What changed in this filing

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Item 1. Financial Statements

2022-04-26 compared with 2021-10-28 · 172 added, 357 removed, 490 unchanged (52% of the section changed)

3 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Investment in hotel properties, net $ 5,975,857 $ 6,079,333

15 unchanged sentences

Shareholders’ equity:

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 740,000 and $ 510,000 at September 30, 2021 and December 31, 2020, respectively), 100,000,000 shares authorized;

29,600,000 shares issued and outstanding at September 30, 2021 and 20,400,000 shares issued and outstanding at December 31, 2020

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 740,000 at March 31, 2022 and December 31, 2021), 100,000,000 shares authorized;

29,600,000 shares issued and outstanding at March 31, 2022 and December 31, 2021

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

130,813,750 shares issued and outstanding at September 30, 2021 and 130,673,300 shares issued and outstanding at December 31, 2020

130,904,299 shares issued and outstanding at March 31, 2022 and 130,813,750 shares issued and outstanding at December 31, 2021

Additional paid-in capital 4,269,322 4,268,042

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,

2021 2020 2021 2020

For the three months ended March 31,

Room $ 168,632 $ 53,463

10 unchanged sentences

General and administrative 9,708 7,646

Transaction costs ( 49 ) 10,339 63 10,474

Impairment loss 60,983 14,856

(Gain) loss on sale of hotel properties ( 171 ) 47 ( 64,729 ) ( 117,401 )

(Gain) loss and other operating expenses 480 917 1,451 3,753

Other operating expenses 1,123 562

Total operating expenses 335,731 179,778

1 unchanged sentence

Interest expense ( 22,572 ) ( 25,331 )

Other 27 115 85 442

Income (loss) before income taxes ( 100,216 ) ( 121,437 )

4 unchanged sentences

Distributions to preferred shareholders ( 11,344 ) ( 8,139 )

Issuance costs of redeemed preferred shares ( 8,043 ) — ( 8,043 ) —

Net income (loss) attributable to common shareholders $ ( 110,874 ) $ ( 128,721 )

6 unchanged sentences

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

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

2021 2020 2021 2020

For the three months ended March 31,

Comprehensive Income:

10 unchanged sentences

(in thousands, except share data)

For the three months ended September 30, 2021

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, 2021 29,600,000 $ 296 130,813,750 $ 1,308 $ 4,263,473 $ ( 39,820 ) $ ( 993,654 ) $ 3,231,603 $ 7,043 $ 3,238,646

Redemption of preferred shares ( 10,000,000 ) ( 100 ) — — ( 241,857 ) — ( 8,043 ) ( 250,000 ) — ( 250,000 )

Issuance of shares, net of offering costs 10,000,000 100 — — 241,676 — — 241,776 — 241,776

Share-based compensation — — — — 2,403 — — 2,403 697 3,100

Distributions on common shares/units — — — — — — ( 1,317 ) ( 1,317 ) ( 8 ) ( 1,325 )

Distributions on preferred shares — — — — — — ( 12,528 ) ( 12,528 ) — ( 12,528 )

Other adjustment — — — — — 393 — 393 ( 393 ) —

Other comprehensive income (loss):

Change in fair value of derivative instruments — — — — — ( 496 ) — ( 496 ) 173 ( 323 )

Amounts reclassified from other comprehensive income — — — — — 6,494 — 6,494 — 6,494

Net income (loss) — — — — — — ( 23,413 ) ( 23,413 ) ( 125 ) ( 23,538 )

Balance at September 30, 2021 29,600,000 $ 296 130,813,750 $ 1,308 $ 4,265,695 $ ( 33,429 ) $ ( 1,038,955 ) $ 3,194,915 $ 7,387 $ 3,202,302

For the three months ended September 30, 2020

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):

Change in fair value of derivative instruments — — — — — 790 — 790 — 790

Amounts reclassified from other comprehensive income — — — — — 8,932 — 8,932 — 8,932

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

For the nine months ended September 30, 2021

For the three months ended March 31, 2021

1 unchanged sentence

Balance at December 31, 2020 20,400,000 $ 204 130,673,300 $ 1,307 $ 4,169,870 $ ( 60,071 ) $ ( 853,973 ) $ 3,257,337 $ 6,989 $ 3,264,326

Redemption of preferred shares ( 10,000,000 ) ( 100 ) — — ( 241,857 ) — ( 8,043 ) ( 250,000 ) — ( 250,000 )

Issuance of shares, net of offering costs — — — — ( 10 ) — — ( 10 ) — ( 10 )

6 unchanged sentences

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

Other adjustment — — — — — 393 — 393 ( 393 ) —

Other comprehensive income (loss):

2 unchanged sentences

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

Balance at September 30, 2021 29,600,000 $ 296 130,813,750 $ 1,308 $ 4,265,695 $ ( 33,429 ) $ ( 1,038,955 ) $ 3,194,915 $ 7,387 $ 3,202,302

For the nine months ended September 30, 2020

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

Pebblebrook Hotel Trust

Consolidated Statements of Equity - Continued

(in thousands, except share data)

For the three months ended March 31, 2022

1 unchanged sentence

Balance at December 31, 2021 29,600,000 $ 296 130,813,750 $ 1,308 $ 4,268,042 $ ( 19,442 ) $ ( 1,094,023 ) $ 3,156,181 $ 7,724 $ 3,163,905

Issuance of shares, net of offering costs — — — — ( 94 ) — — ( 94 ) — ( 94 )

Issuance of common shares for Board of Trustees compensation — — 33,866 1 737 — — 738 — 738

3 unchanged sentences

Distributions on preferred shares — — — — — — ( 11,344 ) ( 11,344 ) — ( 11,344 )

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

Other comprehensive income (loss):

2 unchanged sentences

Net income (loss) — — — — — — ( 99,530 ) ( 99,530 ) ( 686 ) ( 100,216 )

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

Balance at March 31, 2022 29,600,000 $ 296 130,904,299 $ 1,309 $ 4,269,322 $ 12,092 $ ( 1,206,019 ) $ 3,077,000 $ 7,934 $ 3,084,934

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:

4 unchanged sentences

Amortization of deferred financing costs, non-cash interest and other amortization 3,489 4,744

(Gain) loss on sale of hotel properties ( 64,729 ) ( 117,401 )

Impairment loss 60,983 14,856

Non-cash ground rent 2,489 1,521

Other ( 214 ) ( 289 )

Other adjustments ( 1,906 ) 69

Changes in assets and liabilities:

6 unchanged sentences

Improvements and additions to hotel properties ( 19,906 ) ( 9,623 )

Proceeds from sales of hotel properties 255,927 375,131

Acquisition of hotel properties ( 190,968 ) —

Deposits on hotel properties ( 1,020 ) —

Purchase of corporate office equipment, software, and furniture ( 96 ) —

Other investing activities ( 47 ) ( 47 )

Net cash provided by (used in) investing activities ( 19,953 ) ( 9,670 )

Financing activities:

Gross proceeds from issuance of preferred shares 480,000 —

Payment of offering costs — common and preferred shares — ( 10 )

Payment of deferred financing costs ( 32 ) ( 9,576 )

Borrowings under revolving credit facilities — 760,115

Repayments under revolving credit facilities — ( 40,000 )

3 unchanged sentences

Repurchases of common shares ( 1,113 ) ( 720 )

Redemption of preferred shares ( 250,000 ) —

Distributions — common shares/units ( 1,322 ) ( 1,312 )

8 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2021, the Company owned 52 hotels with a total of 13,006 guest rooms.

The hotels are located in the following markets:

Pebblebrook Hotel Trust (the "Company") is an internally managed hotel investment company, 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 March 31, 2022, the Company owned 53 hotels with a total of 13,247 guest rooms.

The hotel properties are located in:

Boston, Massachusetts;

17 unchanged sentences

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

As of September 30, 2021, the Company owned 99.3 % of the common limited partnership units issued by the Operating Partnership ("common units").

As of March 31, 2022, 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.

7 unchanged sentences

In response, the Company implemented significant cost controls, salary reductions and temporarily suspended operations at 47 of its hotels and resorts in 2020.

In addition, to improve liquidity, the Company raised capital by issuing convertible notes and additional preferred shares as summarized below.

In addition, to improve liquidity, the Company raised capital by issuing convertible notes and additional preferred shares.

The Company also amended the agreements governing its existing credit facilities, term loan facilities and unsecured senior notes which, among other things, waived quarterly financial covenants until the second quarter of 2022, with substantially less-restrictive covenants through the end of the first quarter of 2023.

As demand has since improved as a result of an increase in vaccinations and corresponding lifting of governmental restrictions and recommendations, the Company gradually reopened its hotels and resorts.

As of September 30, 2021, all of the Company's hotels and resorts were open, with the exception of Hotel Vitale, whose operations will remain suspended until the expected completion of renovations in the first quarter of 2022.

The COVID-19 pandemic has had a significant negative impact on the Company's operations and financial results and is expected to continue to have a significant negative impact on the Company's results of operations, financial position and cash flow for the remainder of 2021.

The Company cannot estimate when travel demand will fully recover.

However, the Company anticipates further recovery in 2022.

Leisure travel in the second and third quarters of 2021 exceeded expectations, particularly at the Company's warmer weather and resort properties.

However, business travel continues to be substantially lower.

During the nine months ended September 30, 2021, the Company conducted the following transactions:

• On February 9, 2021, issued, at a 5.5 % premium to par, an additional $ 250.0 million aggregate principal amount of the convertible notes originally issued in December 2020.

• On February 18, 2021, amended the agreements governing existing credit facilities, term loan facilities and unsecured 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 ratios, which were extended through December 31, 2021.

• On April 1, 2021, sold the Sir Francis Drake for $ 157.6 million.

• On May 13, 2021, raised $ 222.6 million of net proceeds from the issuance of 9,200,000 6.375 % Series G Cumulative Redeemable Preferred Shares.

• On June 10, 2021 sold The Roger New York for $ 19.0 million.

• On July 22, 2021, acquired the leasehold interest in Jekyll Island Club Resort for $ 94.0 million.

• On July 27, 2021, raised $ 242.1 million of net proceeds from the issuance of 10,000,000 5.70 % Series H Cumulative Redeemable Preferred Shares.

• On August 21, 2021, redeemed all outstanding 6.375 % Series D Cumulative Redeemable Preferred Shares.

• On August 22, 2021, redeemed all outstanding 6.50 % Series C Cumulative Redeemable Preferred Shares.

• On September 9, 2021, sold Villa Florence San Francisco on Union Square for $ 87.5 million.

• On September 23, 2021, acquired the leasehold interest in Margaritaville Hollywood Beach Resort for $ 270.0 million, including the assumption of a $ 161.5 million mortgage loan.

• Paid down $ 428.0 million of debt, consisting of $ 338.0 million of term loans, $ 50.0 million of senior unsecured notes and $ 40.0 million on the senior unsecured credit facility.

Based on the amendments to the Company's credit agreements, expense and cash burn rate reductions, and the ability to raise additional liquidity through equity issuances, the Company believes it has sufficient liquidity to meet its obligations for the next twelve months.

As of July 1, 2021, all of the Company's hotels and resorts were open, with the exception of Hotel Vitale, whose operations will remain suspended until the completion of its renovations and repositioning, which is expected to occur in the second quarter of 2022.

The COVID-19 pandemic has had a significant negative impact on the Company's operations and financial results and is expected to continue to have a negative impact on the Company's results of operations, financial position and cash flows for the remainder of 2022.

However, results have improved in the first quarter of 2022 relative to 2021 and this trend is expected to continue throughout 2022.

The demand recovery has been led by strong leisure travel with a slower recovery in business and group travel.

As a result of the strength in leisure travel, the Company's resort properties are operating at or above pre-pandemic levels.

Based on the amendments to the Company's credit agreements, assumptions regarding the recovery of demand and the Company's liquidity of $ 694.4 million as of March 31, 2022, the Company believes it has sufficient liquidity to meet its obligations for the next 12 months.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S.

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.

GAAP") and in conformity with the rules and regulations of the U.S.

14 unchanged sentences

Actual results could differ from these estimates.

Fair Value Measurements

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction.

The hierarchy for inputs used in measuring fair value are as follows:

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.

Level 3 – Model-derived valuations with unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses.

Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value.

See Note 5, Debt , for disclosures on the fair value of debt and derivative instruments.

Investment in Hotel Properties

Upon acquiring a business or hotel property, the Company measures and recognizes the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities.

Identifiable intangible assets or liabilities typically arise from contractual arrangements in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date.

Acquisition-date fair values of assets and assumed liabilities are determined using a combination of the market, cost and income approaches.

These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties.

Transaction costs are expensed for acquisitions that are considered business combinations and capitalized for asset acquisitions.

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.

Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment.

Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

Intangible assets arising from contractual arrangements are typically amortized over the life of the contract.

The Company is required to make subjective assessments as to the useful lives and classification of properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets.

These assessments may impact the Company’s results of operations.

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable.

Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located.

When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value.

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

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

The Company will adjust its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

The Company will classify a hotel as held for sale and will cease recording depreciation expense when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, approval of the Company's Board of Trustees (the "Board of Trustees") has been obtained, no significant financing contingencies exist, and the sale is expected to close within one year.

If the fair value less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss.

The Company will classify the loss 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

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services.

Room revenue is recognized over the length of a customer's hotel stay.

Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the point in time or over the time period that goods or services are provided to the customer.

Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements.

If the Company is the agent, revenue is recognized based upon the commission earned from the third party.

If the Company is the principal, the Company recognizes revenue based upon the gross sales price.

Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied.

The Company recognizes revenue related to nonrefundable membership initiation fees and refundable membership initiation deposits over the expected life of an active membership.

For refundable membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as other operating revenues on the consolidated statements of operations and comprehensive income over the expected life of an active membership.

The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method using the Company's incremental borrowing rate.

The accretion is included in interest expense.

Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties.

When collection of substantially all lease payments during the lease term is considered probable, lease revenue is recognized on a straight-line basis over the life of the lease.

When collection of substantially all lease payments during the lease term is not considered probable, revenue is recognized as the lesser of the amount under straight-line basis or cash received.

Lease revenue is included in other operating revenues in the Company's consolidated statements of operations and comprehensive income.

The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations and comprehensive income.

Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services.

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

To qualify as a REIT for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders.

As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders.

The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.

In addition, the Company's TRS lessees are subject to federal and state income taxes.

The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Share-based Compensation

The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards.

Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period.

Share-based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition.

Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable.

The determination of fair value of these awards is subjective and involves estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted EPS is computed by dividing net income (loss) available to common shareholders, as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities.

Any anti-dilutive securities are excluded from the diluted per-share calculation.

Recent Accounting Standards

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.

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus the Company's financial position.

As discussed in Note 1, Organization, the COVID-19 pandemic has significantly impacted the hotels' operational performance.

A continued reduction in travel may impact the Company's ability to service debt or meet other financial obligations.

New Accounting Pronouncements

Reference Rate Reform

In March 2020 and January 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848) , respectively.

ASU 2020-04 and ASU 2021-01 provide optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.

The guidance in ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022.

In 2020, the Company 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.

The Company will continue to evaluate the impact of the adoption of ASU 2020-04 and ASU 2021-01 on its consolidated financial statements and disclosures.

Business Combinations

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer.

The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted.

While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements and disclosures.

Acquisition and Disposition of Hotel Properties

On July 22, 2021, the Company acquired the leasehold interest in the 200 -room Jekyll Island Club Resort in Jekyll Island, Georgia for $ 94.0 million, excluding prorations and transaction costs, using cash on hand.

On September 23, 2021, the Company acquired the leasehold interest in the 369 -room Margaritaville Hollywood Beach Resort in Hollywood, Florida for $ 270.0 million, excluding prorations and transaction costs, using cash on hand and the assumption of a $ 161.5 million mortgage loan.

See Note 5, Debt, for additional information about the mortgage loan and Note 11, Commitments and Contingencies , for additional information about the leasehold interest.

The following table summarizes disposition transactions during the nine months ended September 30, 2021 and 2020 (in thousands):

Hotel Property Name Location Sale Date Sale Price

Sir Francis Drake San Francisco, CA April 1, 2021 $ 157,625

The Roger New York New York, NY June 10, 2021 19,000

Villa Florence San Francisco on Union Square San Francisco, CA September 9, 2021 87,500

2021 Total $ 264,125

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

For the three and nine months ended September 30, 2021 the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $( 0.6 ) million and $( 6.4 ) million, respectively, excluding impairment loss and (gain) loss on sale of hotel properties, related to the hotel properties sold.

For the three and nine months ended September 30, 2020, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $( 5.7 ) million and $( 9.6 ) million, respectively, excluding impairment loss and (gain) loss on sale of hotel properties, 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.

There were no acquisitions or dispositions of hotel properties during the three months ended March 31, 2022 and 2021.

Investment in Hotel Properties

Investment in hotel properties as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021 December 31, 2020

Investment in hotel properties as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022 December 31, 2021

Land $ 902,262 $ 926,330

10 unchanged sentences

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

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

Based on the analyses performed, for the three months ended March 31, 2022, the Company recognized an impairment loss of $ 61.0 million related to two hotels as a result of their fair values being lower than their carrying values.

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

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 its 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 marketing efforts for this property.

Right-of-use Assets and Lease Liabilities

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 4.7 % to 7.6 %.

In addition, the term used includes any options to exercise extensions when it is reasonably certain the Company will exercise such option.

See Note 11, Commitments and Contingencies , for additional information about the ground leases.

When the rate implicit in the lease could not be determined, the Company used incremental borrowing rates, which ranged from 4.7 % to 7.6 %.

In addition, the term used includes any options to exercise extensions when it is reasonably certain the Company will exercise such options.

Commitments and Contingencies , for additional information about the ground leases.

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

As of September 30, 2021, the Company's lease liabilities consisted of operating lease liabilities of $ 302.1 million and financing lease liabilities of $ 41.8 million.

As of March 31, 2022, the Company's lease liabilities consisted of operating lease liabilities of $ 319.4 million and financing lease liabilities of $ 42.2 million.

As of December 31, 2021, the Company's lease liabilities consisted of operating lease liabilities of $ 319.4 million and financing lease liabilities of $ 42.0 million.

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 September 30, 2021 and December 31, 2020 (dollars in thousands):

In 2021, the Company amended the agreements governing its existing credit facilities, term loan facilities and senior notes to, among other things, waive financial covenants until the second quarter of 2022 (with substantially less-restrictive covenants through the end of the first quarter of 2023), extend certain debt maturity dates and increase the interest rate spread.

The Company's debt consisted of the following as of March 31, 2022 and December 31, 2021 (dollars in thousands):

Balance Outstanding as of

Interest Rate Maturity Date September 30, 2021 December 31, 2020

Interest Rate Maturity Date March 31, 2022 December 31, 2021

Revolving credit facilities

Senior unsecured credit facility Floating (1)(2)

January 2022 $ — $ 40,000

March 2023 $ — $ —

PHL unsecured credit facility Floating (3)

January 2022 — —

March 2023 — —

Total revolving credit facilities $ — $ —

2 unchanged sentences

January 2023 26,000 26,000

First Term Loan Extended Floating (4)

March 2024 274,000 274,000

Second Term Loan Floating (4)(10)

3 unchanged sentences

Sixth Term Loan

Tranche 2021 Floating (4)

November 2021 3,932 40,966

Tranche 2021 Extended Floating (4)(8)

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Total senior unsecured notes $ 49,858 $ 49,838

Mortgage loan

Mortgage loans

Margaritaville Hollywood Beach Resort Floating (7)

May 2023 161,500 161,500

Estancia La Jolla Hotel & Spa 5.07 % September 2028 61,049 61,373

Total mortgage loans at stated value 222,549 222,873

Debt premium (discount), net ( 2,447 ) ( 2,735 )

Deferred financing costs, net ( 689 ) ( 745 )

Total mortgage loan $ 158,013 $ —

Total mortgage loans $ 219,413 $ 219,393

Total debt $ 2,443,090 $ 2,441,888

1 unchanged sentence

(1) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin.

(2) The Company has the option to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee.

(3) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.

(2) $ 39.0 million of the total borrowing capacity matured in January 2022.

The Company has the option to extend the maturity date of March 2023 for the remaining $ 611.0 million for up to two six-month periods, pursuant to certain terms and conditions and payment of an extension fee.

(3) Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.

(4) 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, 2021, approximately $ 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 approximately $ 7.0 million bore an effective weighted-average floating interest rate of 3.0 %.

As of March 31, 2022, approximately $ 1.1 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.05 %, after taking into account interest rate swap agreements, and approximately $ 293.1 million bore an effective weighted-average floating interest rate of 2.82 %.

As of December 31, 2021, approximately $ 1.3 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.06 %, after taking into account interest rate swap agreements, and approximately $ 113.1 million bore a weighted-average floating interest rate of 2.64 %.

3 unchanged sentences

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

(7) In April 2022, the Company exercised the option to extend the maturity date to May 2023.

The loan bears interest at a floating rate equal to one-month LIBOR plus a weighted-average spread of 2.37 %.

The Company has the option to extend the maturity date for up to two one-year periods.

The Company has the option to extend the maturity date to May 2024.

(8) The Company has the option to extend the maturity date for $ 69.8 million of the principal balance by up to one year, subject to certain terms and conditions and payment of an extension fee.

(9) The Company has the option to extend the maturity date for $ 93.0 million of the principal balance by up to one year, subject to certain terms and conditions and payment of an extension fee.

(10) The Company used cash on hand to payoff this term loan upon maturity in April 2022.

Unsecured Revolving Credit Facilities

The Company has a $ 650.0 million senior unsecured revolving credit facility maturing in January 2022, with options to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee.

As of September 30, 2021, the Company had no outstanding borrowings, $ 5.8 million of outstanding letters of credit and borrowing capacity of $ 644.2 million remaining on its senior unsecured credit facility.

The Company has a $ 611.0 million senior unsecured revolving credit facility which will mature in March 2023, with options to extend the maturity date for up to two six-month periods , subject to certain terms and conditions and payment of an extension fee.

As of March 31, 2022, the Company had no outstanding borrowings, $ 12.6 million of outstanding letters of credit and borrowing capacity of $ 598.4 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 the London Inter-bank Offered Rate ("LIBOR") or the alternate base rate, plus an additional margin amount, or spread.

1 unchanged sentence

Borrowings on the revolving credit facility bear interest at LIBOR plus 1.45 % to 2.25 %, depending on the Company’s leverage ratio.

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

As a result of the amendments to the credit agreements, 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.

1 unchanged sentence

The Company also has a $ 20.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes.

This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in January 2022.

This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in March 2023.

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

1 unchanged sentence

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, 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.

As of March 31, 2022, the Company had no borrowings under the PHL Credit Facility and had $ 20.0 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 $ 5.8 million and $ 6.8 million were outstanding as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021, 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 $ 12.6 million and $ 12.1 million were outstanding as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, 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.

During the nine months ended September 30, 2021, the Company repaid $ 338.0 million aggregate principal balance of the Company's second and sixth term loans.

As of September 30, 2021, the Company was in compliance with all debt covenants of its term loan facilities.

As of March 31, 2022, 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.

8 unchanged sentences

The Convertible Notes will mature on December 15, 2026.

The Company recorded coupon interest expense of $ 3.3 million and $ 9.4 million for the three and nine months ended September 30, 2021, respectively.

The Company separated the Convertible Notes issued in December 2020 into liability and equity components.

5 unchanged sentences

As a result of the Company's early adoption of ASU 2020-06 on January 1, 2021, 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.

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

Prior to June 15, 2026, the Convertible Notes will be convertible 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.

1 unchanged sentence

The conversion rate is subject to adjustment in certain circumstances.

As of September 30, 2021 and December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount.

As of March 31, 2022 and December 31, 2021, 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.

10 unchanged sentences

The debt covenants of the Series A Notes and the Series B Notes are substantially similar to those of the Company's senior unsecured revolving credit facility.

As of September 30, 2021, the Company was in compliance with all such debt covenants.

Mortgage Loan

On September 23, 2021, the Company assumed a $ 161.5 million loan secured by a first-lien mortgage on the leasehold interest of the Margaritaville Hollywood Beach Resort ("Margaritaville").

As of March 31, 2022, the Company was in compliance with all such debt covenants.

Mortgage Loans

On September 23, 2021, the Company assumed a $ 161.5 million loan secured by a first-lien mortgage on the leasehold interest of Margaritaville Hollywood Beach Resort ("Margaritaville").

The loan requires interest-only payments based on a floating interest rate of one-month LIBOR plus a weighted-average spread of 2.37 %.

The loan matures on May 9, 2022 and may be extended for up to two one-year periods.

If the loan is extended for the second of the two one-year periods, the interest rate spread will increase by 20 basis points for the second year only.

The loan matures on May 9, 2023 and may be extended by one-year .

If the loan is extended, the interest rate spread will increase by 20 basis points for the extension period only.

The Company expects to exercise this extension.

The loan is also subject to an interest rate cap agreement.

The loan is non-recourse to the Company except for customary carve-outs to the general non-recourse liability.

The loan contains customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions.

Cash trap provisions are triggered if performance of the hotel is below a certain threshold.

On December 1, 2021, the Company assumed a $ 61.7 million loan secured by a first-lien mortgage on the leasehold interest of Estancia La Jolla Hotel & Spa ("Estancia").

The loan requires both principal and interest monthly payments based on a fixed interest rate of 5.07 %.

The loan matures on September 1, 2028.

The Company's mortgage loans associated with Margaritaville and Estancia are non-recourse to the Company except for customary carve-outs to the general non-recourse liability.

The loans contain customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions.

Cash trap provisions are triggered if the hotel's performance is below a certain threshold.

Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender.

No event of default has occurred under the loan documents.

Margaritaville triggered the cash trap provisions prior to the acquisition, and therefore cash from hotel operations is being held by the lender in the cash management accounts and reflected as restricted cash in the accompanying consolidated balance sheets.

Estancia's mortgage loan triggered the cash trap provisions prior to its acquisition, and therefore cash from hotel operations is being held by the lender in the cash management accounts and is reflected as restricted cash in the accompanying consolidated balance sheets.

Cash will be released from the lockbox once the hotel reaches profitability levels that terminate the cash trap or the loan is paid off.

Margaritaville's mortgage loan also triggered cash trap provisions prior to its acquisition, but the hotel reached profitability levels that terminated the cash trap and all cash in the lockbox was released during the first quarter of 2022.

Interest Expense

The components of the Company's interest expense consisted of the following for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

The components of the Company's interest expense consisted of the following for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Unsecured revolving credit facilities $ 493 $ 561

3 unchanged sentences

Mortgage debt 1,810 —

Amortization of deferred financing fees 2,046 1,518 7,414 3,898

Amortization of deferred financing fees, (premiums) and discounts 2,285 2,659

Other 524 2,131

1 unchanged sentence

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

The estimated fair value of the Company’s fixed rate debt (unsecured senior notes and convertible senior notes) as of September 30, 2021 and December 31, 2020 was $ 642.5 million and $ 491.8 million, respectively.

The estimated fair value of the Company’s fixed rate debt (unsecured senior notes, convertible senior notes and the Estancia mortgage loan) as of March 31, 2022 and December 31, 2021 was $ 714.7 million and $ 747.8 million, respectively.

The estimated fair value of the Company's variable rate debt approximates its book value.

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, 2021 and December 31, 2020 consisted of the following, by maturity date (dollars in thousands):

The Company's interest rate swaps at March 31, 2022 and December 31, 2021 consisted of the following, by maturity date (dollars in thousands):

Aggregate Notional Value as of

Hedge Type Interest Rate Range Maturity September 30, 2021 December 31, 2020

Swap-cash flow 1.46 % - 1.75 %

January 2021 $ — $ 490,000

Swap-cash flow 2.60 %

October 2021 110,000 110,000

Hedge Type Interest Rate Range Maturity March 31, 2022 December 31, 2021

Swap-cash flow 1.78 % - 1.79 %

11 unchanged sentences

Total $ 1,140,000 $ 1,320,000

During the nine months ended September 30, 2021, the Company had interest rate swaps for an aggregate notional amount of $ 490.0 million that became effective as other interest rate swaps matured.

As of September 30, 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.

4 unchanged sentences

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

As of September 30, 2021, the Company's derivative instruments were in a liability position, with an aggregate fair value of $ 33.2 million.

There were no derivative instruments in an asset position.

As of March 31, 2022, the Company's derivative instruments were in both asset and liability positions, with aggregate asset and liability fair values of $ 13.8 million and $ 1.6 million, respectively.

Derivative assets are included in prepaid expenses and other assets and derivative liabilities are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets.

1 unchanged sentence

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, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

San Diego, CA $ 63,524 $ 31,641 $ 119,668 $ 79,135

The following table presents revenues by geographic location for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Southern Florida/Georgia $ 85,241 $ 35,244

Boston, MA 45,213 10,714 78,425 48,621

San Diego, CA 52,879 14,678

Los Angeles, CA 36,221 8,040

Portland, OR 20,078 5,462 38,002 22,196

Boston, MA 33,936 9,757

San Francisco, CA 14,067 2,953

9,731 3,363 19,335 14,527

Portland, OR 13,524 5,782

Chicago, IL 6,668 1,824

Washington, D.C.

6,275 598 12,441 11,601

Seattle, WA 1,973 488

2 unchanged sentences

(1) Other includes:

Nashville, TN, New York, NY, Philadelphia, PA and Santa Cruz, CA.

New York, NY, Philadelphia, PA and Santa Cruz, CA.

Payments from customers are primarily made when services are provided.

4 unchanged sentences

Holders of common shares are entitled to receive dividends when authorized by the Board of Trustees.

Share Repurchase Program

On February 22, 2016, the Company announced that the Board of Trustees authorized a share repurchase program of up to $ 150.0 million of common shares.

2 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, 2021, the Company had no repurchases under this program and as of September 30, 2021, $ 56.6 million of common shares remained available for repurchase under this program.

For the three months ended March 31, 2022, the Company had no repurchases under this program and as of March 31, 2022, $ 56.6 million of common shares remained available for repurchase under this program.

The credit agreements governing the Company's existing indebtedness prohibit the Company from repurchasing common shares until the Company has certified compliance with certain financial covenants through June 30, 2022.

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 common shares.

3 unchanged sentences

On April 29, 2021, the Company filed a prospectus supplement with the SEC to sell up to $ 200.0 million of common shares under an "at the market" offering program (the "ATM program").

No common shares were issued or sold under the ATM program during the nine months ended September 30, 2021.

As of September 30, 2021, $ 200.0 million of common shares remained available for issuance under the ATM program.

No common shares were issued or sold under the ATM program during the three months ended March 31, 2022.

As of March 31, 2022, $ 200.0 million of common shares remained available for issuance under the ATM program.

Common Dividends

The Company declared the following dividends on common shares/units for the nine months ended September 30, 2021:

The Company declared the following dividends on common shares/units for the three months ended March 31, 2022:

Dividend per Share/Unit For the Quarter Ended Record Date Payable Date

$ 0.01 March 31, 2022 March 31, 2022 April 15, 2022

$ 0.01 June 30, 2021 June 30, 2021 July 15, 2021

$ 0.01 September 30, 2021 September 30, 2021 October 15, 2021

Preferred Shares

2 unchanged sentences

In July 2021, the Company issued 10,000,000 5.70 % Series H Cumulative Redeemable Preferred Shares at a public offering price of $ 25.00 per share for net proceeds of $ 242.1 million.

In August 2021, the Company redeemed all outstanding shares of 6.50 % Series C Cumulative Redeemable Preferred Shares and 6.375 % Series D Cumulative Redeemable Preferred Shares at the redemption amount of $ 25.00 per share plus accrued and unpaid dividends of $ 0.17 and $ 0.16 per share, respectively.

The following Preferred Shares were outstanding as of September 30, 2021 and December 31, 2020:

Security Type September 30, 2021 December 31, 2020

6.50 % Series C

6.375 % Series D

In August 2021, the Company redeemed all outstanding 6.50 % Series C Cumulative Redeemable Preferred Shares and 6.375 % Series D Cumulative Redeemable Preferred Shares at the redemption amount of $ 25.00 per share plus accrued and unpaid dividends of $ 0.17 and $ 0.16 per share, respectively.

The following Preferred Shares were outstanding as of March 31, 2022 and December 31, 2021:

Security Type March 31, 2022 December 31, 2021

6.375 % Series E

3 unchanged sentences

6.375 % Series G

9,200,000 9,200,000

5.70 % Series H

10,000,000 10,000,000

The Series C, Series D, Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions.

29,600,000 29,600,000

The Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions.

The Preferred Shares do not have any maturity date and are not subject to mandatory redemption.

The Series C, Series D, Series E and Series F Preferred Shares could not be redeemed prior to March 18, 2018, June 9, 2021, March 4, 2018, and May 25, 2021, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below.

The Company may redeem the Series E and Series F Preferred Shares at any time.

The Series G and Series H Preferred Shares may not be redeemed prior to May 13, 2026 and July 27, 2026, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below.

4 unchanged sentences

Preferred Dividends

The Company declared the following dividends on preferred shares for the nine months ended September 30, 2021:

The Company declared the following dividends on preferred shares for the three months ended March 31, 2022:

Security Type Dividend per Share/Unit For the Quarter Ended Record Date Payable Date

6.50 % Series C

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

6.50 % Series C

$ 0.41 June 30, 2021 June 30, 2021 July 15, 2021

6.375 % Series D

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

6.375 % Series D

$ 0.40 June 30, 2021 June 30, 2021 July 15, 2021

6.375 % Series E

$ 0.40 March 31, 2022 March 31, 2022 April 15, 2022

6.375 % Series E

$ 0.40 June 30, 2021 June 30, 2021 July 15, 2021

6.375 % Series E

$ 0.40 September 30, 2021 September 30, 2021 October 15, 2021

6.30 % Series F

$ 0.39 March 31, 2022 March 31, 2022 April 15, 2022

6.30 % Series F

$ 0.39 June 30, 2021 June 30, 2021 July 15, 2021

6.30 % Series F

$ 0.39 September 30, 2021 September 30, 2021 October 15, 2021

6.375 % Series G

$ 0.67 September 30, 2021 September 30, 2021 October 15, 2021

$ 0.40 March 31, 2022 March 31, 2022 April 15, 2022

5.70 % Series H

$ 0.31 September 30, 2021 September 30, 2021 October 15, 2021

______________________

(1) The initial long-period dividend for the 6.375 % Series G Preferred Shares will be paid in October 2021.

(2) The initial short-period dividend for the 5.700 % Series H Preferred Shares will be paid in October 2021.

$ 0.36 March 31, 2022 March 31, 2022 April 15, 2022

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, 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.

See Note 8, Share-Based Compensation Plan, for further discussion on LTIP units.

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

As of March 31, 2022 and December 31, 2021, the Operating Partnership had 133,605 OP units held by third parties, excluding LTIP units.

As of March 31, 2022, 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.

As of March 31, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at March 31, 2022, 127,111 LTIP units have vested.

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

Share-Based Compensation Plan

2 unchanged sentences

On May 19, 2021, the Company’s shareholders approved an amendment to the Plan which increased the aggregate number of common shares that may be issued under the Plan as share awards, performance units, options, share appreciation rights and other equity-based awards by 1,675,000 .

As of September 30, 2021, there were 1,808,182 common shares available for issuance under the Plan.

As of March 31, 2022, there were 1,839,323 common shares available for issuance under the Plan.

Service Condition Share Awards

The following table provides a summary of service condition restricted share activity as of September 30, 2021:

The following table provides a summary of service condition restricted share activity as of March 31, 2022:

Shares Weighted-Average

Unvested at December 31, 2021 567,431 $ 22.53

Granted 415,531 $ 22.69

Vested ( 106,470 ) $ 26.17

Forfeited ( 13,886 ) $ 22.78

Unvested at September 30, 2021 568,765 $ 22.53

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 1.1 million and $ 3.0 million, respectively, of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income.

Unvested at March 31, 2022 447,075 $ 21.65

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 0.8 million of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income.

Performance-Based Equity Awards

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.

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 1.3 million and $ 3.6 million, respectively, of share-based compensation expense related to performance-based equity awards in the accompanying consolidated statements of operations and comprehensive income.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 0.9 million and $ 1.0 million, respectively, of share-based compensation expense related to performance-based equity awards in the accompanying consolidated statements of operations and comprehensive income.

Long-Term Incentive Partnership ("LTIP") Units

As of September 30, 2021, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units.

As of March 31, 2022, 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 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.

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.

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, contingent upon continued employment with the Company.

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 September 30, 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 September 30, 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 in Note 7, Equity .

For the three and nine months ended September 30, 2021, the Company recognized approximately $ 0.7 million and $ 1.7 million, respectively, in expense related to these LTIP units.

As of March 31, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at March 31, 2022, 127,111 LTIP units have vested.

Only vested LTIP units may be converted to common OP units, which in turn can be tendered for redemption as described in Note 7, Equity .

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 0.7 million and $ 0.3 million, respectively, in expense related to these 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.

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 and nine months ended September 30, 2021, and has recorded a valuation allowance on all deferred tax assets.

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, 2022, 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, 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,

2021 2020 2021 2020

As of March 31, 2022 and December 31, 2021, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2017.

Earnings (Loss) Per Share

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

For the three months ended March 31,

Net income (loss) attributable to common shareholders $ ( 110,874 ) $ ( 128,721 )

6 unchanged sentences

Net income (loss) per share available to common shareholders — diluted $ ( 0.85 ) $ ( 0.98 )

For the three and nine months ended September 30, 2021, 1,035,369 of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive.

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

For the three and nine months ended September 30, 2021, 29,441,175 common shares underlying the Convertible Notes have been excluded from diluted shares as their effect would have been anti-dilutive.

For the three months ended March 31, 2022 and 2021, 787,871 and 1,041,130 , 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, 2022 and 2021, 29,441,175 of common 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.

Commitments and Contingencies

Management Agreements

Hotel Management Agreements

The Company’s hotel properties are operated pursuant to management agreements with various management companies.

7 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, 2021, com bined base and incentive management fees were $ 5.1 million and $ 11.8 million, respectively.

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

For the three months ended March 31, 2022 and 2021, com bined base and incentive management fees were $ 7.7 million and $ 2.3 million, respectively.

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

On April 30, 2021, the Company provided a notice of default to sbe concerning the hotel management agreement of the Mondrian Los Angeles.

Sbe is refuting the Company’s notice of default and has requested arbitration to cure the alleged default.

Reserve Funds

1 unchanged sentence

Restricted Cash

At September 30, 2021 and December 31, 2020, the Company had $ 25.1 million and $ 12.0 million, respectively, in restricted cash, which consisted of funds held in cash management and lockbox accounts held by a lender, reserves for replacement of furniture and fixtures and reserves to pay for real estate taxes, ground rent or property insurance under certain hotel management agreements or loan agreements.

Ground and Hotel Leases

As of September 30, 2021, the following hotels were subject to leases as follows:

At March 31, 2022 and December 31, 2021, the Company had $ 26.5 million and $ 33.7 million, respectively, in restricted cash, which consisted of funds held in cash management and lockbox accounts held by a lender, reserves for replacement of furniture and fixtures and reserves to pay for real estate taxes, ground rent or property insurance under certain hotel management agreements or loan agreements.

Hotel, Ground and Finance Leases

As of March 31, 2022, the following hotels were subject to leases as follows:

Lease Properties Lease Type Lease Expiration Date

5 unchanged sentences

Viceroy Santa Monica Hotel Operating lease September 2065

Estancia La Jolla Hotel & Spa Operating lease January 2066

San Diego Mission Bay Resort Operating lease July 2068

19 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, 2021 and 2020 are as follows (in thousands):

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

2021 2020 2021 2020

The components of ground rent expense for the three months ended March 31, 2022 and 2021 are as follows (in thousands):

For the three months ended March 31,

Fixed ground rent $ 4,456 $ 4,313

1 unchanged sentence

Total ground rent $ 7,510 $ 5,809

Future maturities of lease liabilities for the Company's operating leases at September 30, 2021 were as follows (in thousands):

Thereafter 1,587,326

Total lease payments $ 1,669,877

Imputed interest ( 1,367,736 )

Present value of lease liabilities $ 302,141

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.

1 unchanged sentence

The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.

Supplemental Information to Statements of Cash Flows

For the nine months ended September 30,

(in thousands)

Supplemental Information to Statements of Cash Flows (in thousands)

For the three months ended March 31,

Interest paid, net of capitalized interest $ 16,613 $ 17,438

7 unchanged sentences

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

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

Accrued additions and improvements to hotel properties $ 2,848 $ 2,156

Right of use assets obtained in exchange for lease liabilities $ 48,302 $ —

Write-off of deferred financing costs $ 5,043 $ —

Mortgage loan assumed in connection with acquisition $ 161,500 $ —

Below (above) market rate contracts assumed in connection with acquisition $ 3,071 $ —

Write-off of fully amortized deferred financing costs $ 5,466 $ 2,817

Subsequent Events

On October 20, 2021, the Company acquired the 19 -room Avalon Bed & Breakfast and the 12 -room Duval Gardens, both located in Key West, Florida, for $ 20.0 million.

The two properties will be consolidated and operated as part of the Company's Southernmost Beach Resort.

On April 21, 2022, the Company announced that it executed a contract to acquire the Inn on Fifth in Naples, Florida.

The purchase is expected to be completed by the end of the second quarter of 2022 and is subject to customary closing conditions.

The Company offers no assurances that this acquisition will be completed on these terms or at all.

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