company's disposition transactions during the years ended December 31, 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. February 14, 2019 $ 111,000 Hotel Palomar Washington DC Washington, D.C. February 22, 2019 141,450 Onyx Hotel Boston, MA May 29, 2019 58,255 Hotel Amarano Burbank Burbank, CA July 16, 2019 72,866 Rouge Hotel Washington, DC September 12, 2019 42,000 Hotel Madera Washington, DC September 26, 2019 23,250 Topaz Hotel Washington, DC November 22, 2019 33,100 2019 Total $ 481,921 For the years ended December 31, 2020, 2019 and 2018, the Company recognized a (gain) loss on its dispositions of $( 117.4 ) million, $( 2.8 ) million and $ 2.1 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 years ended December 31, 2020, 2019 and 2018, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $ 4.9 million, $ 46.4 million and $ 30.1 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. Note 4. Investment in Hotel Properties Investment in hotel properties as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Land $ 973,848 $ 1,042,198 Buildings and improvements 4,849,644 4,998,108 Furniture, fixtures and equipment 515,975 522,631 Finance lease asset 114,835 134,063 Construction in progress 5,443 35,637 $ 6,459,745 $ 6,732,637 Right-of-use asset, operating leases 320,564 335,272 Investment in hotel properties $ 6,780,309 $ 7,067,909 Less: Accumulated depreciation ( 898,287 ) ( 735,322 ) Investment in hotel properties, net $ 5,882,022 $ 6,332,587 The Company reviews its investment in hotel properties for impairment whenever events or circumstances indicate potential impairment. As a result of the effects of the COVID-19 pandemic on our expected future operating cash flows and estimated hold periods for certain properties, we determined certain impairment triggers had occurred and as a result, the Company assessed its investment in hotel properties for recoverability. Based on the analyses performed, for the year ended December 31, 2020, the Company recognized an impairment loss of $ 74.6 million related to two hotels and the retail component of a hotel as a result of the fair values being lower than their carrying values. The impairment loss was determined using level 2 inputs under authoritative guidance for fair value measurements. On January 1, 2019, the Company adopted ASC 842, Leases and applied it prospectively. At adoption, the Company also elected the practical expedients which permitted it to not reassess its prior conclusions about lease identification, classification and initial direct costs. Consequently on January 1, 2019, the Company recognized right-of-use assets and related liabilities F-19 Table of Contents related to its ground leases, all of which are operating leases. Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates, which ranged from 5.5 % to 7.6 %. All of these ground leases have long terms, ranging from 10 years to 88 years and the Company included the exercise of options to extend when it is reasonably certain the Company will exercise such option. See Note 11 for additional information about the ground leases. The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of December 31, 2020, the Company's lease liabilities consisted of operating lease liabilities of $ 255.1 million and financing lease liabilities of $ 46.4 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. The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets. The adoption of this standard had minimal impact on the Company's consolidated statements of operations and comprehensive income. Note 5. Debt On June 29, 2020, the Company amended its credit agreements and related documents governing the unsecured revolving credit facilities, term loan agreements and senior notes which: • waived existing financial covenants through the end of the first quarter of 2021 and provided substantially less restrictive covenants through the end of the second quarter of 2022 ("waiver period"); • extended the maturity of $ 242.6 million of the Company’s Sixth Term Loan 2021 tranche of $ 300.0 million from November 2021 to November 2022; • fixed the spread at the highest threshold through the end of the waiver period; • increased the LIBOR floor from 0 % to 0.25 % for any debt not designated by the Company as being covered by an interest rate swap; • requires assets to be pledged as security, in the future, under certain circumstances; • preserved the Company's ability to pay quarterly preferred equity dividend payments and a $ 0.01 per share quarterly common dividend (or higher if required to maintain REIT status) during the waiver period so long as the Company is in compliance with all loan agreements; • provided the Company flexibility to complete new acquisitions and other investments during the waiver period; • permit the Company to complete up to $ 90.0 million of capital improvements and redevelopment projects through the end of the waiver period; and • provide limitations during the waiver period on common share repurchases and certain required prepayments following capital issuances or property dispositions. On February 18, 2021, the Company further amended its credit agreements and related documents governing the unsecured revolving credit facilities, term loan agreements and senior notes, which: • extended the waiver period for financial covenants through the end of the first quarter of 2022 except for the minimum fixed charge coverage and the minimum unsecured interest coverage ratio which are extended through December 31, 2021. The covenants are substantially less restrictive through a phase-in period; • extended the majority of the remaining balance of the Company's Sixth Term Loan 2021 tranche, from November 2021 to November 2022; • increased the spread on the unsecured revolving credit facility to LIBOR plus 2.4 % and unsecured term loans to LIBOR plus 2.35 %; • increased the fixed rate on the Senior Unsecured Notes by 0.45 % during the extended waiver period; and • extends other terms through the extended waiver period. F-20 Table of Contents The Company's debt consisted of the following as of December 31, 2020 and 2019 (dollars in thousands): Balance Outstanding as of Interest Rate Maturity Date December 31, 2020 December 31, 2019 Revolving credit facilities Senior unsecured credit facility Floating (1) January 2022 $ 40,000 $ 165,000 PHL unsecured credit facility Floating (2) January 2022 — — Total revolving credit facilities $ 40,000 $ 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 (4) 40,966 300,000 Tranche 2021 Extended Floating (3) November 2022 173,034 — Tranche 2022 Floating (3) November 2022 286,000 400,000 Tranche 2023 Floating (3) November 2023 400,000 400,000 Tranche 2024 Floating (3) January 2024 400,000 400,000 Total Sixth Term Loan 1,300,000 1,500,000 Total term loans at stated value 1,775,000 1,975,000 Deferred financing costs, net ( 8,455 ) ( 10,343 ) Total term loans $ 1,766,545 $ 1,964,657 Convertible senior notes Convertible senior notes 1.75 % December 2026 500,000 — Debt discount, net ( 113,099 ) — Deferred financing costs, net ( 12,568 ) — Total convertible senior notes $ 374,333 $ — 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 ( 407 ) ( 437 ) Total senior unsecured notes $ 99,593 $ 99,563 Total debt $ 2,280,471 $ 2,229,220 ________________________ (1) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin. (2) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin. (3) Borrowings under the term loan facilities bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin. As of December 31, 2020, $ 1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.19 %, 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 %. F-21 Table of Contents (4 ) In February 2021, we repaid $ 12.8 million of the Sixth Term Loan Tranche 2021 and extended the majority of the remaining balance to November 2022. Unsecured Revolving Credit Facilities The Company has a $ 650.0 million senior unsecured revolving credit facility maturing in January 2022, with options to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee. As of December 31, 2020, the Company had $ 40.0 million of outstanding borrowings, $ 6.8 million of outstanding letters of credit and borrowing capacity of $ 603.2 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, or spread. The Company has the ability to further increase the aggregate borrowing capacity under the credit agreement to up to $ 1.3 billion, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.45 % to 2.25 %, depending on the Company’s leverage ratio. As a result of the amendments to the credit agreements and related documentation described above, the spread on the borrowings is fixed at 2.25 % during the waiver period. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.20 % or 0.30 % of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value. The Company also has a $ 25.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in January 2022. Borrowings on the PHL Credit Facility bear interest at LIBOR plus 1.45 % to 2.25 %, depending on the Company's leverage ratio. 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 December 31, 2020, the Company had no borrowings under the PHL Credit Facility and had $ 25.0 million borrowing capacity remaining available under the PHL Credit Facility. Under the terms of the credit agreement for the unsecured revolving credit facility, one or more standby letters of credit, up to a maximum aggregate outstanding balance of $ 30.0 million, may be issued on behalf of the Company by the lenders under the unsecured revolving credit facility. The Company will incur a fee that shall be agreed upon with the issuing bank. Any outstanding standby letters of credit reduce the available borrowings on the senior unsecured revolving credit facility by a corresponding amount. Standby letters of credit of $ 6.8 million and $ 2.8 million were outstanding as of December 31, 2020 and 2019, respectively. As of December 31, 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 The Company has senior unsecured term loans with different maturities. Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on the Company's leverage ratio. Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility. Upon completion of the convertible notes offering in December, the Company repaid $ 200.0 million of the Company's sixth term loans. As of December 31, 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. Convertible Senior Notes In December 2020, the Company issued $ 500.0 million aggregate principal amount of 1.75 % Convertible Senior Notes maturing in December 2026 (the "Convertible Notes"). The Convertible Notes are governed by an indenture (the “Base Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the offering of the Convertible Notes were approximately $ 487.3 million after deducting the underwriting fees and other expenses paid by the Company. The Convertible Notes bear interest at a rate of 1.75 % per annum, payable semi-annually in arrears on June 15th and December 15th of each year, beginning on June 15, 2021. The Convertible Notes will mature on December 15, 2026. The Company recorded coupon interest expense of $ 0.4 million for the year ended December 31, 2020. The Company separated the Convertible Notes into liability and equity components. The initial carrying amount of the liability component was $ 386.1 million and was calculated using a discount rate of 6.25 %. The discount rate was based on the terms of debt instruments that were similar to the Convertible Notes. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the principal amount of the F-22 Table of Contents Convertible Notes, or $ 113.9 million. The amount recorded in equity is not subject to remeasurement or amortization. The $ 113.9 million also represents the initial discount recorded on the Convertible Notes. The discount is accreted to interest expense using the effective interest rate method over the contractual term of the Convertible Notes. The Company recorded interest expense related to the accretion of the discount and the amortization of the debt issuance costs of $ 0.9 million for the year ended December 31, 2020. Prior to June 15, 2026, the Convertible Notes will be convertible only upon certain circumstances. On and after June 15, 2026, holders may convert any of their Convertible Notes into the Company’s common shares of beneficial interest (“common shares”), at the applicable conversion rate at any time at their election two days prior to the maturity date. The initial conversion rate is 39.2549 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $ 25.47 per share. The conversion rate is subject to adjustment in certain circumstances. As of December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount. The Company may redeem for cash all or a portion of the Convertible Notes, at its option, on or after December 20, 2023 upon certain circumstances. The redemption price will be equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If certain make-whole fundamental changes occur, the conversion rate for the Convertible Notes may be increased. In connection with the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offering of the Convertible Notes or their respective affiliates and other financial institutions (the “Capped Call Counterparties”). The Capped Call Transactions initially cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of common shares underlying the Convertible Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to holders of common shares upon conversion of the Convertible Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Convertible Notes upon conversion thereof, with such reduction and/or offset subject to a cap. The upper strike price of the Capped Call Transactions is $ 33.0225 per share. The cost of the Capped Call Transactions was $ 38.3 million and was recorded within additional paid-in capital. Senior Unsecured Notes The Company has $ 60.0 million of senior unsecured notes outstanding bearing a fixed interest rate of 4.70 % per annum and maturing in December 2023 (the "Series A Notes") and $ 40.0 million of senior unsecured notes bearing a fixed interest rate of 4.93 % per annum and maturing in December 2025 (the "Series B Notes"). The debt covenants of the Series A Notes and the Series B Notes are substantially similar to those of the Company's senior unsecured revolving credit facility. As of December 31, 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 year ended December 31, 2020 2019 2018 Unsecured revolving credit facilities $ 10,210 $ 4,530 $ 11,274 Unsecured term loan facilities 72,642 79,813 30,479 Convertible senior notes 365 — — Senior unsecured notes 4,792 4,792 4,686 Mortgage debt — 2,293 2,592 Amortization of deferred financing fees 7,296 7,115 2,565 Other 8,793 9,931 2,327 Total interest expense $ 104,098 $ 108,474 $ 53,923 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 convertible senior notes) as of December 31, 2020 and 2019 was $ 491.8 million and $ 101.2 million, respectively. F-23 Table of Contents Future Minimum Principal Payments As of December 31, 2020, the future minimum principal payments for the Company's debt are as follows (in thousands): 2021 $ 40,966 2022 564,034 2023 760,000 2024 510,000 2025 40,000 Thereafter 500,000 Total debt principle payments $ 2,415,000 Deferred financing costs ( 134,529 ) Total debt $ 2,280,471 Derivative and Hedging Activities The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. 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. F-24 Table of Contents The Company's interest rate swaps at December 31, 2020 and 2019 consisted of the following (dollars in thousands): Notional Value as of Hedge Type Interest Rate Maturity December 31, 2020 December 31, 2019 Swap - cash flow 1.63 % January 2020 $ — $ 50,000 Swap - cash flow 1.63 % January 2020 — 50,000 Swap - cash flow 2.46 % January 2020 — 50,000 Swap - cash flow 2.46 % January 2020 — 50,000 Swap - cash flow 1.66 % January 2020 — 50,000 Swap - cash flow 1.66 % January 2020 — 50,000 Swap - cash flow 2.12 % December 2020 — 100,000 Swap - cash flow 2.12 % December 2020 — 100,000 Swap - cash flow 1.74 % January 2021 75,000 75,000 Swap - cash flow 1.75 % January 2021 50,000 50,000 Swap - cash flow 1.53 % January 2021 37,500 37,500 Swap - cash flow 1.53 % January 2021 37,500 37,500 Swap - cash flow 1.46 % (1) January 2021 100,000 100,000 Swap - cash flow 1.47 % (1) January 2021 47,500 47,500 Swap - cash flow 1.47 % (1) January 2021 47,500 47,500 Swap - cash flow 1.47 % (1) January 2021 47,500 47,500 Swap - cash flow 1.47 % (1) January 2021 47,500 47,500 Swap - cash flow 2.60 % October 2021 55,000 55,000 Swap - cash flow 2.60 % October 2021 55,000 55,000 Swap - cash flow 1.78 % (1) January 2022 100,000 100,000 Swap - cash flow 1.78 % (1) January 2022 50,000 50,000 Swap - cash flow 1.79 % (1) January 2022 30,000 30,000 Swap - cash flow 1.68 % April 2022 25,000 25,000 Swap - cash flow 1.68 % April 2022 25,000 25,000 Swap - cash flow 1.64 % April 2022 25,000 25,000 Swap - cash flow 1.64 % April 2022 25,000 25,000 Swap - cash flow 1.99 % November 2023 85,000 85,000 Swap - cash flow 1.99 % November 2023 85,000 85,000 Swap - cash flow 1.99 % November 2023 50,000 50,000 Swap - cash flow 1.99 % November 2023 30,000 30,000 Swap - cash flow 2.60 % January 2024 75,000 — Swap - cash flow 2.60 % January 2024 50,000 — Swap - cash flow 2.60 % January 2024 25,000 — Swap - cash flow 2.60 % January 2024 75,000 — Swap - cash flow 2.60 % January 2024 75,000 — Total $ 1,430,000 $ 1,630,000 ________________________ (1) Swaps assumed in connection with the Company's merger with LaSalle Hotel Properties on November 30, 2018. In addition, as of December 31, 2020 and 2019, the Company had interest rates swaps for aggregate notional amounts of $ 490.0 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. Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable F-25 Table of Contents market interest rate curves (Overnight Index Swap curves) and volatilities (Level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company incorporates these counterparty credit risks in its fair value measurements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions. As of December 31, 2020, the Company's derivative instruments were in liability positions, with aggregate liability fair values of $ 58.0 million which are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets. The Company expects approximately $ 24.7 million will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months. Note 6. Revenue The Company presents revenue on a disaggregated basis in the accompanying consolidated statements of operations and comprehensive income. The following table presents revenues by geographic location for the years ended December 31, 2020, 2019 and 2018 (in thousands): For the year ended December 31, 2020 2019 2018 San Diego, CA $ 96,071 $ 243,598 $ 78,965 Southern FL 76,971 115,600 63,824 San Francisco, CA 66,896 319,195 193,708 Boston, MA 63,356 273,669 85,676 Los Angeles, CA 51,664 200,398 128,016 Other(1) 27,453 128,627 108,583 Portland, OR 27,174 105,571 98,265 Chicago, IL 15,604 82,690 3,885 Washington, D.C. 12,739 111,552 34,731 Seattle, WA 4,960 31,313 33,025 $ 442,888 $ 1,612,213 $ 828,678 (1) Other includes: Atlanta (Buckhead), GA, Minneapolis, MN, Nashville, TN, New York, NY, Philadelphia, PA and Santa Cruz, CA. Payments from customers are primarily made when services are provided. Due to the short-term nature of the Company's contracts and the almost simultaneous receipt of payment, almost all of the contract liability balance at the beginning of the period is expected to be recognized as revenue over the following 12 months. Note 7. Equity Common Shares The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $ 0.01 par value per share (“common shares”). Each outstanding common share entitles the holder to one vote on each matter submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company's Board of Trustees. On February 22, 2016, the Company announced that the Board of Trustees authorized a share repurchase program of up to $ 150.0 million of the Company's outstanding common shares. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares. For the year ended December 31, 2020, the Company had no repurchases under this program and as of December 31, 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. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. This $ 100.0 million share repurchase program will commence upon completion of the Company's $ 150.0 million share repurchase program. F-26 Table of Contents Common Dividends The Company declared the following dividends on common shares/units for the year ended December 31, 2020: Dividend per Share/Unit For the Quarter Ended Record Date Payable Date $ 0.01 March 31, 2020 March 31, 2020 April 15, 2020 $ 0.01 June 30, 2020 June 30, 2020 July 15, 2020 $ 0.01 September 30, 2020 September 30, 2020 October 15, 2020 $ 0.01 December 31, 2020 December 31, 2020 January 15, 2021 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 December 31, 2020 and 2019: As of December 31, Security Type 2020 2019 6.50 % Series C 5,000,000 5,000,000 6.375 % Series D 5,000,000 5,000,000 6.375 % Series E 4,400,000 4,400,000 6.30 % Series F 6,000,000 6,000,000 20,400,000 20,400,000 The Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares and Series F Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions. The Preferred Shares are cumulative redeemable preferred shares, do not have any maturity date and are not subject to mandatory redemption. The Company could not redeem the Series C Preferred Shares prior to March 18, 2018, may not redeem the Series D Preferred Shares prior to June 9, 2021, could not redeem the Series E Preferred Shares prior to March 4, 2018 and may not redeem the Series F Preferred Shares prior to May 25, 2021, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below. On or after May 25, 2021 and June 9, 2021, the Company may, at its option, redeem the Series F Preferred Shares and Series D Preferred Shares, respectively, and at any time the Company may, at its option, redeem the Series C Preferred Shares or the Series E Preferred Shares, or both, in each case in whole or from time to time in part, by payment of $ 25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which the Company’s common shares and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days following the change of control by paying $ 25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on defined formulas subject to share caps. The share cap on each Series C Preferred Share is 2.0325 common shares, on each Series D Preferred Share is 1.9794 common shares, on each Series E Preferred Share is 1.9372 common shares and on each Series F Preferred Share is 2.0649 common shares. F-27 Table of Contents Preferred Dividends The Company declared the following dividends on preferred shares for the year ended December 31, 2020: Security Type Dividend per Share/Unit For the Quarter Ended Record Date Payable Date 6.50 % Series C $ 0.41 March 31, 2020 March 31, 2020 April 15, 2020 6.50 % Series C $ 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 6.50 % Series C $ 0.41 December 31, 2020 December 31, 2020 January 15, 2021 6.375 % Series D $ 0.40 March 31, 2020 March 31, 2020 April 15, 2020 6.375 % Series D $ 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 D $ 0.40 December 31, 2020 December 31, 2020 January 15, 2021 6.375 % Series E $ 0.40 March 31, 2020 March 31, 2020 April 15, 2020 6.375 % Series E $ 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 6.375 % Series E $ 0.40 December 31, 2020 December 31, 2020 January 15, 2021 6.30 % Series F $ 0.39 March 31, 2020 March 31, 2020 April 15, 2020 6.30 % Series F $ 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 6.30 % Series F $ 0.39 December 31, 2020 December 31, 2020 January 15, 2021 Non-controlling Interest of Common Units in Operating Partnership Holders of Operating Partnership units have certain redemption rights that enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the time of redemption or the Company’s common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the Operating Partnership's limited partners or the Company's shareholders. As of December 31, 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 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. On July 24, 2020, 109,240 LTIP Class B units were converted to common shares. As of December 31, 2020 and 2019, the Operating Partnership had 127,111 and 236,351 LTIP units outstanding, respectively. As of December 31, 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 December 31, 2020 and 2019, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units. Note 8. Share-Based Compensation Plan The Company maintains the 2009 Equity Incentive Plan, as amended and restated (as amended, the "Plan"), to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan vest over a period determined by the Board of Trustees, generally over three to five years . The Company pays or accrues for dividends on share-based awards. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. As of December 31, 2020, there were 1,199,767 common shares available for issuance under the Plan. F-28 Table of Contents Service Condition Share Awards From time to time, the Company awards restricted common shares under the Plan to members of the Board of Trustees, officers and employees. These shares generally vest over three to five years based on continued service or employment. The following table provides a summary of service condition restricted share activity as of December 31, 2020: Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2018 137,105 $ 30.05 Granted 52,609 $ 36.86 Vested ( 61,982 ) $ 31.35 Forfeited — $ — Unvested at December 31, 2018 127,732 $ 32.22 Granted 88,430 $ 32.64 Vested ( 66,276 ) $ 30.20 Forfeited ( 707 ) $ 32.70 Unvested at December 31, 2019 149,179 $ 33.37 Granted 390,242 $ 23.62 Vested ( 72,824 ) $ 33.13 Forfeited ( 6,787 ) $ 27.68 Cancelled ( 217,083 ) $ 25.53 Unvested at December 31, 2020 242,727 $ 24.94 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 service condition share award (retention grant) and as a result accelerated and recognized an expense of $ 5.5 million. For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 8.1 million, $ 2.4 million, and $ 2.0 million respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 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 2.3 years. Performance-Based Equity Awards On December 13, 2013, the Board of Trustees approved a target award of 252,088 performance-based equity awards to officers and employees of the Company. The awards vested based on the extent to which the performance criteria had been met, on January 1, 2016, 2017, 2018, 2019 and 2020. The actual number of common shares that vested was based on the two performance criteria defined in the award agreements for the period of performance beginning on the grant date and ending on the applicable vesting date. In January 2016, the Company issued 25,134 of common shares which represented achieving 49 % of the 50,418 target number of shares for that measurement period. In January 2017, the Company issued 12,285 of common shares which represented achieving 25 % of the 49,914 target number of shares for that measurement period. In January 2018, the Company issued 72,236 of common shares which represented achieving 145 % of the 49,914 target number of shares for that measurement period. In January 2019, the Company issued 35,471 of common shares which represented achieving 71 % of the 49,914 target number of shares for that measurement period. In February 2020, the Company issued 27,881 of common shares which represented achieving 56 % of the 49,914 target number of shares for that measurement period. On February 11, 2015, the Board of Trustees approved a target award of 44,962 performance-based equity awards to officers and employees of the Company. In January 2018, these awards vested and the Company issued 14,089 and 2,501 common shares to officers and non-executive management employees, respectively. The actual number of common shares that vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2015 through December 31, 2017. On July 27, 2015, a target award of 771 performance-based equity awards was granted to an employee of the Company. In January 2018, these awards vested and the Company issued 1,079 common shares to the employee. The actual number of common shares that vested was based on the three performance criteria defined in the award agreement for the period of performance from January 1, 2016 through December 31, 2017. F-29 Table of Contents On February 10, 2016, the Board of Trustees approved a target award of 100,919 performance-based equity awards to officers and employees of the Company. In January 2019, these awards vested and the Company issued 142,173 and 31,146 common shares to officers and employees, respectively. The actual number of common shares that vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2016 through December 31, 2018. On February 15, 2017, the Board of Trustees approved a target award of 81,939 performance-based equity awards to officers and employees of the Company. In January 2020, these awards vested and the Company issued 1,972 and 405 common shares to officers and employees, respectively. The actual number of common shares that vested was based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2017 through December 31, 2019. On February 14, 2018, the Board of Trustees approved a target award of 78,918 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2021. The actual number of common shares that ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2021 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2018 through December 31, 2020. On February 13, 2019, the Board of Trustees approved a target award of 126,891 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2022. The actual number of common shares that ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2022 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2019 through December 31, 2021. On February 12, 2020, the Board of Trustees approved a target award of 161,777 performance-based equity awards to officers and employees of the Company. 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. F-30 Table of Contents 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 December 13, 2013 Relative Total Shareholder Return 50.00 % $ 4.7 29.00 % 0.34 % - 2.25 % 2.40 % Absolute Total Shareholder Return 50.00 % $ 2.9 29.00 % 0.34 % - 2.25 % 2.40 % February 11, 2015 Relative Total Shareholder Return 30.00 % $ 0.9 22.00 % 1.02 % 2.50 % Absolute Total Shareholder Return 40.00 % $ 0.7 22.00 % 1.02 % 2.50 % EBITDA Comparison 30.00 % $ 0.7 22.00 % 1.02 % 2.50 % July 27, 2015 Relative Total Shareholder Return 30.00 % $ — (1) 22.00 % 0.68 % 2.50 % Absolute Total Shareholder Return 40.00 % $ — (1) 22.00 % 0.68 % 2.50 % EBITDA Comparison 30.00 % $ — (1) 22.00 % 0.68 % 2.50 % February 10, 2016 Relative Total Shareholder Return 70.00 % $ 1.6 25.00 % 0.71 % 3.00 % Absolute Total Shareholder Return 15.00 % $ 0.2 25.00 % 0.71 % 3.00 % EBITDA Comparison 15.00 % $ 0.4 25.00 % 0.71 % 3.00 % February 15, 2017 Relative and Absolute Total Shareholder Return 65.00 % / 35.00 % $ 2.7 28.00 % 1.27 % 5.60 % February 14, 2018 Relative and Absolute Total Shareholder Return 65.00 % / 35.00 % $ 3.5 28.00 % 2.37 % 4.70 % February 13, 2019 Relative and Absolute Total Shareholder Return 65.00 % / 35.00 % $ 4.5 26.00 % 2.52 % 4.20 % February 12, 2020 Relative Total Shareholder Return 100 % $ 4.9 23.40 % 1.41 % — % (1) Amounts round to zero. In the table above, the Relative Total Shareholder Return and Absolute Total Shareholder Return components are market conditions as defined by ASC 718. The EBITDA Comparison component is a performance condition as defined by ASC 718, and, therefore, compensation expense related to this component will be reassessed at each reporting date based on the 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- F-31 Table of Contents line basis through the vesting date. As of December 31, 2020, there was approximately $ 4.8 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 1.7 years. For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 4.1 million, $ 4.8 million and $ 3.2 million, respectively, in expense related to these awards. Long-Term Incentive Partnership Units LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Operating Partnership and receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. LTIP units are allocated their pro-rata share of the Company's net income (loss). Vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership. As of December 31, 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. On December 13, 2013, the Board of Trustees approved a grant of 226,882 LTIP Class B units to executive officers of the Company. These LTIP units were subject to time-based vesting in five equal annual installments beginning January 1, 2016 and ending on January 1, 2020. The fair value of each award was determined based on the closing price of the Company’s common shares on the grant date of $ 29.19 per unit. The aggregate grant date fair value of the LTIP Class B units was $ 6.6 million. 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. On July 24, 2020, 109,240 LTIP Class B units were redeemed for common shares. As of December 31, 2020, the Company had 127,111 LTIP units outstanding. As of December 31, 2020, all of such LTIP units outstanding have vested. For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 10.6 million, $ 1.1 million, and $ 1.1 million respectively, in expense related to these LTIP units. As of December 31, 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. Note 9. Income Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. It is the Company's current intention to adhere to these requirements and maintain the Company's qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income of TRSs, including our TRS lessees, are subject to federal, state and local income taxes. For federal income tax purposes, the cash distributions paid to the Company’s common shareholders and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions which could result in differences between cash basis and tax basis distribution amounts. F-32 Table of Contents The following characterizes distributions paid per common share and preferred share on a tax basis for the years ended December 31, 2020, 2019 and 2018: 2020 2019 2018 Amount % Amount % Amount % Common Shares: Ordinary non-qualified income $ — — % $ 0.5609 30.03 % $ 1.2040 77.57 % Qualified dividend — — % 0.0069 0.37 % 0.3482 22.43 % Capital gain 0.0100 33.33 % 1.3000 69.60 % — — % Return of capital 0.0200 66.67 % — — % — — % Total $ 0.0300 100.00 % $ 1.8678 100.00 % $ 1.5522 100.00 % Series C Preferred Shares: Ordinary non-qualified income $ — — % $ 0.6100 30.03 % $ 1.2605 77.57 % Qualified dividend — — % 0.0075 0.37 % 0.3645 22.43 % Capital gain 0.4063 33.34 % 1.4138 69.60 % — — % Return of capital 0.8125 66.66 % — — % — — % Total $ 1.2188 100.00 % $ 2.0313 100.00 % $ 1.6250 100.00 % Series D Preferred Shares: Ordinary non-qualified income $ — — % $ 0.5982 30.03 % $ 1.2363 77.57 % Qualified dividend — — % 0.0074 0.37 % 0.3575 22.43 % Capital gain 0.3984 33.33 % 1.3866 69.60 % — — % Return of capital 0.7969 66.67 % — — % — — % Total $ 1.1953 100.00 % $ 1.9922 100.00 % $ 1.5938 100.00 % Series E Preferred Shares: (1) Ordinary non-qualified income $ — — % $ 0.5982 30.03 % $ — — % Qualified dividend — — % 0.0074 0.37 % — — % Capital gain 0.3984 33.33 % 1.3866 69.60 % — — % Return of capital 0.7969 66.67 % — — % — — % Total $ 1.1953 100.00 % $ 1.9922 100.00 % $ — — % Series F Preferred Shares: (1) Ordinary non-qualified income $ — — % $ 0.5912 30.03 % $ — — % Qualified dividend — — % 0.0073 0.37 % — — % Capital gain 0.3938 33.34 % 1.3703 69.60 % — — % Return of capital 0.7875 66.66 % — — % — — % Total $ 1.1813 100.00 % $ 1.9688 100.00 % $ — — % (1) Issued upon completion of the Company's merger with LaSalle on November 30, 2018. Of the common distribution declared on December 15, 2017 and paid on January 12, 2018, $ 0.3800 was treated as a 2018 distribution for tax purposes. The preferred share distributions declared on December 15, 2017 and paid on January 12, 2018 were treated as 2018 distributions for tax purposes. Of the common distributions declared on November 19, 2018 and December 14, 2018 and paid on January 15, 2019, $ 0.3478 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 14, 2018 and paid on January 15, 2019, $ 0.4063 per Series C Preferred Share, $ 0.3984 per Series D Preferred Share, $ 0.3984 per Series E Preferred Share and $ 0.3938 per Series F Preferred Share, were treated as 2019 distributions for tax purposes. F-33 Table of Contents Of the common distribution declared on December 16, 2019 and paid on January 15, 2020, $ 0.3800 was treated as a 2019 distribution for tax purposes. The preferred share distributions declared on December 16, 2019 and paid on January 15, 2020 were treated as 2019 distributions for tax purposes. Of the common distribution declared on December 15, 2020 and paid on January 15, 2021, $ 0.0100 will be treated as a 2021 distribution for tax purposes. The preferred share distributions declared on December 15, 2020 and paid on January 15, 2021 were treated as 2021 distributions for tax purposes. The Company's provision (benefit) for income taxes consists of the following (in thousands): For the year ended December 31, 2020 2019 2018 Federal Current $ ( 127 ) $ 3,061 $ 1,696 Deferred ( 6,266 ) ( 106 ) ( 248 ) State and local Current 668 3,938 360 Deferred 2,028 ( 1,721 ) ( 66 ) Income tax expense (benefit) $ ( 3,697 ) $ 5,172 $ 1,742 A reconciliation of the statutory federal tax expense (benefit) to the Company's income tax expense (benefit) is as follows (in thousands): For the year ended December 31, 2020 2019 2018 Statutory federal tax expense (benefit) $ ( 72,098 ) $ 25,388 $ 3,177 State income tax expense (benefit), net of federal tax expense (benefit) ( 5,046 ) 943 300 REIT income not subject to tax 53,311 ( 21,522 ) ( 1,828 ) Change in valuation allowance 20,056 — — Other 80 363 93 Income tax expense (benefit), net $ ( 3,697 ) $ 5,172 $ 1,742 The Company has provided a valuation allowance against its federal and state deferred tax asset at December 31, 2020 and a valuation allowance against certain state deferred tax assets as of December 31, 2019. The Company has recorded a receivable of $ 6.9 million representing the portion of the current year loss that will be carried back to prior years in which the Company had taxable income. A valuation allowance has been recognized on the current year loss in excess of the amount that will be carried back and is due to the uncertainty of realizing the loss in future years. The significant components of the Company's deferred tax assets as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Deferred Tax Assets: Net operating loss carryover $ 18,309 $ 723 State taxes and other 1,631 1,158 Depreciation 980 1,668 Total deferred tax asset before valuation allowance $ 20,920 $ 3,549 Valuation allowance ( 20,920 ) ( 864 ) Deferred tax asset net of valuation allowance $ — $ 2,685 The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. As of December 31, 2020 and 2019, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2016 and 2015, respectively. F-34 Table of Contents Note 10. Earnings Per Share The following is a reconciliation of basic and diluted earnings per common share (in thousands, except share and per-share data): For the year ended December 31, 2020 2019 2018 Numerator: Net income (loss) attributable to common shareholders $ ( 424,285 ) $ 82,886 $ ( 4,073 ) Less: dividends paid on unvested share-based compensation ( 8 ) ( 294 ) ( 332 ) Net income (loss) available to common shareholders $ ( 424,293 ) $ 82,592 $ ( 4,405 ) Denominator: Weighted-average number of common shares — basic 130,610,015 130,471,670 74,286,307 Effect of dilutive share-based compensation — 246,636 — Weighted-average number of common shares — diluted 130,610,015 130,718,306 74,286,307 Net income (loss) per share available to common shareholders — basic $ ( 3.25 ) $ 0.63 $ ( 0.06 ) Net income (loss) per share available to common shareholders — diluted $ ( 3.25 ) $ 0.63 $ ( 0.06 ) For the years ended December 31, 2020, 2019 and 2018, 600,436 , zero , 343,941 , 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 year ended December 31, 2020, 19,627,450 shares underlying the convertible debt have been excluded from diluted shares as their effect would have been anti-dilutive. The LTIP and OP units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share as there would be no effect on the amounts since the limited partners' share of income (loss) would also be added or subtracted to derive net income (loss) available to common shareholders. Note 11. Commitments and Contingencies Management Agreements The Company’s hotel properties are operated pursuant to management agreements with various management companies. The terms of these management agreements range from 1 year to 22 years, not including renewals, and 1 year to 52 years, including renewals. The majority of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with, in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to seven times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company’s management agreements are non-terminable except upon the manager’s breach of a material representation or the manager’s failure to meet performance thresholds as defined in the management agreement. The management agreements require the payment of a base management fee generally between 1 % and 4 % of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceed certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. For the years ended December 31, 2020, 2019, and 2018, com bined base and incentive management fees were $ 9.4 million, $ 44.8 million and $ 24.5 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. F-35 Table of Contents Reserve Funds Certain of the Company’s agreements with its hotel managers, franchisors, ground lessors and lenders have provisions for the Company to provide funds, typically 4.0 % of hotel revenues, sufficient to cover the cost of (a) certain non-routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment. Restricted Cash At December 31, 2020 and 2019, the Company had $ 12.0 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. Ground and Hotel Leases As of December 31, 2020, the following hotels were subject to leases as follows: Lease Properties Lease Type Lease Expiration Date Hotel Monaco Washington DC Operating lease November 2059 Argonaut Hotel Operating lease December 2059 Hotel Zelos San Francisco Operating lease June 2097 Hotel Zephyr Fisherman's Wharf Operating lease February 2062 Hotel Palomar Los Angeles Beverly Hills Operating lease January 2107 (1) Restaurant at Southernmost Beach Resort Operating lease April 2029 Hyatt Regency Boston Harbor Operating lease April 2077 San Diego Mission Bay Resort (formerly Hilton San Diego Mission Bay Resort) Operating lease July 2068 Paradise Point Resort & Spa Operating lease May 2050 Hotel Vitale Operating lease March 2070 (2) Viceroy Santa Monica Hotel Operating lease September 2065 The Westin Copley Place, Boston Operating lease December 2077 (3) The Liberty, A Luxury Collection Hotel, Boston Operating lease May 2080 Hotel Zeppelin San Francisco Operating and finance lease June 2089 (4) Harbor Court Hotel San Francisco Finance lease August 2052 The Roger New York Finance lease December 2044 (1) The expiration date assumes the exercise of all 19 five-year extension options. (2) The expiration date assumes the exercise of a 14 year extension option. (3) No payments are required through maturity. (4) The expiration date assumes the exercise of a 30 year extension option. The Company's leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases. Some leases also contain certain restrictions on modifications that can be made to the hotel structures due to their status as national historic landmarks. F-36 Table of Contents The Company records expense on a straight-line basis for leases that provide for minimum rental payments that increase in pre-established amounts over the remaining terms of the leases. 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 years ended December 31, 2020, 2019 and 2018 are as follows (in thousands): For the year ended December 31, 2020 2019 2018 Fixed ground rent $ 17,220 $ 17,042 $ 8,318 Variable ground rent 4,924 14,689 6,201 Total ground lease rent $ 22,144 $ 31,731 $ 14,519 In January 2019, the Company acquired the ground lease underlying the land of the Solamar Hotel for $ 6.9 million. Future maturity of lease liabilities for the Company's operating leases at December 31, 2020 were as follows (in thousands): 2021 $ 18,541 2022 18,849 2023 18,034 2024 18,119 2025 18,203 Thereafter 1,127,864 Total lease payments $ 1,219,610 Less: Imputed interest ( 964,504 ) Present value of lease liabilities $ 255,106 Litigation The nature of the operations of hotels exposes the Company's hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company has insurance to cover certain potential material losses. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company. F-37 Table of Contents Note 12. Supplemental Information to Statements of Cash Flows For the year ended December 31, 2020 2019 2018 (in thousands) Interest paid, net of capitalized interest $ 90,655 $ 91,918 $ 48,658 Interest capitalized $ 1,247 $ 347 $ — Income taxes paid $ 3,469 $ 4,568 $ 4,047 Non-Cash Investing and Financing Activities: Distributions payable on common shares/units $ 1,749 $ 51,006 $ 36,201 Distributions payable on preferred shares $ 7,558 $ 7,558 $ 7,558 Issuance of common shares for Board of Trustees compensation $ 637 $ 740 $ 662 Issuance of common shares for LTIP units redemption $ 2,831 $ — $ — Accrued additions and improvements to hotel properties $ 9,164 $ 3,192 $ 8,620 Right of use assets obtained in exchange for lease liabilities $ — $ 257,167 $ — Purchase of ground lease $ — $ 16,604 $ — Write-off of fully depreciated building, furniture, fixtures and equipment $ — $ 28,120 $ — Write-off of deferred financing costs $ 1,979 $ 3,013 $ — The Company also had the following transactions in connection with the LaSalle merger: Issuance of common shares $ — $ — $ 2,144,057 Issuance of Series E and F preferred shares $ — $ — $ 234,222 Issuance of OP units $ — $ — $ 4,665 Exchange of LaSalle shares as part of purchase price $ — $ — $ 346,544 Note 13. Subsequent Events In January 2021, the Company entered into an agreement to assign certain rooftop wireless leases and grant long-term easements at 11 of the Company's properties. The Company received proceeds of approximately $ 12.0 million. On February 3, 2021, the Company entered into an agreement to sell the Sir Francis Drake in San Francisco, California to an unaffiliated third-party. The Company expects to generate approximately $ 157.6 million of proceeds after customary closing costs. The Company expects the sale of the hotel to be completed in April 2021, subject to normal closing conditions, although no assurances can be given that the sales will be completed on these terms, or at all. On February 9, 2021, the Company closed on a public offering of $ 250.0 million of 1.75 % convertible notes. The convertible notes have terms identical to the Convertible Notes issued by the Company on December 15, 2020. The notes were sold at a 5.5 % premium to par. In connection with the pricing of the notes, the Company entered into privately negotiated capped call transactions with certain of the underwriters, their respective affiliates and/or other counterparties. The Company used the net proceeds to reduce amounts outstanding under the Company’s senior unsecured revolving credit facility, unsecured term loans, and for general corporate purposes. On February 18, 2021, the Company further amended its credit agreements and related documents governing the unsecured revolving credit facilities, term loan agreements and senior notes. The amendment is further discussed in "Note 5. Debt." On February 18, 2021, the Board of Trustees granted awards of an aggregate of 319,947 service condition restricted common shares and target performance-based equity to executive officers and employees of the Company. These awards will vest over 3 years. The actual number of common shares to be issued under the performance-based equity awards will be determined in early 2024 and and will be based on certain performance criteria stipulated in the agreements for the period January 1, 2021 through December 31, 2023. On February 18, 2021, the Board of Trustees granted awards of 600,097 LTIP Class B units to executive officers and 280,239 service condition restricted common shares to employees of the Company. These awards will vest ratably on January 1, 2023, 2024, 2025, and 2026. F-38 Table of Contents Note 14. Quarterly Operating Results (Unaudited) The Company's unaudited consolidated quarterly operating data for the years ended December 31, 2020 and 2019 (in thousands, except per-share data) is below. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel properties are not indicative of results to be achieved in succeeding quarters or years. Year Ended December 31, 2020 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 269,107 $ 22,592 $ 76,980 $ 74,209 Net income (loss) 42,068 ( 130,914 ) ( 130,560 ) ( 173,187 ) Net income (loss) attributable to the Company 41,949 ( 130,513 ) ( 130,307 ) ( 172,858 ) Net income (loss) attributable to common shareholders 33,810 ( 138,652 ) ( 138,446 ) ( 180,997 ) Net income (loss) per share available to common shareholders, basic $ 0.26 $ ( 1.06 ) $ ( 1.06 ) $ ( 1.39 ) Net income (loss) per share available to common shareholders, diluted $ 0.26 $ ( 1.06 ) $ ( 1.06 ) $ ( 1.39 ) Year Ended December 31, 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 367,169 $ 442,083 $ 423,552 $ 379,409 Net income (loss) 5,655 60,518 29,980 19,572 Net income (loss) attributable to the Company 5,635 60,373 29,891 19,543 Net income (loss) attributable to common shareholders ( 2,504 ) 52,234 21,752 11,404 Net income (loss) per share available to common shareholders, basic $ ( 0.02 ) $ 0.40 $ 0.17 $ 0.08 Net income (loss) per share available to common shareholders, diluted $ ( 0.02 ) $ 0.40 $ 0.17 $ 0.08 F-39 Table of Contents Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation As of December 31, 2020 (In thousands) Initial Costs Gross Amount at End of Year Description Land Building and Improvements Furniture, Fixtures and Equipment Cost Capitalized Subsequent to Acquisition (1) Land Building and Improvements Furniture, Fixtures and Equipment Total Accumulated Depreciation Net Book Value Year of Original Construction Date of Acquisition Depreciation Life Sir Francis Drake $ 22,500 $ 60,547 $ 6,953 $ 40,035 $ 22,500 $ 89,147 $ 18,388 $ 130,035 $ 39,823 $ 90,212 1928 6/22/2010 3 - 40 years Hotel Monaco Washington DC — 60,630 2,441 21,445 — 77,026 7,490 84,516 26,579 57,937 1839 9/9/2010 3 - 40 years Skamania Lodge 7,130 44,987 3,523 25,953 9,881 62,195 9,517 81,593 20,800 60,793 1993 11/3/2010 3 - 40 years Le Meridien Delfina Santa Monica 18,784 81,580 2,295 18,654 18,784 92,417 10,112 121,313 34,357 86,956 1972 11/19/2010 3 - 40 years Sofitel Philadelphia at Rittenhouse Square 18,000 64,256 4,639 20,331 18,000 75,964 13,262 107,226 29,348 77,878 2000 12/3/2010 3 - 40 years Argonaut Hotel — 79,492 4,247 8,826 — 83,756 8,809 92,565 29,442 63,123 1907 2/16/2011 3 - 40 years The Westin San Diego Gaslamp Quarter 25,537 86,089 6,850 38,843 25,537 115,866 15,916 157,319 39,151 118,168 1987 4/6/2011 1 - 40 years Hotel Monaco Seattle 10,105 38,888 2,073 12,349 10,105 45,580 7,730 63,415 18,768 44,647 1969 4/7/2011 3 - 40 years Mondrian Los Angeles 20,306 110,283 6,091 31,699 20,306 127,584 20,489 168,379 45,311 123,068 1959 5/3/2011 3 - 40 years W Boston 19,453 63,893 5,887 16,747 19,453 76,383 10,144 105,980 24,287 81,693 2009 6/8/2011 2 - 40 years Hotel Zetta San Francisco 7,294 22,166 290 17,623 7,294 35,337 4,742 47,373 12,945 34,428 1913 4/4/2012 3 - 40 years Hotel Vintage Seattle 8,170 23,557 706 8,911 8,170 29,823 3,351 41,344 10,347 30,997 1922 7/9/2012 3 - 40 years Hotel Vintage Portland 6,222 23,012 1,093 16,264 6,222 35,024 5,345 46,591 13,311 33,280 1894 7/9/2012 3 - 40 years W Los Angeles - West Beverly Hills 24,403 93,203 3,600 31,169 24,403 118,907 9,065 152,375 34,591 117,784 1969 8/23/2012 3 - 40 years Hotel Zelos San Francisco — 63,430 3,780 13,166 — 74,582 5,794 80,376 19,559 60,817 1907 10/25/2012 3 - 40 years Embassy Suites San Diego Bay - Downtown 20,103 90,162 6,881 36,081 20,103 117,487 15,637 153,227 34,336 118,891 1988 1/29/2013 3 - 40 years The Hotel Zags 8,215 37,874 1,500 7,379 8,215 43,605 3,148 54,968 10,466 44,502 1962 8/28/2013 3 - 40 years Hotel Zephyr Fisherman's Wharf — 116,445 3,550 40,919 — 153,485 7,429 160,914 38,410 122,504 1964 12/9/2013 3 - 40 years Hotel Zeppelin San Francisco 12,561 43,665 1,094 36,706 12,561 75,462 6,003 94,026 21,332 72,694 1913 5/22/2014 1 - 45 years The Nines, a Luxury Collection Hotel, Portland 18,493 92,339 8,757 12,531 18,493 98,896 14,731 132,120 28,245 103,875 1909 7/17/2014 3 - 40 years F-40 Table of Contents Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation As of December 31, 2020 (In thousands) Hotel Colonnade Coral Gables, Autograph Collection 12,108 46,317 1,271 18,388 12,108 59,015 6,961 78,084 15,542 62,542 1989 11/12/2014 2 - 40 years Hotel Palomar Los Angeles Beverly Hills — 90,675 1,500 14,494 — 100,429 6,240 106,669 20,296 86,373 1972 11/20/2014 3 - 40 years Revere Hotel Boston Common 41,857 207,817 10,596 ( 43,700 ) 17,367 180,892 18,311 216,570 44,071 172,499 1972 12/18/2014 3 - 40 years LaPLaya Beach Resort & Club 112,575 82,117 6,733 29,717 112,575 108,828 9,739 231,142 23,856 207,286 1968 5/21/2015 3 - 40 years Hotel Zoe Fisherman's Wharf 29,125 90,323 2,500 16,626 29,125 105,003 4,446 138,574 18,537 120,037 1990 6/11/2015 2 - 40 years Villa Florence San Francisco on Union Square 41,272 94,257 2,994 ( 29,935 ) 30,496 72,264 5,828 108,588 8,378 100,210 1908 11/30/2018 3 - 40 years Hotel Vitale — 105,693 3,896 1,861 — 106,826 4,624 111,450 9,569 101,881 2005 11/30/2018 3 - 40 years The Marker San Francisco 45,243 68,244 5,453 1,803 45,243 69,287 6,213 120,743 7,567 113,176 1910/1995 11/30/2018 3 - 40 years Hotel Spero 39,363 64,804 11,235 709 39,363 65,134 11,614 116,111 6,836 109,275 1928/1999 11/30/2018 3 - 40 years Chaminade Resort & Spa 22,590 37,114 6,009 13,056 22,590 48,444 7,735 78,769 5,503 73,266 1985 11/30/2018 3 - 40 years Harbor Court Hotel San Francisco — 79,009 6,190 1,330 — 79,760 6,769 86,529 6,074 80,455 1926/1991 11/30/2018 3 - 40 years Viceroy Santa Monica Hotel — 91,442 5,257 10,327 — 99,407 7,619 107,026 8,326 98,700 1967/2002 11/30/2018 3 - 40 years Le Parc Suite Hotel 17,876 65,515 2,496 12,361 17,876 74,544 5,828 98,248 6,147 92,101 1970 11/30/2018 3 - 40 years Montrose West Hollywood 16,842 58,729 6,499 1,491 16,842 59,045 7,674 83,561 5,137 78,424 1976 11/30/2018 3 - 40 years Chamberlain West Hollywood Hotel 14,462 43,157 5,983 1,409 14,462 44,085 6,464 65,011 4,172 60,839 1970/2005 11/30/2018 3 - 40 years Grafton on Sunset 12,440 36,932 3,951 588 12,440 37,274 4,197 53,911 4,076 49,835 1954 11/30/2018 3 - 40 years The Westin Copley Place, Boston — 291,754 35,780 5,304 — 295,327 37,511 332,838 26,282 306,556 1983 11/30/2018 3 - 40 years The Liberty, A Luxury Collection Hotel, Boston — 195,797 15,126 3,279 — 197,637 16,565 214,202 15,056 199,146 1851/2007 11/30/2018 3 - 40 years Hyatt Regency Boston Harbor — 122,344 6,862 7,533 — 129,294 7,445 136,739 9,780 126,959 1993 11/30/2018 3 - 40 years George Hotel 15,373 65,529 4,489 366 15,373 65,773 4,611 85,757 5,787 79,970 1928 11/30/2018 3 - 40 years Viceroy Washington DC 18,686 60,927 2,838 8,579 18,686 66,469 5,875 91,030 5,124 85,906 1962 11/30/2018 3 - 40 years Hotel Zena Washington DC 19,035 60,402 2,066 27,810 19,035 84,350 5,928 109,313 3,884 105,429 1972 11/30/2018 3 - 40 years F-41 Table of Contents Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation As of December 31, 2020 (In thousands) Paradise Point Resort & Spa — 199,304 22,032 8,556 21 204,573 25,298 229,892 17,977 211,915 1962 11/30/2018 3 - 40 years Hilton San Diego Gaslamp Quarter 33,017 131,926 7,741 1,347 33,017 132,937 8,077 174,031 11,049 162,982 2000 11/30/2018 3 - 40 years Solamar Hotel — 74,768 8,830 24,507 23,472 75,089 9,544 108,105 7,748 100,357 2005 11/30/2018 3 - 40 years L'Auberge Del Mar 33,304 92,297 5,393 5,205 33,304 94,600 8,295 136,199 6,713 129,486 1989 11/30/2018 3 - 40 years San Diego Mission Bay Resort — 80,733 9,458 26,388 30 99,545 17,004 116,579 10,465 106,114 1962 11/30/2018 3 - 40 years The Heathman Hotel 14,243 38,694 7,062 1,284 14,243 39,636 7,404 61,283 4,298 56,985 1927 11/30/2018 3 - 40 years Southernmost Beach Resort 86,131 238,470 8,366 6,744 86,131 243,723 9,857 339,711 17,470 322,241 1958-2008 11/30/2018 3 - 40 years The Marker Resort Key West Harbor Resort 25,463 66,903 2,486 3,400 25,463 69,291 3,498 98,252 5,200 93,052 2014 11/30/2018 3 - 40 years The Roger New York — 42,882 3,060 ( 16,946 ) — 25,775 3,221 28,996 3,999 24,997 1930/1998 11/30/2018 3 - 40 years Hotel Chicago Downtown, Autograph Collection 39,576 114,014 7,608 ( 17,618 ) 39,576 95,727 8,277 143,580 8,996 134,584 1998 11/30/2018 3 - 40 years The Westin Michigan Avenue Chicago 44,983 103,160 23,744 4,710 44,983 105,970 25,644 176,597 12,964 163,633 1963/1972 11/30/2018 3 - 40 years $ 982,840 $ 4,538,547 $ 331,754 $ 606,604 $ 973,848 $ 4,964,479 $ 521,418 $ 6,459,745 $ 898,287 $ 5,561,458 (1) Disposals are reflected as reductions to cost capitalized subsequent to acquisition. (2) The Company had no encumbrances on any of its hotel properties at December 31, 2020. F-42 Table of Contents Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation - Continued As of December 31, 2020 (In thousands) Reconciliation of Real Estate and Accumulated Depreciation: Reconciliation of Real Estate: Balance at December 31, 2017 $ 2,904,072 Acquisitions 4,120,641 Capital expenditures 95,348 Disposal of Assets ( 42,438 ) Balance at December 31, 2018 $ 7,077,623 Acquisitions 23,472 Capital expenditures 159,574 Disposal of Assets ( 503,383 ) Other ( 24,649 ) Balance at December 31, 2019 $ 6,732,637 Capital expenditures 115,850 Disposal of Assets ( 314,186 ) Other ( 74,556 ) Balance at December 31, 2020 $ 6,459,745 Reconciliation of Accumulated Depreciation: Balance at December 31, 2017 $ 447,622 Depreciation 107,496 Disposal of Assets ( 11,688 ) Balance at December 31, 2018 $ 543,430 Depreciation 226,953 Disposal of Assets ( 35,061 ) Balance at December 31, 2019 $ 735,322 Depreciation 223,286 Disposal of Assets ( 60,321 ) Balance at December 31, 2020 $ 898,287 The aggregate cost of properties for federal income tax purposes is approximately $ 6.2 billion as of December 31, 2020. F-43