What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-26 compared with 2021-10-28 · 122 added, 311 removed, 126 unchanged (77% of the section changed)

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The current and uncertain future impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel, is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity and share price;

• as a result of the COVID-19 pandemic, we suspended operations at some of our hotels and resorts.

• as a result of the COVID-19 pandemic, we suspended operations at most of our hotels and resorts.

Operations have recommenced and are improving.

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

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

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

We also amended the agreements governing our 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, we gradually reopened our hotels and resorts.

As of September 30, 2021, all of our 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 our operations and financial results and is expected to continue to have a significant negative impact on our results of operations, financial position and cash flow for the remainder of 2021.

We cannot estimate when travel demand will fully recover.

However, we anticipate further recovery in 2022.

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

However, business travel continues to be substantially lower.

During the nine months ended September 30, 2021, we 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.

• Repaid $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 our credit agreements, expense and cash burn rate reductions, and our ability to raise additional liquidity through equity issuances, we believe we have sufficient liquidity to meet our obligations for the next twelve months.

As of July 1, 2021, all of our 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 we expect to occur in the second quarter of 2022.

The COVID-19 pandemic has had a significant negative impact on our operations and financial results and is expected to continue to have a negative impact on our 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, our resort properties are operating at or above pre-pandemic levels.

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

For further discussion on our liquidity, see Liquidity and Capital Resources .

While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels’ operations, including property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction.

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ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events.

See Non-GAAP Financial Matters in Part I, Item 2 of this Quarterly Report on Form 10-Q for further discussion of FFO, EBITDA and EBIDTA re .

See Non-GAAP Financial Measures for further discussion of FFO, EBITDA and EBIDTA re .

Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics for our hotels for the three and nine months ended September 30, 2021 and 2020.

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

2021 2020 2021 2020

The following table represents the key same-property hotel operating statistics for our hotels for the three months ended March 31, 2022 and 2021:

For the three months ended March 31,

Same-Property Occupancy 48.3 % 22.1 %

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Same-Property Total RevPAR $ 219.75 $ 89.02

While the operations of many of our hotels were temporarily suspended beginning in March 2020, the above table of hotel operating statistics for the three months ended September 30, 2021 and 2020, includes information from all of the hotels we owned as of September 30, 2021, except for Margaritaville Hollywood Beach Resort for the third quarter of 2021 and 2020, and Hotel Vitale for the third quarter of 2021 and 2020, as it was closed for renovation during the third quarter of 2021.

The above table of hotel operating statistics for the nine months ended September 30, 2021 and 2020, includes information from all of the hotels we owned as of September 30, 2021, except for the following:

Hotel Zena Washington DC, formerly known as Donovan Hotel, for the first and second quarters of 2021 and 2020, as it was closed for renovation during the first and second quarters of 2020;

Hotel Vitale for the third quarter of 2021 and 2020, as it was closed for renovation during the third quarter of 2021;

and Margaritaville Hollywood Beach Resort for the third quarter of 2021.

Also included in the above table is information for Sir Francis Drake and The Roger New York for the first quarter of 2021 and 2020;

and Villa Florence San Francisco on Union Square for the first and second quarters of 2021 and 2020.

The above table of hotel operating statistics includes information from all hotels owned as of March 31, 2022 for the first quarters of 2022 and 2021, except for Hotel Vitale, which was closed for renovations in the first quarter of 2022.

Non-GAAP Financial Measures

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By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization, gains (losses) from sales of real estate and impairments of real estate assets (including impairment of real estate related joint ventures), all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that FFO provides investors a useful financial measure to evaluate our operating performance.

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Net income (loss) $ (100,216) $ (121,440)

Depreciation and amortization 55,379 56,587 165,301 167,716

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

Real estate depreciation and amortization 59,010 55,333

Impairment loss 60,983 14,856

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

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

FFO available to common share and unit holders $ 8,433 $ (59,390)

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We believe that EBITDA and EBITDA re provide investors useful financial measures to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Net income (loss) $ (100,216) $ (121,440)

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EBITDA $ (18,544) $ (40,663)

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

Impairment loss 60,983 14,856

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Results of Operations

At September 30, 2021 and 2020, we had 52 and 53, respectively, wholly owned properties and leasehold interests.

At March 31, 2022 and 2021, we had 53 wholly owned properties and leasehold interests.

All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition and through the dates of disposition, as applicable.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three and nine months ended September 30, 2021 and 2020.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three months ended March 31, 2022 and 2021.

The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties":

Property Location Disposition Date

InterContinental Buckhead Atlanta Buckhead, GA March 6, 2020

Sofitel Washington DC Lafayette Square Washington, D.C.

March 6, 2020

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

Sir Francis Drake San Francisco, CA April 1, 2021

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

Acquisition Date

Property Location Acquisition Date

Jekyll Island Club Resort Jekyll Island, GA July 22, 2021

Margaritaville Hollywood Beach Resort Hollywood, FL September 23, 2021

Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020

Revenues — Total hotel revenues increased by $161.8 million primarily due to an increase in leisure travel demand during the summer travel season.

This increase in demand was the result of an increase in COVID-19 vaccination rates and easing of governmental restrictions.

Most of our hotels suspended operations in March 2020 and operations remained suspended throughout the third quarter of 2020.

Hotel operating expenses — Total hotel operating expenses increased by $77.1 million primarily due to resuming operations at our comparable properties and returning demand in the third quarter of 2021.

Depreciation and amortization — Depreciation and amortization expense decreased by $1.2 million primarily due to the sale of three hotels in 2020 and three hotels in 2021.

This was partially offset by the acquisition of two hotels in 2021.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $1.7 million primarily due to a successful appeal of one property's real estate tax assessment.

This was partially offset by an increase in percentage ground rent due to an increase in revenues.

General and administrative — General and administrative expenses increased by $2.0 million primarily due to an increase in share-based compensation expense of $1.4 million.

General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Transaction costs — Transaction costs incurred during the third quarter of 2020 were the result of additional transfer taxes paid in connection with the LaSalle merger.

Transaction costs incurred during the third quarter of 2021 were immaterial.

Interest expense — Interest expense decreased by $4.6 million primarily due to decreased borrowings, as certain term loans, senior unsecured notes and amounts under our senior unsecured credit facility were paid down in 2021.

Income tax (expense) benefit — Income tax (expense) benefit is immaterial in 2021 as a result of the taxable REIT subsidiary continuing to incur a loss and a valuation allowance being recognized offsetting the deferred tax asset.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders.

Distributions to preferred shareholders — Distributions to preferred shareholders increased as a result of the issuance of the Series G and Series H Cumulative Redeemable Preferred Shares in May 2021 and July 2021, respectively.

The increase was partially offset by the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

Issuance costs of redeemed preferred shares — Issuance costs of redeemed preferred shares increased due to the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

These costs are included in the determination of net income (loss) attributable to common shareholders.

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

Revenues — Total hotel revenues increased by $117.1 million primarily in the second and third quarters of 2021 as hotels reopened and leisure travel demand increased during the spring and summer travel season.

This increase in demand was the result of an increase in COVID-19 vaccination rates and easing of governmental restrictions.

Most of our hotels suspended operations in March 2020 and operations remained suspended throughout the third quarter of 2020.

Hotel operating expenses — Total hotel operating expenses increased by $15.0 million primarily due to resuming operations at our comparable properties and returning demand in the second and third quarters of 2021.

Depreciation and amortization — Depreciation and amortization expense decreased by $2.4 million primarily due to the sale of three hotels in 2020 and three hotels in 2021.

This was partially offset by the acquisition of two hotels in 2021 and capital investments related to recently renovated hotels, including Hotel Zena.

General and administrative — General and administrative expenses decreased by $11.5 million primarily due to a decrease in share-based compensation costs relating to the cancellation of the retention LTIP unit awards and time-based service condition awards in 2020.

Estancia La Jolla Hotel & Spa La Jolla, CA December 1, 2021

Comparison of the three months ended March 31, 2022 to the three months ended March 31, 2021

Revenues — Total hotel revenues increased by $174.4 million, of which $38.4 million was due to non-comparable properties, and the remaining increase was primarily due to an increase in leisure travel demand during the spring break travel season, as well as some recoveries in business and group bookings.

This increase in demand was the result of an increase in COVID-19 vaccination rates and an easing of governmental restrictions relative to the prior year.

Also, 13 of our hotels' operations remained temporarily suspended throughout the first quarter of 2021.

Hotel operating expenses — Total hotel operating expenses increased by $101.7 million, of which $21.0 million was due to non-comparable properties, and the remaining increase was primarily due to resuming operations at our comparable properties and returning demand in the first quarter of 2022.

Depreciation and amortization — Depreciation and amortization expense increased by $3.7 million primarily due to our three non-comparable properties acquired in 2021.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $1.9 million primarily due to an increase in ground rent at our three non-comparable properties acquired in 2021.

General and administrative — General and administrative expenses increased by $2.1 million primarily due to an increase of $1.6 million in compensation expense.

General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Transaction costs — Transaction costs incurred during 2020 were the result of additional transfer taxes paid in connection with the LaSalle merger.

Transactions costs incurred during 2021 were immaterial.

Impairment loss — The Company recognized an impairment loss of $14.9 million in 2021 related to one hotel.

The Company recognized an impairment loss of $20.6 million in 2020 related to the retail component of a hotel.

(Gain) loss on sale of hotel properties — The Company recognized a net gain on sale of $64.7 million in 2021 primarily due to the sale of Sir Francis Drake.

The Company recognized a net gain on sale of $117.4 million in 2020 primarily due to the sale of InterContinental Buckhead Atlanta.

(Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased by $2.3 million primarily due to reductions in pre-opening, hotel management transition and franchise tax expenses.

Interest expense — Interest expense decreased by $2.1 million primarily due to decreased borrowings, as certain term loans, senior unsecured notes and amounts under our senior unsecured credit facility were paid down in 2021.

This was partially offset by increased amortization and write-off of deferred financing fees as a result of the partial repayment of certain of the term loans during 2021.

Income tax (expense) benefit — Income tax (expense) benefit was a benefit of $8.5 million in 2020 which was due to the deferred tax asset recognized in 2020 on the taxable REIT subsidiary's estimated loss.

In 2021, the Company has recognized a valuation allowance offsetting the deferred tax asset on the current year taxable REIT subsidiary's loss due to the uncertainty of utilizing the deferred tax asset in the future.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders.

This was partially offset by the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

These costs are included in the determination of net income (loss) attributable to common shareholders.

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Impairment loss — For the three months ended March 31, 2022, we recognized an impairment loss of $61.0 million related to two hotels.

For the three months ended March 31, 2021, we recognized an impairment loss of $14.9 million related to one hotel.

Interest expense — Interest expense decreased by $2.8 million primarily due to slightly lower interest rates in 2022.

Distributions to preferred shareholders — Distributions to preferred shareholders primarily increased as a result of the issuance of the Series G and Series H Cumulative Redeemable Preferred Shares in May 2021 and July 2021, respectively.

Critical Accounting Policies

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All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Standards

See Note 2, Summary of Significant Accounting Policies , to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information relating to recently issued accounting pronouncements.

New Accounting Pronouncements Not Yet Implemented

Liquidity and Capital Resources

As of September 30, 2021, we had liquidity of $826.9 million, which includes cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility.

For further discussion on our liquidity and the impact of COVID-19, see Overview included in Part I, Item 2 of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements

Summary of Significant Accounting Policies, to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recently issued accounting pronouncements that may affect us.

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Our debt consisted of the following as of September 30, 2021 and December 31, 2020 (dollars in thousands):

Balance Outstanding as of

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

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by our operations, borrowings under our credit facilities, net proceeds from equity and debt offerings, and net proceeds from hotel property sales.

Our primary cash requirements in the short term (i.e., those requiring cash on or before March 31, 2023) will be to fund property lease obligations, interest and current principal on debt, capital improvements, dividends on common and preferred shares, and working capital of our hotel property operations.

We believe our cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility, which totaled $694.4 million as of March 31, 2022, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements.

As of March 31, 2022, we had no off-balance sheet arrangements.

In order to maintain our qualification as a REIT, we must pay dividends to our shareholders of at least 90% of our taxable income.

As a result of this requirement, we cannot rely on retained earnings to fund long-term liquidity requirements such as hotel property acquisitions, redevelopements and repayments of long-term debt.

As such, we expect to continue to raise capital through equity and debt offerings to fund our growth.

For a discussion on the impact of the COVID-19 pandemic on our liquidity, see Overview .

Our material cash requirements include the following contractual and other obligations.

Our outstanding debt consisted of floating- and fixed-rate unsecured term loans, convertible senior notes, senior unsecured notes and mortgage loans with varying maturities.

Our total debt had an aggregate face value of $2.5 billion as of March 31, 2022, as summarized in the following table.

March 31, 2022

(in thousands)

Revolving credit facilities $ —

Senior unsecured credit facility Floating (1) (2)

January 2022 $ — $ 40,000

PHL unsecured credit facility Floating (3)

January 2022 — —

Total revolving credit facilities $ — $ 40,000

Unsecured term loans

First Term Loan Floating (4)

January 2023 300,000 300,000

Second Term Loan Floating (4)

April 2022 26,327 65,000

Fourth Term Loan Floating (4)

October 2024 110,000 110,000

Sixth Term Loan:

Tranche 2021 Floating (4)

November 2021 3,932 40,966

Tranche 2021 Extended Floating (4)

November 2022 82,071 173,034

Tranche 2022 Floating (4)

November 2022 114,670 286,000

Tranche 2023 Floating (4)

November 2023 400,000 400,000

Tranche 2024 Floating (4)

January 2024 400,000 400,000

Total Sixth Term Loan 1,000,673 1,300,000

Total term loans at stated value 1,437,000 1,775,000

Deferred financing costs, net (5,777) (8,455)

Total term loans $ 1,431,223 $ 1,766,545

Convertible senior notes

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

Debt premium (discount), net 12,190 (113,099)

Deferred financing costs, net (17,014) (12,568)

Total convertible senior notes $ 745,176 $ 374,333

Senior unsecured notes

Series A Notes 5.15% (5)

December 2023 47,600 60,000

Series B Notes 5.38% (6)

December 2025 2,400 40,000

Total senior unsecured notes at stated value 50,000 100,000

Deferred financing costs, net (182) (407)

Total senior unsecured notes $ 49,818 $ 99,593

Mortgage loan

Margaritaville Hollywood Beach Resort Floating (7)

May 2022 161,500 —

Debt premium (discount), net (3,023) —

Deferred financing costs, net (464) —

Total mortgage loan $ 158,013 $ —

Total debt $ 2,384,230 $ 2,280,471

______________________

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

(2) We have 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 our option, either (i) LIBOR plus an applicable margin or (ii) a Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.

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

As of September 30, 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 December 31, 2020, approximately $1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.19%, after taking into account interest rate swap agreements, and approximately $345.0 million bore a weighted-average floating interest rate of 2.46%.

(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.

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

We have the option to extend the maturity date for up to two one-year periods.

We intend to repay indebtedness incurred under our revolving credit facilities, unsecured term loans, convertible senior notes, senior unsecured notes and mortgage loan out of our cash flows from operations and, as market conditions permit, from the net proceeds from issuances of additional equity or debt securities and dispositions of hotel properties.

In February 2021, we amended the agreements governing our 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.

For further discussion on these amendments and on the components of our overall debt, see Note 5 , Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Unsecured Revolving Credit Facilities

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

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

Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either the London Inter-bank Offered Rate ("LIBOR") or the alternate base rate, plus an additional margin amount, or spread.

The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement.

As a result of the amendments described in Note 5, Debt , to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the spread on the borrowings is fixed at 2.40% during the waiver period.

We have the ability to increase the aggregate borrowing capacity of our senior unsecured revolving credit facility up to $1.3 billion, subject to lender approval.

We also have a $25.0 million unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes.

This credit facility has substantially similar terms as our senior unsecured revolving credit facility and matures in January 2022.

Borrowings under the PHL Credit Facility bear interest at LIBOR plus an applicable margin, depending on our leverage ratio.

As a result of the amendments described in Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the spread on the borrowings is fixed at 2.40% during the waiver period.

As of September 30, 2021, we had no borrowings under the PHL Credit Facility.

Unsecured Term Loan Facilities

We are party to senior unsecured term loans with different maturities.

Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on our leverage ratio.

We entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loans.

For further discussion on our unsecured term loan facilities and interest rate swap agreements, see Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Term loans 1,433,068

Convertible senior notes 750,000

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.

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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 $3.3 million and $9.4 million for the three and nine months ended September 30, 2021, respectively.

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 September 30, 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 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 50,000

The Company has $47.6 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 $2.4 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 in Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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, 2021, the Company was in compliance with all such debt covenants.

Mortgage Loan

On September 23, 2021, we assumed a $161.5 million loan secured by a first-lien mortgage on the leasehold interest of the 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.

We intend to exercise the options to extend.

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.

Mortgage loans 222,549

Total debt at face value $ 2,455,617

For further discussion on the components of our debt, see Note 5.

Debt , to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We have the option to extend certain of our current debt maturities with the payment of extension fees.

Assuming we exercise all extension options available in our debt agreements, we expect that future principal and interest payments associated with our debt obligations outstanding as of March 31, 2022 will be $2.6 billion through their maturity, with $162.3 million payable on or before March 31, 2023.

In April 2022, we repaid the remaining $26.3 million principal balance on our Second Term Loan using cash on hand.

We intend to pay amounts due with available cash, borrowings under our revolving credit facility, or refinance with long term debt.

In February 2021 and December 2021, we amended the agreements governing our 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.

We are in compliance with all covenants governed by our existing credit facilities, term loan and senior note facilities.

Our mortgage 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.

The mortgage loan associated with Estancia La Jolla Hotel & Spa triggered the cash trap provisions prior to our acquisition of this hotel property, and therefore excess cash flow from hotel operations from this hotel is being held by the lender in cash management accounts and is reflected as restricted cash in our 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.

This loan may remain subject to cash trap provisions for a substantial period of time which could limit our liquidity and ability to pay dividends or reduce debt balances.

Cash held in the lockbox is not available for distribution for general corporate use or distribution to the shareholders.

Margaritaville Hollywood Beach Resort also triggered cash trap provisions prior to our acquisition, but was released from this provision during the first quarter of 2022.

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Issuance of Shares of Beneficial Interest

Common Shares

Hotel, ground and finance lease obligations

Our properties that are subject to hotel, ground or finance leases, as noted in Note 11 , Commitment and Contingencies , to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent.

Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases.

Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of March 31, 2022, with $20.5 million payable within the next 12 months.

Purchase commitments

As of March 31, 2022, we had $5.3 million of outstanding purchase commitments, all of which will be paid within the next 12 months.

These purchase commitments represent outstanding purchase orders and contracts that have been executed for capital and renovation projects at our properties.

See Capital Investments for discussion on planned capital investments.

Preferred dividends

We expect to pay aggregate annual dividends of approximately $45.4 million on our outstanding Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares within the next 12 months and in each future year until the shares are redeemed.

For further discussion on our preferred shares, see Note 7.

Equity , to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Sources and Uses of Cash

Our principal sources of cash are cash from operations, draws on our credit facilities, net proceeds from equity and debt offerings, and net proceeds from property sales.

Our principal uses of cash are asset acquisitions, debt service payments, the redemption of equity securities, capital investments, operating costs, corporate expenses and dividends.

Operating Activities.

Our net cash provided by (used in) operating activities was $38.8 million for the three months ended March 31, 2022 and $(7.1) million for the three months ended March 31, 2021.

Fluctuations in our net cash provided by (used in) operating activities are primarily the result of changes in hotel revenues, operating cash requirements and corporate expenses.

The increase in cash provided by (used in) operations in 2022 as compared to 2021 is due to the resumption of operations at our hotels, as 13 of our hotels' operations remained temporarily suspended throughout the first quarter of 2021.

Investing Activities.

Our net cash provided by (used in) investing activities was $(20.0) million for the three months ended March 31, 2022 and $(9.7) million for the three months ended March 31, 2021.

Fluctuations in our net cash provided by (used in) investing activities are primarily the result of acquisition and disposition activities, as well as capital improvements and additions to our properties.

• During the three months ended March 31, 2022, we invested $19.9 million in improvements to our hotel properties.

• During the three months ended March 31, 2021, we invested $9.6 million in improvements to our hotel properties.

Financing Activities.

Our net cash provided by (used in) financing activities was $(15.2) million for the three months ended March 31, 2022 and $5.1 million for the three months ended March 31, 2021.

Fluctuations in our net cash provided by (used in) financing activities are primarily the result of our issuance and repurchase of debt and equity securities and distributions paid on our preferred and common shares.

• During the three months ended March 31, 2022, we paid $12.7 million in preferred and common distributions.

• During the three months ended March 31, 2021, we borrowed $263.8 million in other debt;

repaid $40.0 million of revolving credit facilities borrowings and $177.0 million in other debt;

paid $9.5 million in preferred and common distributions;

purchased $21.0 million in Capped Call Transactions;

and paid $9.6 million in financing fees.

Capital Investments

We maintain and intend to continue maintaining all of our hotels in good repair and condition, in conformity with applicable laws and regulations, in accordance with franchisor standards when applicable and in accordance with agreed-upon requirements in our management agreements.

Routine capital investments will be administered by the hotel management companies.

However, we maintain approval rights over the capital investments as part of the annual budget process and as otherwise required from time to time.

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Certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guest rooms, meeting space and restaurants, in order to better compete with other hotels in our markets.

In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if any, to complete a property improvement plan (“PIP”) in order to bring the hotel property up to the franchisor’s or brand’s standards.

Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility or proceeds from new debt or equity offerings.

For the three months ended March 31, 2022, we invested $19.9 million in capital investments to reposition and improve our properties, including the renovations of Hotel Vitale and Hotel Ziggy (formerly Grafton on Sunset).

Depending on market conditions, we expect to invest a total of $100.0 million to $120.0 million in capital investments in 2022, which includes approximately $50.0 million in redevelopment and repositioning projects at Hotel Vitale, Skamania Lodge, Solamar Hotel, Hilton San Diego Gaslamp Quarter and Jekyll Island Club Resort.

Common Share Repurchase Program and ATM Program

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

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We may suspend or discontinue this program at any time.

No common shares were repurchased by the Company under the share repurchase program during the nine months ended September 30, 2021.

As of September 30, 2021, $56.6 million of common shares remained available for repurchase under this program.

No common shares were repurchased by the Company under the share repurchase program during the three months ended March 31, 2022.

As of March 31, 2022, $56.6 million of common shares remained available for repurchase under this program.

The credit agreements governing our existing indebtedness prohibit us from repurchasing common shares until we have certified compliance with certain financial covenants through June 30, 2022.

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

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On April 29, 2021, we 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.

Preferred Shares

In May 2021, we issued 9,200,000 6.375% Series G Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $222.6 million.

These shares may be redeemed, at the Company’s option, on or after May 13, 2026, in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption.

We used the net proceeds to reduce amounts outstanding under our unsecured term loans and for general corporate purposes.

In July 2021, we issued 10,000,000 5.700% Series H Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $242.1 million.

These shares may be redeemed, at the Company’s option, on or after July 27, 2026, in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption.

We used the net proceeds to redeem all outstanding 6.50% Series C Cumulative Redeemable Preferred Shares and 6.375% Series D Cumulative Redeemable Preferred Shares in August 2021.

For further discussion on our shares of beneficial interest, see Note 7, Equity , to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Sources and Uses of Cash

Our principal sources of cash are cash from operations, borrowings under mortgage financings and other debt, draws on our credit facilities, proceeds from offerings of our equity securities, debt securities and hotel property sales.

Our principal uses of cash are asset acquisitions, debt service, capital investments, operating costs, corporate expenses and dividends.

Cash Provided by (Used in) Operations.

Our cash provided by operating activities was $44.3 million for the nine months ended September 30, 2021.

Our cash from operations includes the operating activities of the 52 hotels we owned as of September 30, 2021, offset by corporate expenses.

Our cash used in operating activities was $146.9 million for the nine months ended September 30, 2020.

Our cash from operations includes the operating activities of the 53 hotels we owned as of September 30, 2020, offset by corporate expenses.

The negative cash flow from operations during the nine months ended September 30, 2020 is due to the reduced operations at our hotels as a result of COVID-19, including carrying costs on hotels that were temporarily suspended.

Cash Provided by Investing Activities.

Our cash provided by investing activities was $11.1 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, we invested $52.8 million in improvements to our hotel properties, received $255.9 million from the sales of three hotel properties, purchased two hotel properties using cash of $191.0 million and placed deposits totaling $1.0 million on hotel properties.

Our cash provided by investing activities was $264.7 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, we invested $110.4 million in improvements to our hotel properties and received $375.1 million from sales of three hotel properties.

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Cash Provided by (Used in) Financing Activities.

Our cash used in financing activities was $9.0 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, we repaid $40.0 million under the revolving credit facilities, received gross proceeds of $480.0 million from the issuance of our Series G and Series H Preferred Shares, used $250.0 million to redeem all our Series C and Series D Preferred Shares, paid $15.9 million in offering costs, received proceeds from the issuance of convertible notes and other debt of $268.6 million, repaid $388.0 million in other debt, purchased $21.0 million in Capped Call Transactions, repurchased $0.7 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $30.0 million in distributions, paid $10.1 million in financing fees, and paid $1.9 million in other transactions.

Our cash provided by financing activities was $42.3 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, we borrowed $760.1 million under the revolving credit facilities, repaid $635.1 million under the revolving credit facilities, borrowed and repaid $13.0 million in other debt, repurchased $1.3 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $77.1 million in distributions, paid $3.6 million in financing fees related to the credit agreement amendments and paid $0.7 million in other transactions.

Capital Investments

We maintain and intend to continue maintaining all of our hotels, including each hotel that we acquire in the future, in good repair and condition and in conformity with applicable laws and regulations and when applicable, in accordance with the franchisor’s standards and the agreed-upon requirements in our management agreements.

Routine capital investments will be administered by the hotel management companies.

However, we maintain approval rights over the capital investments as part of the annual budget process and as otherwise required from time to time.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, meeting space and restaurants, in order to better compete with other hotels in our markets.

In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if there is one, to complete a property improvement plan (“PIP”) in order to bring the hotel property up to the franchisor’s or brand’s standards.

Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility or proceeds from new debt or equity offerings.

For the nine months ended September 30, 2021, we invested $52.8 million in capital investments to reposition and improve our properties, primarily the renovations of Hotel Vitale, Southernmost Beach Resort and L'Auberge Del Mar.

Depending on market conditions, we expect to invest an additional $30.0 million to $40.0 million in capital investments during the remainder of 2021, including a $25.0 million transformation of Hotel Vitale.

The Hotel Vitale redevelopment is expected to be completed in the first quarter of 2022, at which time the hotel will reopen as 1 Hotel San Francisco.

We also commenced a $15.0 million renovation at Southernmost Beach Resort, which we expect will be completed in the fourth quarter of 2021.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below summarizes our contractual obligations as of September 30, 2021 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

Payments due by period

Mortgage loans (1)(7)

$ 172,416 $ 4,114 $ 168,302 $ — $ —

Term loans (2)

1,535,113 84,036 1,340,964 110,113 —

Convertible senior notes (1)

822,188 13,125 26,250 26,250 756,563

Unsecured notes (1)

56,369 2,581 51,211 2,577 —

Borrowings under credit facilities (3)

Hotel and ground leases (4)

1,696,503 18,487 37,136 37,775 1,603,105

Finance lease obligation (4)

52,115 909 1,877 1,962 47,367

Refundable membership initiation deposits (5)

27,328 203 — — 27,125

Purchase commitments (6)

12,398 12,398 — — —

Corporate office leases 14,517 1,774 2,562 2,502 7,679

Total $ 4,388,947 $ 137,627 $ 1,628,302 $ 181,179 $ 2,441,839

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(1) Amounts include principal and interest.

(2) Amounts include principal and interest.

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

(3) Amounts include principal and interest under the two revolving credit facilities.

Interest expense is calculated based on the weighted-average interest rate for all outstanding credit facility borrowings as of September 30, 2021.

It is assumed that the outstanding borrowings will be repaid upon maturity with fixed interest-only payments until then.

(4) Our leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent.

Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases.

The table above reflects only minimum fixed rent for all periods presented and does not include assumptions for CPI adjustments.

(5) Represents refundable initiation membership deposits from club members at LaPlaya Beach Resort & Club.

(6) Amounts represent purchase orders and contracts that have been executed for renovation projects at the properties.

We are committed to these purchase orders and contracts and anticipate making similar arrangements in the future with the existing properties or any future properties that we may acquire.

(7) Assumes the exercise of two one-year extension options.

Off-Balance Sheet Arrangements

As of September 30, 2021, we had no off-balance sheet arrangements.

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.

We rely on the performance of the hotels to increase revenues to keep pace with inflation.

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The historical trend has been disrupted as a result of COVID-19.

We expect that our portfolio will return to more normal historical seasonality trends in 2022.

Derivative Instruments

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

We believe it minimizes the credit risk by transacting with major credit-worthy financial institutions.

We have interest rate swap agreements with an aggregate notional amount of $1.4 billion to hedge variable interest rates on our unsecured term loans.

We believe we minimize the credit risk by transacting with major credit-worthy financial institutions.

As of March 31, 2022, we have interest rate swap agreements with an aggregate notional amount of $1.1 billion to hedge variable interest rates on our unsecured term loans.

We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

For a further discussion of our derivative instruments see Note 5.

Debt , to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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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 2. Management’s Discussion and Analysis