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Item 1. Financial Statements

2022-10-27 compared with 2022-07-26 · 143 added, 126 removed, 649 unchanged (29% of the section changed)

3 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Investment in hotel properties, net $ 5,964,823 $ 6,079,333

Hotels held for sale 146,805 —

Cash and cash equivalents 190,750 58,518

10 unchanged sentences

Accrued interest 10,408 4,567

Liabilities related to hotels held for sale 4,636 —

Distribution payable 12,559 11,756

2 unchanged sentences

Shareholders’ equity:

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 740,000 at June 30, 2022 and December 31, 2021), 100,000,000 shares authorized;

29,600,000 shares issued and outstanding at June 30, 2022 and December 31, 2021

Preferred shares of beneficial interest, $ .01 par value (liquidation preference $ 740,000 at September 30, 2022 and December 31, 2021), 100,000,000 shares authorized;

29,600,000 shares issued and outstanding at September 30, 2022 and December 31, 2021

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

130,905,132 shares issued and outstanding at June 30, 2022 and 130,813,750 shares issued and outstanding at December 31, 2021

130,905,132 shares issued and outstanding at September 30, 2022 and 130,813,750 shares issued and outstanding at December 31, 2021

Additional paid-in capital 4,273,603 4,268,042

9 unchanged sentences

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

For the three months ended June 30, For the six months ended June 30,

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

2022 2021 2022 2021

24 unchanged sentences

Distributions to preferred shareholders ( 11,344 ) ( 12,528 ) ( 34,031 ) ( 30,761 )

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

Net income (loss) attributable to common shareholders $ 13,724 $ ( 43,984 ) $ ( 80,504 ) $ ( 181,269 )

6 unchanged sentences

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

For the three months ended June 30, For the six months ended June 30,

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

2022 2021 2022 2021

11 unchanged sentences

(in thousands, except share data)

For the three months ended June 30, 2022

For the three months ended September 30, 2022

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 March 31, 2022

Balance at June 30, 2022

29,600,000 $ 296 130,905,132 $ 1,309 $ 4,271,169 $ 23,748 $ ( 1,190,693 ) $ 3,105,829 $ 86,847 $ 3,192,676

8 unchanged sentences

Net income (loss) — — — — — — 25,068 25,068 1,237 26,305

Balance at June 30, 2022

Balance at September 30, 2022

29,600,000 $ 296 130,905,132 $ 1,309 $ 4,273,603 $ 38,796 $ ( 1,178,289 ) $ 3,135,715 $ 87,710 $ 3,223,425

2 unchanged sentences

(in thousands, except share data)

For the three months ended June 30, 2021

For the three months ended September 30, 2021

Shares Amount Shares Amount

Balance at March 31, 2021

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

2 unchanged sentences

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

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

Other comprehensive income (loss):

2 unchanged sentences

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

Balance at June 30, 2021

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

2 unchanged sentences

(in thousands, except share data)

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

13 unchanged sentences

Net income (loss) — — — — — — ( 46,473 ) ( 46,473 ) 1,359 ( 45,114 )

Balance at June 30, 2022

Balance at September 30, 2022

29,600,000 $ 296 130,905,132 $ 1,309 $ 4,273,603 $ 38,796 $ ( 1,178,289 ) $ 3,135,715 $ 87,710 $ 3,223,425

2 unchanged sentences

(in thousands, except share data)

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

2 unchanged sentences

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 19,200,000 192 — — 463,914 — — 464,106 — 464,106

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) — — — — — — ( 142,465 ) ( 142,465 ) ( 1,085 ) ( 143,550 )

Balance at June 30, 2021

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

3 unchanged sentences

(in thousands)

For the six months ended June 30,

For the nine months ended September 30,

Operating activities:

31 unchanged sentences

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

Redemption of preferred shares — ( 250,000 )

Distributions — common shares/units ( 3,968 ) ( 3,957 )

Distributions — preferred shares ( 22,688 ) ( 16,278 )

Distributions — preferred shares/units ( 34,859 ) ( 26,049 )

Repayments of refundable membership deposits ( 2,008 ) ( 1,872 )

6 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2022, the Company owned 54 hotels with a total of 13,415 guest rooms.

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 and resort properties located near our primary target urban markets and select destination resort markets, with an emphasis on major gateway coastal markets.

As of September 30, 2022, the Company owned 51 hotels with a total of 12,756 guest rooms .

The hotel properties are located in:

8 unchanged sentences

Newport, Rhode Island;

Philadelphia, Pennsylvania;

Portland, Oregon;

8 unchanged sentences

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

As of June 30, 2022, the Company owned 99.3 % of the common limited partnership units issued by the Operating Partnership ("common units").

As of September 30, 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.

5 unchanged sentences

The COVID-19 pandemic, which began in early 2020, 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 hotel industry and the Company's results of operations, financial position and cash flows for the remainder of 2022.

Results improved in 2021 and have continued to improve through the first six months of 2022.

Results improved in 2021 and have continued to improve through the first nine months of 2022.

The Company exited its debt covenant waiver period under its credit facilities as of the end of the second quarter of 2022, and is in compliance with the covenants in the credit facility agreements.

43 unchanged sentences

This transaction was funded with cash on hand, the issuance of 16,291 common units of limited partnership interest in the Operating Partnership and 3,104,400 preferred units of the Operating Partnership designated as 6.0 % Series Z Preferred Units.

On June 23, 2022, the Company acquired the 257 -room Gurney's Newport Resort & Marina in Newport, Rhode Island for $ 174.0 million, using cash on hand and proceeds from its senior unsecured revolving credit facility.

On June 23, 2022, the Company acquired the 257 -room Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) in Newport, Rhode Island for $ 174.0 million, using cash on hand and proceeds from its senior unsecured revolving credit facility.

The property was acquired as part of a reverse 1031 Exchange in which the Company engaged a qualified intermediary to establish a trust to hold the property pending completion of the sale of the subject property or properties related to the reverse 1031 Exchange.

3 unchanged sentences

The Marker San Francisco San Francisco, CA June 28, 2022 $ 77,000

Sofitel Philadelphia at Rittenhouse Square Philadelphia, PA August 2, 2022 80,000

Hotel Spero San Francisco, CA August 25, 2022 71,000

Hotel Vintage Portland Portland, OR September 14, 2022 32,900

2022 Total $ 260,900

3 unchanged sentences

2021 Total $ 264,125

For the three and six months ended June 30, 2022, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $( 0.2 ) million and $( 1.4 ) million, respectively, excluding impairment loss and (gain) loss on sale of hotel properties related to the hotel property sold.

For the three and six months ended June 30, 2021, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $( 3.0 ) million and $( 9.1 ) 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, 2022, the accompanying consolidated statements of operations and comprehensive income included operating income (loss) of $ 0.6 million and $( 3.4 ) million, respectively, excluding impairment loss and gain on sale of hotel properties related to the hotel properties sold.

For the three and nine months ended September 30, 2021, the accompanying consolidated statements of operations and comprehensive income included operating (loss) of $( 3.6 ) million and $( 19.0 ) million , respectively, excluding impairment loss and gain 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.

Held for Sale

As of June 30, 2022, the Company had entered into agreements to sell two hotel properties in separate transactions for an aggregate sales price of approximately $ 151.0 million.

These hotels were designated as held for sale as they met all of the Company's held for sale criteria.

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

The Company expects to complete the sales of these properties in the third quarter of 2022.

Investment in Hotel Properties

Investment in hotel properties as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022 December 31, 2021

Investment in hotel properties as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

September 30, 2022 December 31, 2021

Land $ 911,898 $ 926,330

8 unchanged sentences

Investment in hotel properties, net $ 5,964,823 $ 6,079,333

On September 27, 2022, LaPlaya Beach Resort and LaPlaya Beach Club ("LaPlaya") and Inn on Fifth, both located in Naples, Florida, and Southernmost Beach Resort located in Key West, Florida were impacted by the effects of Hurricane Ian.

Inn on Fifth and Southernmost Beach Resort did not suffer significant damage and have been reopened.

LaPlaya was closed in anticipation of the storm and remains closed as a result of the damage sustained from Hurricane Ian.

The Company expects LaPlaya to re-open in stages beginning in the fourth quarter of 2022.

The Company’s insurance policies provide coverage for property damage, business interruption and reimbursement for other costs that were incurred relating to damages sustained during Hurricane Ian.

Insurance proceeds are subject to deductibles.

As of September 30, 2022, the Company recognized an impairment for the damage to LaPlaya and Southernmost Beach Resort, which resulted in an aggregate impairment loss of $ 12.9 million, which is included in impairment loss in the Company’s consolidated statement of operations and comprehensive income.

The Company expects to incur additional costs related to the cleanup of the property and preparation of the property for reopening which are expected to be recovered through insurance proceeds.

The Company is continuing to evaluate the financial impact of Hurricane Ian and its ability to recover, through insurance policies, any loss due to business interruption or damage to the hotel properties.

The Company reviews its investment in hotel properties for impairment whenever events or circumstances indicate potential impairment.

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 six months ended June 30, 2022, the Company recognized an impairment loss of $ 73.3 million related to two hotels as a result of their fair values being lower than their carrying values.

Based on the analyses performed, for the nine months ended September 30, 2022, the Company recognized an impairment loss of $ 73.3 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 six months ended June 30, 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.

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 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.

5 unchanged sentences

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

As of June 30, 2022, the Company's lease liabilities consisted of operating lease liabilities of $ 320.3 million and financing lease liabilities of $ 42.4 million.

As of September 30, 2022, the Company's lease liabilities consisted of operating lease liabilities of $ 320.3 million and financing lease liabilities of $ 42.5 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.

1 unchanged sentence

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 June 30, 2022 and December 31, 2021 (dollars in thousands):

The Company's debt consisted of the following as of September 30, 2022 and December 31, 2021 (dollars in thousands):

Balance Outstanding as of

Interest Rate Maturity Date June 30, 2022 December 31, 2021

Interest Rate Maturity Date September 30, 2022 December 31, 2021

Revolving credit facilities

32 unchanged sentences

Senior unsecured notes

Series A Notes 5.15 % (5)

December 2023 47,600 47,600

Series B Notes 5.38 % (6)

December 2025 2,400 2,400

Series A Notes 5.15 % December 2023 47,600 47,600

Series B Notes 5.38 % December 2025 2,400 2,400

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

16 unchanged sentences

(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 June 30, 2022, approximately $ 1.0 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.01 %, after taking into account interest rate swap agreements, and approximately $ 366.7 million bore an effective weighted-average floating interest rate of 4.26 %.

As of September 30, 2022, approximately $ 1.0 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 3.86 %, after taking into account interest rate swap agreements, and approximately $ 366.7 million bore an effective weighted-average floating interest rate of 5.46 %.

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 %.

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

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

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

3 unchanged sentences

(7) 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.

Assuming all debt extension options are exercised, as of June 30, 2022 the Company will have $ 60.0 million in debt principal due within one year.

The Company intends to refinance or repay this principal using cash flow from operations, proceeds from property sales or borrowings on the revolving credit facility.

As discussed in Note 13.

Subsequent Events, on October 13, 2022, the Company refinanced its senior unsecured revolving credit facility and all of its term loans.

As a result, the Company has no significant debt maturities due within one year.

Unsecured Revolving Credit Facilities

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 June 30, 2022, the Company had $ 100.0 million outstanding borrowings, $ 12.6 million of outstanding letters of credit and borrowing capacity of $ 498.4 million remaining on its senior unsecured credit facility.

As of September 30, 2022, the Company had a $ 611.0 million senior unsecured revolving credit facility with a maturity of 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 September 30, 2022, the Company had no outstanding borrowings, $ 12.6 million of outstanding letters of credit and a 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 LIBOR or the alternate base rate, plus an additional margin amount, or spread.

The Company has the ability to further increase the aggregate borrowing capacity under the credit agreement up to $ 1.3 billion, subject to lender approval.

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

As a result of the 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.

The Company had the ability to further increase the aggregate borrowing capacity under the credit agreement up to $ 1.3 billion, subject to lender approval.

Borrowings on the revolving credit facility bore 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, the spread on the borrowings was fixed at 2.40 % during the waiver period.

Additionally, the Company was required to pay an unused commitment fee at an annual rate of 0.20 % or 0.30 % of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding.

The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value.

The Company also has a $ 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 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.

As a result of the amendments described above, the spread of the borrowings is fixed at 2.40 % during the waiver period.

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

As of June 30, 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.

As of September 30, 2022, the Company also had 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 had substantially similar terms as the Company's senior unsecured revolving credit facility with a maturity of March 2023.

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

As a result of the amendments described above, the spread of the borrowings was fixed at 2.40 % during the waiver period.

The PHL Credit Facility was 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, 2022, the Company had no borrowings under the PHL Credit Facility and had a $ 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 $ 12.6 million and $ 12.1 million were outstanding as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, 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 September 30, 2022 and December 31, 2021, respectively.

As of September 30, 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

The Company has senior unsecured term loans with different maturities.

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

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

As of June 30, 2022, the Company was in compliance with all debt covenants of its term loan facilities.

As of September 30, 2022, the Company had senior unsecured term loans with different maturities.

Each unsecured term loan bore interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on the Company's leverage ratio.

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

As of September 30, 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.

20 unchanged sentences

The conversion rate is subject to adjustment in certain circumstances.

As of June 30, 2022 and December 31, 2021, the if-converted value of the Convertible Notes did not exceed the principal amount.

As of September 30, 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 June 30, 2022, the Company was in compliance with all such debt covenants.

As of September 30, 2022, the Company was in compliance with all such debt covenants.

Mortgage Loans

13 unchanged sentences

No event of default has occurred under the loan documents.

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.

Both mortgage loans triggered the cash trap provisions prior to their acquisition, but both properties reached profitability levels in 2022 that permitted the termination of the cash traps and all cash in the lockboxes has been released.

Interest Expense

The components of the Company's interest expense consisted of the following for the three and six months ended June 30, 2022 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The components of the Company's interest expense consisted of the following for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

8 unchanged sentences

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, convertible senior notes and the Estancia mortgage loan) as of June 30, 2022 and December 31, 2021 was $ 706.1 million and $ 747.8 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 September 30, 2022 and December 31, 2021 was $ 676.5 million and $ 747.8 million, respectively.

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

3 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 June 30, 2022 and December 31, 2021 consisted of the following, by maturity date (dollars in thousands):

The Company's interest rate swaps at September 30, 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 June 30, 2022 December 31, 2021

Hedge Type Interest Rate Range Maturity September 30, 2022 December 31, 2021

Swap-cash flow 1.78 % - 1.79 %

17 unchanged sentences

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

As of June 30, 2022, the Company's derivative instruments were in an asset position with an aggregate fair value of $ 23.9 million.

None of the Company's derivative instruments were in a liability position as of June 30, 2022.

As of September 30, 2022, the Company's derivative instruments were in an asset position with an aggregate fair value of $ 39.1 million.

None of the Company's derivative instruments were in a liability position as of September 30, 2022.

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 six months ended June 30, 2022 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The following table presents revenues by geographic location for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Southern Florida/Georgia $ 80,284 $ 38,729 $ 165,525 $ 73,973

San Diego, CA $ 99,552 $ 63,524 $ 237,011 $ 119,668

Southern Florida/Georgia 53,543 30,928 219,068 104,901

Boston, MA 73,229 45,213 180,882 78,425

2 unchanged sentences

Portland, OR 29,635 20,078 67,571 38,002

28,727 9,731 51,168 19,335

Chicago, IL 22,954 10,598 49,966 16,696

1 unchanged sentence

13,901 6,275 37,148 12,441

15,158 6,629 22,441 9,604

Seattle, WA 7,148 3,437 14,037 5,363

14 unchanged sentences

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

For the six months ended June 30, 2022, the Company had no repurchases under this program, and as of June 30, 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.

For the nine months ended September 30, 2022, the Company had no repurchases under this program, and as of September 30, 2022, $ 56.6 million of common shares remained available for repurchase under this program.

On July 27, 2017, the Company announced that the Board of Trustees authorized a new share repurchase program of up to $ 100.0 million of 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 six months ended June 30, 2022.

As of June 30, 2022, $ 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 nine months ended September 30, 2022.

As of September 30, 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 six months ended June 30, 2022:

The Company declared the following dividends on common shares/units for the nine months ended September 30, 2022:

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

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$ 0.01 June 30, 2022 June 30, 2022 July 15, 2022

$ 0.01 September 30, 2022 September 30, 2022 October 17, 2022

Preferred Shares

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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 June 30, 2022 and December 31, 2021:

Security Type June 30, 2022 December 31, 2021

The following Preferred Shares were outstanding as of September 30, 2022 and December 31, 2021:

Security Type September 30, 2022 December 31, 2021

6.375 % Series E

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Preferred Dividends

The Company declared the following dividends on preferred shares for the six months ended June 30, 2022:

The Company declared the following dividends on preferred shares for the nine months ended September 30, 2022:

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

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$ 0.40 June 30, 2022 June 30, 2022 July 15, 2022

6.375 % Series E

$ 0.40 September 30, 2022 September 30, 2022 October 17, 2022

6.30 % Series F

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$ 0.39 June 30, 2022 June 30, 2022 July 15, 2022

6.30 % Series F

$ 0.39 September 30, 2022 September 30, 2022 October 17, 2022

6.375 % Series G

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$ 0.40 June 30, 2022 June 30, 2022 July 15, 2022

6.375 % Series G

$ 0.40 September 30, 2022 September 30, 2022 October 17, 2022

5.70 % Series H

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$ 0.36 June 30, 2022 June 30, 2022 July 15, 2022

5.70 % Series H

$ 0.36 September 30, 2022 September 30, 2022 October 17, 2022

Non-controlling Interest of Common Units in Operating Partnership

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On May 11, 2022, in connection with the acquisition of the Inn on Fifth in Naples, Florida, the Company issued 16,291 OP units in the Operating Partnership.

As of June 30, 2022 and December 31, 2021, the Operating Partnership had 149,896 and 133,605 OP units, respectively, held by third parties, excluding LTIP units.

As of June 30, 2022, the Operating Partnership had two classes of long-term incentive partnership ("LTIP") units, LTIP Class A units and LTIP Class B units.

As of September 30, 2022 and December 31, 2021, the Operating Partnership had 149,896 and 133,605 OP units, respectively, held by third parties, excluding LTIP units.

As of September 30, 2022, the Operating Partnership had two classes of long-term incentive partnership ("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 June 30, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at June 30, 2022, 127,111 LTIP units have vested.

As of September 30, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at September 30, 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.

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At any time following a change of control of the Company, holders of Series Z Preferred Units may elect to redeem some or all of their units for, at the Company’s election, cash or common shares having an equivalent value.

As of June 30, 2022, the Operating Partnership had 3,104,400 Series Z Preferred Units outstanding.

As of September 30, 2022, the Operating Partnership had 3,104,400 Series Z Preferred Units outstanding.

Share-Based Compensation Plan

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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 June 30, 2022, there were 1,740,854 common shares available for issuance under the Plan.

As of September 30, 2022, there were 1,725,000 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 June 30, 2022:

The following table provides a summary of service condition restricted share activity as of September 30, 2022:

Shares Weighted-Average

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Forfeited ( 36,503 ) $ 22.80

Unvested at June 30, 2022

Unvested at September 30, 2022

560,565 $ 21.69

For the three and six months ended June 30, 2022 the Company recognized approximately $ 0.8 million and $ 1.6 million, respectively, of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2021 the Company recognized approximately $ 1.1 million and $ 1.9 million, respectively, of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income.

For the three and nine months ended September 30, 2022 the Company recognized approximately $ 1.1 million and $ 2.7 million, respectively, of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income.

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.

Performance-Based Equity Awards

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The actual number of common shares that ultimately vest will be from 0 % to 200 % of the target award and will be determined in 2025 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2022 through December 31, 2024.

For the three and six months ended June 30, 2022, the Company recognized approximately $ 1.1 million and $ 2.0 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 and six months ended June 30, 2021, the Company recognized approximately $ 1.3 million and $ 2.3 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 and nine months ended September 30, 2022, the Company recognized approximately $ 1.4 million and $ 3.4 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 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.

Long-Term Incentive Partnership ("LTIP") Units

As of June 30, 2022, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units.

As of September 30, 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.

As of June 30, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at June 30, 2022, 127,111 LTIP units have vested.

As of September 30, 2022 and December 31, 2021, the Operating Partnership had 727,208 LTIP units outstanding.

Of the 727,208 LTIP units outstanding at September 30, 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 and six months ended June 30, 2022, the Company recognized approximately $ 0.7 million and $ 1.4 million, respectively, in expense related to these LTIP units.

For the three and six months ended June 30, 2021, the Company recognized approximately $ 0.7 million and $ 1.0 million, respectively, in expense related to these LTIP units.

For the three and nine months ended September 30, 2022, the Company recognized approximately $ 0.7 million and $ 2.1 million, respectively, in expense related to these LTIP units.

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.

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 six months ended June 30, 2022, 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 and nine months ended September 30, 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 June 30, 2022 and December 31, 2021, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2018 and 2017, respectively.

As of September 30, 2022 and December 31, 2021, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2018 and 2017, respectively.

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 June 30, For the six months ended June 30,

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

2022 2021 2022 2021

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Net income (loss) per share available to common shareholders — diluted $ 0.10 $ ( 0.34 ) $ ( 0.62 ) $ ( 1.39 )

For the three and six months ended June 30, 2022, zero and 1,056,949 , respectively, shares 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 six months ended June 30, 2021, 1,030,676 shares 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 six months ended June 30, 2022, zero and 29,441,175 , respectively, common shares underlying the convertible notes have been excluded from diluted shares as their effect would have been anti-dilutive.

For the three and six months ended June 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 and nine months ended September 30, 2022, 300,261 and 1,072,803 , respectively, shares 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, 1,035,369 shares 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, 2022, 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 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.

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.

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

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

The remaining terms of these management agreements are up to 12 years, not including renewals, and up to 30 years, including renewals.

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

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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 six months ended June 30, 2022, com bined base and incentive management fees were $ 12.1 million and $ 19.8 million, respectively.

For the three and six months ended June 30, 2021, combined base and incentive management fees were $ 4.4 million and $ 6.7 million, respectively.

For the three and nine months ended September 30, 2022, com bined base and incentive management fees were $ 11.8 million and $ 31.6 million, respectively.

For the three and nine months ended September 30, 2021, combined base and incentive management fees were $ 5.1 million and $ 11.8 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.

2 unchanged sentences

Restricted Cash

At June 30, 2022 and December 31, 2021, the Company had $ 30.7 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.

At September 30, 2022 and December 31, 2021, the Company had $ 19.4 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 June 30, 2022, the following hotels were subject to leases as follows:

As of September 30, 2022, the following hotels were subject to leases as follows:

Lease Properties Lease Type Lease Expiration Date

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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 six months ended June 30, 2022 and 2021 are as follows (in thousands):

For the three months ended June 30, For the six months ended June 30,

The components of ground rent expense for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):

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

2022 2021 2022 2021

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Supplemental Information to Statements of Cash Flows (in thousands)

For the six months ended June 30,

For the nine months ended September 30,

Interest paid, net of capitalized interest $ 58,043 $ 59,803

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Write-off of fully amortized deferred financing costs $ 5,878 $ 5,043

Mortgage loans assumed in connection with acquisition of hotel properties $ — $ 161,500

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

Subsequent Events

In July 2022, the Company entered into an agreement to sell a property for $ 32.9 million.

This is in addition to the two properties classified as held for sale as of June 30, 2022.

On October 13, 2022, the Company refinanced its senior unsecured revolving credit facility and all of its term loans.

The $ 2.0 billion amended and restated senior unsecured credit agreement includes a $ 650.0 million senior unsecured revolving credit facility and three term loan facilities totaling $ 1.38 billion.

The $ 650.0 million revolving credit facility matures in October 2026 and provides for two , six-month extension options.

The three $ 460.0 million term loans mature in October 2024, October 2025 and October 2027, respectively.

The Company used the proceeds of the new term loans and $ 26.7 million of cash on hand to repay the outstanding balances on the prior term loans.

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