What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 283 added, 335 removed, 564 unchanged (52% of the section changed)

3 unchanged sentences

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

September 30,

2021 December 31, 2020

Investment in hotel properties, net $ 5,731,727 $ 5,882,022

Hotel held for sale 90,384 —

Cash and cash equivalents 113,338 124,274

10 unchanged sentences

Accrued interest 9,087 4,653

Liabilities related to hotel held for sale 2,293 —

Distribution payable 9,082 9,307

2 unchanged sentences

Shareholders’ equity:

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

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

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 510,000 at March 31, 2021 and December 31, 2020), 100,000,000 shares authorized;

20,400,000 shares issued and outstanding at March 31, 2021 and December 31, 2020

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

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

130,812,917 shares issued and outstanding at March 31, 2021 and 130,673,300 shares issued and outstanding at December 31, 2020

Additional paid-in capital 4,038,860 4,169,870

9 unchanged sentences

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

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

2020 2019 2020 2019

For the three months ended March 31,

Room $ 53,463 $ 177,141

17 unchanged sentences

Interest expense ( 25,331 ) ( 23,591 )

Other 115 7 442 23

Income (loss) before income taxes ( 121,437 ) 31,324

12 unchanged sentences

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

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

2020 2019 2020 2019

For the three months ended March 31,

Comprehensive Income:

1 unchanged sentence

Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments 9,722 ( 7,874 ) ( 44,948 ) ( 38,002 )

Change in fair value of derivative instruments 9,736 ( 57,474 )

Amounts reclassified from other comprehensive income 6,418 3,209

Comprehensive income (loss) ( 105,286 ) ( 12,197 )

5 unchanged sentences

(In thousands, except share data)

Three Months Ended September 30, 2020

Preferred Shares Common Shares Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Distributions in Excess of Retained Earnings Total Shareholders' Equity Non-Controlling Interests Total Equity

Shares Amount Shares Amount

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

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

Distributions on common shares/units — — — — — — ( 1,307 ) ( 1,307 ) ( 3 ) ( 1,310 )

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

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

Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments — — — — — 9,722 — 9,722 — 9,722

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

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

Three Months Ended September 30, 2019

Shares Amount Shares Amount

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

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

Distributions on common shares/units — — — — — — ( 49,768 ) ( 49,768 ) ( 141 ) ( 49,909 )

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

Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments — — — — — ( 7,874 ) — ( 7,874 ) — ( 7,874 )

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

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

Pebblebrook Hotel Trust

Consolidated Statements of Equity - Continued

(In thousands, except share data)

Nine Months Ended September 30, 2020

Shares Amount Shares Amount

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

5 unchanged sentences

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

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

Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments — — — — — ( 44,948 ) — ( 44,948 ) — ( 44,948 )

Change in fair value of derivative instruments — — — — — ( 57,474 ) — ( 57,474 ) — ( 57,474 )

Amounts reclassified from other comprehensive income — — — — — 3,209 — 3,209 — 3,209

Net income (loss) — — — — — — 41,949 41,949 119 42,068

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

Nine Months Ended September 30, 2019

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

7 unchanged sentences

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

Cumulative effect adjustment from adoption of new accounting standard — — — — ( 113,099 ) — — ( 113,099 ) — ( 113,099 )

Purchases of capped calls in connection with convertible senior notes — — — — ( 20,975 ) — — ( 20,975 ) — ( 20,975 )

Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments — — — — — ( 38,002 ) — ( 38,002 ) — ( 38,002 )

Change in fair value of derivative instruments — — — — — 9,736 — 9,736 — 9,736

Amounts reclassified from other comprehensive income — — — — — 6,418 — 6,418 — 6,418

Net income (loss) — — — — — — ( 120,582 ) ( 120,582 ) ( 858 ) ( 121,440 )

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

Balance at March 31, 2021 20,400,000 $ 204 130,812,917 $ 1,308 $ 4,038,860 $ ( 43,917 ) $ ( 983,771 ) $ 3,012,684 $ 6,472 $ 3,019,156

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

2 unchanged sentences

(In thousands)

For the nine months ended September 30,

For the three months ended March 31,

Operating activities:

7 unchanged sentences

Non-cash ground rent 1,521 1,574

Other ( 289 ) 2,301

Changes in assets and liabilities:

16 unchanged sentences

Repayments of debt ( 177,000 ) —

Purchases of capped calls for convertible senior notes ( 20,975 ) —

Repurchases of common shares ( 720 ) ( 1,255 )

10 unchanged sentences

Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.

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

As of March 31, 2021, the Company owned 53 hotels with a total of 13,236 guest rooms.

The hotels are located in the following markets:

16 unchanged sentences

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

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

At March 31, 2021, the Company owned 99.3 % of the common limited partnership units issued by the Operating Partnership ("common units").

The remaining 0.7 % of the common units are owned by the other limited partners of the Operating Partnership.

For the Company to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns.

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.

3 unchanged sentences

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world.

As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand was nearly eliminated.

Following the government mandates and health official recommendations, the Company temporarily suspended operations at a majority of its hotels and resorts and dramatically reduced staffing and expenses at the hotels that remained operational.

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

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

As a result of this pandemic and subsequent government mandates, health official recommendations, corporate policy changes and individual responses, hotel demand was dramatically reduced.

In response, the Company implemented significant cost controls, salary reductions and temporarily suspended operations at 47 of its hotels and resorts.

As demand has returned over the past year, the Company reopened the majority of its hotels and resorts.

As of March 31, 2021, 40 of the Company's hotels and resorts were open, with operations at the remaining 13 hotels listed below still temporarily suspended.

The Company anticipates reopening additional hotels as demand returns.

Property Location

L'Auberge Del Mar Del Mar, CA

Hotel Palomar Los Angeles Beverly Hills Los Angeles, CA

W Los Angeles - West Beverly Hills Los Angeles, CA

Mondrian Los Angeles West Hollywood, CA

Le Meridien Delfina Santa Monica Santa Monica, CA

Viceroy Santa Monica Hotel Santa Monica, CA

Le Parc Suite Hotel West Hollywood, CA

Montrose West Hollywood West Hollywood, CA

Chamberlain West Hollywood Hotel West Hollywood, CA

Grafton on Sunset West Hollywood, CA

Embassy Suites San Diego Bay - Downtown San Diego, CA

Paradise Point Resort & Spa San Diego, CA

San Diego Mission Bay Resort San Diego, CA

The Westin San Diego Gaslamp Quarter San Diego, CA

Hilton San Diego Gaslamp Quarter San Diego, CA

Solamar Hotel San Diego, CA

Hotel Spero San Francisco, CA

Hotel Zetta San Francisco San Francisco, CA

Chaminade Resort & Spa Santa Cruz, CA

Southernmost Beach Resort Key West, FL

The Marker Key West Harbor Resort Key West, FL

LaPlaya Beach Resort and Club Naples, FL

Hotel Colonnade Coral Gables, Autograph Collection Miami, FL

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

Revere Hotel Boston Common Boston, MA

Hyatt Regency Boston Harbor Boston, MA

W Boston Boston, MA

The Westin Copley Place, Boston Boston, MA

George Hotel Washington, DC

Viceroy Washington DC Washington, DC

Skamania Lodge Stevenson, WA

Hotel Monaco Seattle Seattle, WA

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

Hotel Chicago Downtown, Autograph Collection Chicago, IL

Sofitel Philadelphia at Rittenhouse Square Philadelphia, PA

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

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

The Company cannot estimate when travel demand will recover.

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

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

Among other things, the amendments extended the maturity of

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

Argonaut Hotel (1)

San Francisco, CA

Harbor Court Hotel San Francisco (1)

San Francisco, CA

Hotel Vitale San Francisco, CA

Hotel Zelos San Francisco (1)

San Francisco, CA

Hotel Zephyr Fisherman's Wharf (1)

San Francisco, CA

Hotel Zeppelin San Francisco (1)

San Francisco, CA

Hotel Zoe Fisherman's Wharf (1)

San Francisco, CA

The Marker San Francisco (1)

San Francisco, CA

Sir Francis Drake (2)

San Francisco, CA

Villa Florence San Francisco on Union Square San Francisco, CA

Revere Hotel Boston Common (1)

The Westin Michigan Avenue Chicago Chicago, IL

The Roger New York New York, NY

(1) Hotel reopened in April 2021.

(2) Hotel was sold in April 2021.

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 fully recover.

In February 2021, the Company issued, at a 5.5 % premium to par, an additional $ 250.0 million aggregate principal amount of its convertible notes originally issued in December 2020.

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 and unsecured term loans, and for general corporate purposes.

In February 2021, the Company amended the agreements governing its 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 the amendments.

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

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

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

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

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

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.

Debt" for additional information regarding these amendments and the convertible notes.

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 Company adopted a staggered return-to-work policy and other physical distancing policies at its corporate office and does not anticipate these policies to have any adverse impact on its ability to continue to operate its business.

Transitioning to a hybrid remote-work environment has not had a material adverse impact on the Company's financial reporting system, internal controls or disclosure controls and procedures.

Summary of Significant Accounting Policies

11 unchanged sentences

All significant intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation, including separate presentation of the Company's operating lease liabilities on the Company's consolidated balance sheets.

Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation.

Use of Estimates

15 unchanged sentences

Investment in Hotel Properties

Upon acquisition of a 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.

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 based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.

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

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

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

Assets under capital leases are recorded at the present value of the minimum lease payments.

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.

8 unchanged sentences

If the estimated undiscounted future cash flows are less than the carrying value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized.

In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and holding period, future required capital expenditures, and fair values, including consideration of capitalization rates, discount rates, and comparable selling prices.

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 Board of Trustees has been obtained, no significant financing contingencies exist, and the sale is expected to close within one year.

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 consolidated statements of operations and comprehensive income and classify the assets and related liabilities as held for sale on the consolidated balance sheets.

The Company will classify the loss as continuing or discontinuing operations on the consolidated statements of operations and comprehensive income and classify the assets and related liabilities as held for sale on the consolidated balance sheets.

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.

Revenue Recognition

1 unchanged sentence

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.

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.

13 unchanged sentences

The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.

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 adjusted taxable income 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, PHL, whose subsidiaries lease the Company’s hotels from the Operating Partnership, is subject to federal and state income taxes.

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.

5 unchanged sentences

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.

The determination of fair value of these awards is subjective and involves 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

3 unchanged sentences

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.

During the first quarter of 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) .

During the first quarter of 2020, the Financial Accounting Standards Board (" FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848) .

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

During the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

During the first quarter of 2020, the Company has elected to apply the hedge accounting

expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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.

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.

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, on January 1, 2021, the Company reclassified its equity component of the convertible debt to the liability.

Convertible debt is now 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 ceased recording non-cash interest expense associated with amortization of the debt discount and calculates earnings per share using the if-converted method to the extent those shares are not anti-dilutive.

Acquisition and Disposition of Hotel Properties

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

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

Hotel Property Name Location Sale Date Sale Price

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

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

2020 Total $ 387,000

The Liaison Capitol Hill Washington, D.C.

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

2019 Total $ 448,821

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

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

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

million, respectively, related to the hotel properties sold.

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

There were no acquisitions of hotel properties during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, the Company had entered into an agreement to sell the Sir Francis Drake for $ 157.6 million.

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

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

On April 1, 2021, the Company completed the sale of the Sir Francis Drake.

There were no dispositions of hotel properties during the three months ended March 31, 2021.

During the three months ended March 31, 2020, the Company sold two hotel properties in a single transaction for an aggregate sales price of $ 331.0 million.

For the three months ended March 31, 2020, the Company recognized a gain on its dispositions of $ 117.4 million, which is included in (gain) loss on sale of hotel properties in the accompanying consolidated statements of operations and comprehensive income.

For the three months ended March 31, 2020, the accompanying consolidated statements of operations and comprehensive income included operating income of $ 4.3 million related to the hotel properties sold.

The sales of the hotel properties described above did not represent a strategic shift that had a major effect on the Company’s operations and financial results, and therefore, did not qualify as discontinued operations.

Investment in Hotel Properties

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

September 30,

Investment in hotel properties as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

2021 December 31,

2 unchanged sentences

Furniture, fixtures and equipment 499,810 515,975

Capital lease asset 134,063 134,063

Finance lease asset 114,835 114,835

Construction in progress 4,546 5,443

5 unchanged sentences

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, we determined certain impairment triggers had occurred and as a result, the Company assessed its investment in hotel properties for recoverability.

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

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

Based on the analyses performed, for the three months ended March 31, 2021, the Company recognized an impairment loss of $ 14.9 million related to one hotel as a result of the fair value being lower than its carrying value.

The impairment loss was determined using Level 2 inputs under authoritative guidance for fair value measurements using information from current marketing efforts for this property.

For the three months ended March 31, 2020, the Company recognized an impairment loss of $ 20.6 million related to a retail

component of a hotel as a result of the fair value being lower than its carrying value.

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

On January 1, 2019, the Company adopted ASC 842, Leases and applied it prospectively.

At adoption, the Company also elected the practical expedients which permitted it to not reassess its prior conclusions about lease identification, classification and initial direct costs.

Consequently on January 1, 2019, the Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases.

The Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases.

Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates, which ranged from 5.5 % to 7.6 %.

2 unchanged sentences

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

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

As of March 31, 2021, the Company's lease liabilities consisted of operating lease liabilities of $ 254.8 million and financing lease liabilities of $ 46.5 million.

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.

The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's consolidated balance sheets.

The adoption of this standard had minimal impact on the Company's consolidated statements of operations and comprehensive income.

On 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;

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

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

The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets.

On February 18, 2021, the Company amended its credit agreements and related documents governing its 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 waiver period;

• extended other terms through the waiver period.

The Company's debt consisted of the following as of March 31, 2021 and December 31, 2020 (dollars in thousands):

Balance Outstanding as of

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

Interest Rate Maturity Date March 31, 2021 December 31, 2020

Revolving credit facilities

26 unchanged sentences

Total term loans $ 1,589,752 $ 1,766,545

Convertible senior notes

Convertible senior notes 1.75 % December 2026 750,000 500,000

Debt premium (discount), net 13,360 ( 113,099 )

Deferred financing costs, net ( 18,645 ) ( 12,568 )

Total convertible senior notes $ 744,715 $ 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

Series A Notes 5.15 % (5)

December 2023 60,000 60,000

Series B Notes 5.38 % (6)

December 2025 40,000 40,000

Total senior unsecured notes at stated value 100,000 100,000

6 unchanged sentences

(3) Borrowings under the term loan facilities bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.

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

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

As of March 31, 2021, $ 1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.13 %, after taking into account interest rate swap agreements, and $ 168.0 million bore an effective weighted-average floating interest rate of 2.62 %.

As of December 31, 2020, $ 1.4 billion of the borrowings under the term loan facilities bore a 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 %.

(4 ) In February 2021, the majority of the remaining balance was extended to November 2022.

(5) In February 2021, the interest rate increased from 4.70 % to 5.15 %.

The increased interest rate is effective through the end of the waiver period.

(6) In February 2021, the interest rate increased from 4.93 % to 5.38 %.

The increased interest rate is effective through the end of the waiver period.

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 September 30, 2020, the Company had $ 290.0 million of outstanding borrowings, $ 6.8 million of outstanding letters of credit and borrowing capacity of $ 353.2 million remaining on its senior unsecured credit facility.

Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount.

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.

As of March 31, 2021, the Company had no outstanding borrowings, $ 6.8 million of outstanding letters of credit and borrowing capacity of $ 643.2 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 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 amended credit agreements and related documentation described above, the spread on the borrowings is fixed at 2.25 % during the waiver period.

As a result of the amendments to the credit agreements and related documentation described above, the spread on the borrowings is fixed at 2.40 % 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.

5 unchanged sentences

The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Company's credit agreement that governs the Company's senior unsecured revolving credit facility.

As of September 30, 2020, the Company had no borrowings under the PHL Credit Facility and had $ 25.0 million borrowing capacity remaining under the PHL Credit Facility.

As of March 31, 2021, 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.

1 unchanged sentence

Any outstanding standby letters of credit reduce the available borrowings on the senior unsecured revolving credit facility by a corresponding amount.

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

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

Standby letters of credit of $ 6.8 million were outstanding as of March 31, 2021 and December 31, 2020.

As of March 31, 2021, the Company was in compliance with all debt covenants of the credit agreements that govern the unsecured revolving credit facilities.

Unsecured Term Loan Facilities

2 unchanged sentences

Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility.

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

The Company entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loan facilities, see Derivative and Hedging Activities below.

Upon completion of the convertible notes offering in February 2021, the Company repaid $ 177.0 million of the Company's second and sixth term loans.

As of March 31, 2021, 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 due December 2026 (the "Convertible Notes").

The net proceeds from this offering of the Convertible Notes were approximately $ 487.3 million after deducting the underwriting fees and other expenses paid by the Company.

In February 2021, the Company issued an additional $ 250.0 million aggregate principal amount of Convertible Notes.

These additional Convertible Notes were sold at a 5.5 % premium to par and generated net proceeds of approximately $ 257.2 million after deducting the underwriting fees and other expenses paid by the Company of $ 6.5 million, which was offset by a premium received in the amount of $ 13.8 million.

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 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 $ 2.8 million for the three months ended March 31, 2021.

The Company separated the Convertible Notes issued in December 2020 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 such Convertible Notes, or $ 113.9 million.

The amount recorded in equity was not subject to remeasurement or amortization.

The $ 113.9 million also represented the initial discount recorded on the Convertible Notes.

The Company early adopted ASU 2020-06 on January 1, 2021.

As a result, the Convertible Notes are now recorded as a single liability with no portion recorded in equity.

The Company also ceased recording non-cash interest expense associated with amortization of the debt discount.

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 March 31, 2021 and 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 issuances, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offerings 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 entered into in December 2020 and February 2021 was $ 38.3 million and $ 21.0 million, respectively, and was recorded within additional paid-in capital.

Senior Unsecured Notes

The Company has outstanding $ 60.0 million of senior unsecured notes bearing a fixed interest rate of 4.70 % per annum and maturing in December 2023 (the "Series A Notes") and $ 40.0 million of senior unsecured notes bearing a fixed interest rate of 4.93 % per annum and maturing in December 2025 (the "Series B Notes").

The 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 outstanding bearing a fixed interest rate of 4.93 % per annum and maturing in December 2025 (the "Series B Notes").

As a result of the amendments described above, the interest rates of the Series A Notes and the Series B Notes are fixed at 5.15 % and 5.38 %, respectively, for the duration of the waiver period.

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

As of March 31, 2021, the Company was in compliance with all such debt covenants.

Interest Expense

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

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

2020 2019 2020 2019

For the three months ended March 31,

Unsecured revolving credit facilities $ 561 $ 2,305

Unsecured term loan facilities 15,909 17,152

Convertible senior notes 2,819 —

Senior unsecured notes 1,252 1,198

Mortgage debt — 628 — 1,880

Amortization of deferred financing fees 2,659 1,190

1 unchanged sentence

Total interest expense $ 25,331 $ 23,591

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within Level 2 of the fair value hierarchy.

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

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 March 31, 2021 and December 31, 2020 was $ 684.3 million and $ 491.8 million, respectively.

Derivative and Hedging Activities

2 unchanged sentences

All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

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

The Company's interest rate swaps at March 31, 2021 and December 31, 2020 consisted of the following (dollars in thousands):

Notional Value as of

Hedge Type Interest Rate Maturity September 30, 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 1.66 % January 2020 — 50,000

Swap - cash flow 2.12 % December 2020 100,000 100,000

Hedge Type Interest Rate Maturity March 31, 2021 December 31, 2020

Swap - cash flow 1.74 % January 2021 — 75,000

16 unchanged sentences

Swap - cash flow 1.64 % April 2022 25,000 25,000

Swap - cash flow 0.17 % January 2023 100,000 —

Swap - cash flow 0.17 % January 2023 50,000 —

Swap - cash flow 0.17 % January 2023 25,000 —

Swap - cash flow 1.99 % November 2023 85,000 85,000

7 unchanged sentences

Swap - cash flow 2.60 % January 2024 75,000 75,000

Swap - cash flow 1.43 % February 2026 150,000 —

Swap - cash flow 1.44 % February 2026 50,000 —

Swap - cash flow 1.44 % February 2026 40,000 —

Total $ 1,430,000 $ 1,430,000

________________________

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

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

During the three months ended March 31, 2021, the Company had interest rates swaps for an aggregate notional amount of $ 490.0 million that became effective as other interest rate swaps matured.

As of March 31, 2021, there are no additional interest rate swaps outstanding that will become effective in the future.

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.

Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts.

Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (Overnight Index Swap curves) and volatilities (Level 2 inputs).

Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements.

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

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

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

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

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

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

As of March 31, 2021, the Company's derivative instruments were in both asset and liability positions, with aggregate asset and liability fair values of $ 0.1 million and $ 42.6 million, which are included in prepaid expenses and other assets and accounts payable, accrued expenses and other liabilities, respectively, in the accompanying consolidated balance sheets.

The Company expects approximately $ 22.7 million will be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months.

The Company presents revenue on a disaggregated basis in the accompanying consolidated statements of operations and comprehensive income.

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

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

2020 2019 2020 2019

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

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

The following table presents revenues by geographic location for the three months ended March 31, 2021 and 2020 (in thousands):

For the three months ended March 31,

Southern FL $ 35,244 $ 35,191

San Diego, CA 14,678 41,679

Boston, MA 9,757 35,942

Los Angeles, CA 8,040 34,788

Other(1) 3,363 31,367 24,063 94,704

Portland, OR 5,782 15,648

Chicago, IL 1,950 25,099 14,223 61,522

Other(1) 2,975 20,311

San Francisco, CA 2,953 60,040

Washington, D.C.

598 24,779 11,601 88,535

Chicago, IL 1,824 10,273

Seattle, WA 488 4,326

1 unchanged sentence

(1) Other includes:

Atlanta (Buckhead), GA, Minneapolis, MN, Nashville, TN, New York, NY, Philadelphia, PA and Santa Cruz, CA.

Atlanta (Buckhead), GA, Nashville, TN, New York, NY, Philadelphia, PA and Santa Cruz, CA.

Payments from customers are primarily made when services are provided.

8 unchanged sentences

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

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

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

For the three months ended March 31, 2021, the Company had no repurchases under this program and as of March 31, 2021, $ 56.6 million of common shares remained available for repurchase under this program.

On July 27, 2017, the Company announced that the Board of Trustees authorized a new share repurchase program of up to $ 100.0 million of the Company's outstanding common shares.

3 unchanged sentences

Common Dividends

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

The Company declared the following dividends on common shares/units for the three months ended March 31, 2021:

Share/Unit For the Quarter

1 unchanged sentence

$ 0.01 March 31, 2021 March 31, 2021 April 15, 2021

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

$ 0.01 September 30, 2020 September 30, 2020 October 15, 2020

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares of beneficial interest, $ 0.01 par value per share (“preferred shares”).

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

As of September 30, As of December 31,

Security Type 2020 2019

The following Preferred Shares were outstanding as of March 31, 2021 and December 31, 2020:

Security Type March 31, 2021 December 31, 2020

6.50 % Series C

15 unchanged sentences

Preferred Dividends

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

The Company declared the following dividends on preferred shares for the three months ended March 31, 2021:

Security Type Dividend per

3 unchanged sentences

$ 0.41 March 31, 2021 March 31, 2021 April 15, 2021

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

6.375 % Series D

$ 0.40 March 31, 2021 March 31, 2021 April 15, 2021

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 E

$ 0.40 March 31, 2021 March 31, 2021 April 15, 2021

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

6.30 % Series F

$ 0.39 March 31, 2021 March 31, 2021 April 15, 2021

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

Non-controlling Interest of Common Units in Operating Partnership

1 unchanged sentence

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

As of March 31, 2021, 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.

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

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

1 unchanged sentence

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

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

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

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

On February 18, 2021, the Board of Trustees granted an aggregate of 600,097 LTIP Class B units to executive officers of the Company.

These LTIP units will vest ratably on January 1, 2023, 2024, 2025 and 2026 contingent upon continued employment with the Company.

As of March 31, 2021 and December 31, 2020, the Operating Partnership had 727,208 and 127,111 LTIP units outstanding, respectively.

Of the 727,208 LTIP units outstanding at March 31, 2021, 127,111 LTIP units have vested.

Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above.

On November 30, 2018, in connection with the 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 September 30, 2020 and December 31, 2019, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units.

As of March 31, 2021 and December 31, 2020, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units.

Share-Based Compensation Plan

4 unchanged sentences

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

As of March 31, 2021, there were 130,439 common shares available for issuance under the Plan.

Service Condition Share Awards

1 unchanged sentence

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 September 30, 2020:

The following table provides a summary of service condition restricted share activity as of March 31, 2021:

Shares Weighted-Average

3 unchanged sentences

Forfeited ( 466 ) $ 28.17

Cancelled ( 217,083 ) $ 25.53

Unvested at September 30, 2020 186,763 $ 28.77

Unvested at March 31, 2021 572,341 $ 22.55

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

For the three and nine months ended September 30, 2019, the Company recognized approximately $ 0.6 million and $ 1.7 million, respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income.

As of September 30, 2020, there was $ 3.6 million of total unrecognized share-based compensation expense related to unvested restricted shares.

For the three months ended March 31, 2021 and 2020, the Company recognized approximately $ 0.8 million and $ 6.1 million, respectively, of share-based compensation expense related to these service condition restricted shares in the accompanying consolidated statements of operations and comprehensive income.

As of March 31, 2021, there was $ 12.1 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 3.6 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 ratably, if at all, on January 1, 2016, 2017, 2018, 2019 and 2020.

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 that were eligible for vesting in January 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 agreements for the period of performance from January 1, 2016 through December 31, 2017.

Based upon the extent to which the performance criteria had been met, the Company issued 25,134 , 12,285 , 72,236 , 35,471 and 27,881 common shares in January 2016, 2017, 2018, 2019 and 2020, respectively.

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.

5 unchanged sentences

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.

In January 2021, none of these awards vested and the Company issued no common shares to officers or employees.

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, 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.

4 unchanged sentences

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.

On February 18, 2021, the Board of Trustees approved a target award of 189,348 performance-based equity awards to officers and employees of the Company.

These awards will vest, if at all, in 2024.

The actual number of common shares that

ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2024 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2021 through December 31, 2023.

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

Performance Award Grant Date Percentage of Total Award Grant Date Fair Value by Component Volatility Interest Rate Dividend Yield

December 13, 2013

5 unchanged sentences

EBITDA Comparison 15.00 % $ 0.4 25.00 % 0.71 % 3.00 %

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 15, 2017

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 %

8 unchanged sentences

Relative Total Shareholder Return 100.00 % $ 4.9 23.40 % 1.41 % — %

(1) Amounts round to zero.

February 18, 2021

Relative Total Shareholder Return 100.00 % $ 6.0 56.00 % 0.19 % — %

In the table above, the Relative Total Shareholder Return and Absolute Total Shareholder Return components are market conditions as defined by ASC 718.

1 unchanged sentence

Dividends on unvested performance-based equity awards accrue over the vesting period and will be paid on the actual number of shares that vest at the end of the applicable period.

The Company recognizes compensation expense on a straight-

line basis through the vesting date.

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

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

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

The Company recognizes compensation expense on a straight-line basis through the vesting date.

As of March 31, 2021, there was approximately $ 9.7 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 2.2 years.

For the three months ended March 31, 2021 and 2020, the Company recognized approximately $ 1.0 million and $ 0.9 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 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 September 30, 2020, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units.

As of March 31, 2021, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units.

All of the outstanding LTIP units are held by officers of the Company.

On December 13, 2013, the Board of Trustees approved a grant of 226,882 LTIP Class B units to executive officers of the Company.

These LTIP units are subject to time-based vesting in five equal annual installments beginning January 1, 2016 and ending on January 1, 2020.

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.

3 unchanged sentences

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

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

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

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

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

On July 24, 2020, 109,240 LTIP Class B units were redeemed for common shares.

On February 18, 2021, the Board of Trustees granted 600,097 LTIP Class B units to executive officers of the Company.

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

The fair value of each award was determined based on the closing price of the Company’s common shares on the grant date of $ 22.69 per unit.

The aggregate grant date fair value of the LTIP Class B units was $ 13.6 million.

As of March 31, 2021 and December 31, 2020, the Operating Partnership had 727,208 and 127,111 LTIP units outstanding, respectively.

Of the 727,208 LTIP units outstanding at March 31, 2021, 127,111 LTIP units have vested.

Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above.

For the three months ended March 31, 2021 and 2020, the Company recognized approximately $ 0.3 million and $ 10.6 million, respectively, in expense related to these LTIP units.

As of March 31, 2021, there was $ 13.3 million of unrecognized share-based compensation expense related to LTIP units.

The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s accompanying consolidated balance sheets.

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

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

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 has recorded a valuation allowance on its income tax benefit for the three months ended March 31, 2021 and has recorded a valuation allowance on all deferred tax assets.

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

As of March 31, 2021 and December 31, 2020, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2016.

Earnings Per Share

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

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

2020 2019 2020 2019

For the three months ended March 31,

Net income (loss) attributable to common shareholders $ ( 128,721 ) $ 33,810

dividends paid on unvested share-based compensation ( 12 ) ( 2 )

Undistributed earnings attributable to share-based compensation — ( 48 )

Net income (loss) available to common shareholders $ ( 128,733 ) $ 33,760

4 unchanged sentences

Net income (loss) per share available to common shareholders — diluted $ ( 0.98 ) $ 0.26

For the three and nine months ended September 30, 2020, 547,203 of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive.

For the three and nine months ended September 30, 2019, 128,563 and 37,137 , respectively, of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive.

For the three months ended March 31, 2021 and 2020, 1,041,130 and 203,152 , respectively, of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive.

For the three months ended March 31, 2021, 29,441,175 shares underlying the Convertible Notes 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.

3 unchanged sentences

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

Many of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with, in some cases, the payment of termination fees.

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.

Termination fees range from zero to up to six 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.

2 unchanged sentences

The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel.

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

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

For the three months ended March 31, 2021 and 2020, com bined base and incentive management fees were $ 2.3 million and $ 6.9 million, respectively.

Base and incentive management fees are included in other direct and indirect expenses in the Company's accompanying consolidated statements of operations and comprehensive income.

Reserve Funds

Certain of the Company’s agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, typically 4.0 % of hotel revenues, sufficient to cover the cost of (a) certain non-routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment.

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 September 30, 2020 and December 31, 2019, the Company had $ 12.4 million and $ 26.8 million, respectively, in restricted cash, which consisted of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or loan agreements.

At March 31, 2021 and December 31, 2020, the Company had $ 11.3 million and $ 12.0 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 September 30, 2020, the following hotels were subject to leases as follows:

As of March 31, 2021, the following hotels were subject to leases as follows:

Lease Properties Lease Type Lease Expiration Date

12 unchanged sentences

The Liberty, A Luxury Collection Hotel, Boston Operating lease May 2080

Hotel Zeppelin San Francisco Operating and capital lease June 2059 (4)

Harbor Court Hotel San Francisco Capital lease August 2052

The Roger New York Capital lease December 2044

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 Company has the option, subject to certain terms and conditions, to extend the ground lease for 14 years to 2070.

(2) The expiration date assumes the exercise of a 14 -year extension option.

(3) No payments are required through maturity.

(4) The Company has an option, subject to certain terms and conditions, to extend the ground lease for 30 years to 2089.

(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.

3 unchanged sentences

Ground rent expense is included in real estate taxes, personal property taxes, property insurance and ground rent in the Company's accompanying consolidated statements of operations and comprehensive income.

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

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

2020 2019 2020 2019

The components of ground rent expense for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

For the three months ended March 31,

Fixed ground rent $ 4,313 $ 4,289

1 unchanged sentence

Total ground lease rent $ 5,809 $ 6,337

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

Future maturities of lease liabilities for the Company's operating leases at March 31, 2021 were as follows (in thousands):

2021 $ 13,903

Thereafter 1,127,864

Total lease payments $ 1,214,972

Imputed interest ( 960,141 )

Present value of lease liabilities $ 254,831

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.

2 unchanged sentences

Supplemental Information to Statements of Cash Flows

For the nine months ended September 30,

For the three months ended March 31,

(in thousands)

1 unchanged sentence

Interest capitalized $ — $ 680

Income taxes paid $ 3,369 $ 2,569

Income taxes paid (refunded) $ ( 21 ) $ ( 4 )

Non-Cash Investing and Financing Activities:

Convertible debt discount adjustment $ 113,099 $ —

Distributions payable on common shares/units $ 1,524 $ 1,746

1 unchanged sentence

Issuance of common shares for Board of Trustees compensation $ 516 $ 637

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

Issuance of common shares for executive and employee bonuses $ 1,446 $ —

Accrued additions and improvements to hotel properties $ 1,242 $ 7,124

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

Purchase of ground lease $ — $ 16,604

Write-off of deferred financing financing costs $ — $ 2,697

Write-off of deferred financing costs $ 2,817 $ —

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

What changed 10-Q

Item 1. Financial Statements