Pebblebrook Hotel Trust 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Pebblebrook Hotel Trust is a Maryland real estate investment trust that conducts its operations so as to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Substantially all of the operations are conducted through Pebblebrook Hotel, L.P. (our "Operating Partnership"), a Delaware limited partnership of which Pebblebrook Hotel Trust is the sole general partner. In this report, we use the terms "the Company", "we" or "our" to refer to Pebblebrook Hotel Trust and its subsidiaries and "hotels" and "hotel properties" to refer to hotels and resorts, unless the context indicates otherwise. FORWARD-LOOKING STATEMENTS This report, together with other statements and information publicly disseminated by us, contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "should", "potential", "could", "seek", "assume", "forecast", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and disposition strategies, industry trends, estimated revenues and expenses, estimated costs and durations of renovation or restoration projects, timing and extent of debt refinancings, estimated insurance recoveries, our ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and our ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. These factors include, but are not limited to, the following: • world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels; • risks associated with the hotel industry, including competition, changes in visa and other travel policies by the U.S. government making it less convenient, more difficult or less desirable for international travelers to enter the U.S., increases in employment costs, energy costs and other operating costs, or decreases in demand caused by events beyond our control, including, without limitation, actual or threatened terrorist attacks, natural disasters, cyber attacks, any type of flu or disease-related pandemic, or downturns in general and local economic conditions; • the availability and terms of financing and capital and the general volatility of securities markets; • our dependence on third-party managers of our hotels, including our inability to implement strategic business decisions directly; • risks associated with the U.S. and global economies, the cyclical nature of hotel properties and the real estate industry, including environmental contamination and costs of complying with new or existing laws, including the Americans with Disabilities Act and similar laws; • interest rate increases; • our possible failure to qualify as a REIT under the Code and the risk of changes in laws affecting REITs; • the timing and availability of potential hotel acquisitions, our ability to identify and complete hotel acquisitions and our ability to complete hotel dispositions in accordance with our business strategy; • the possibility of uninsured losses; • risks associated with redevelopment and repositioning projects, including delays and cost overruns; and • the other factors discussed under Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 24 Table of Contents Overview Our third-quarter operating results showed continued recovery of business group, transient and leisure demand across our properties. Strong performance in Chicago, San Diego, Boston and Portland drove increased occupancy for our urban hotels. Higher weekday demand from business group and improving weekend leisure travel drove increase occupancy for our resort hotels. We expect continued occupancy growth due to a sustained recovery in demand from both business and leisure travelers, despite concerns regarding the macroeconomic environment and the presidential election. As occupancy recovered we continued to focus on cost controls. During the nine months ended September 30, 2024, we had the following transactions and events: • We repurchased 1,127,255 common shares for an aggregate purchase price of $15.0 million, or an average of $13.31 per share, under our existing common share repurchase program. • We paid down $110.0 million of our term loans and extended the maturity of $356.7 million borrowed under Term Loan 2024 to January 2028. On September 26, 2024, LaPlaya Beach Resort & Club sustained damage as a result of Hurricane Helene, and on October 9, 2024, sustained additional damage as a result of Hurricane Milton. The damage primarily impacted the ground floor of the Beach House, the pool complex and landscaping. The hotel closed following Hurricane Milton to undertake clean-up, repairs and a full assessment of damages. The Bay Tower and Gulf Tower were reopened on November 1, 2024. The Beach House is expected to be largely operational by the end of the first quarter of 2025. Our property and flood insurance proceeds are expected to cover the physical damage and business interruption losses from the hurricanes, net of deductibles. On October 3, 2024, we issued $400 million aggregate principal amount of its 6.375% senior notes due October 15, 2029. The net proceeds were approximately $390.0 million after deducting discounts and offering expenses paid by the Company, of which $353.3 million was used to repay all $43.3 million of its borrowings under Term Loan 2024, $210.0 million of its borrowings under Term Loan 2025 and $100.0 million of its borrowings under Term Loan 2027. On November 1, 2024, we extended the maturity date of $185.2 million borrowed under Term Loan 2025 to January 2029. We also extended the maturity date of $602.0 million of our senior unsecured revolving credit facility from October 2026 to October 2028, with the option to extend the new maturity date for two six-month periods. 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. Through these efforts, we seek to improve property efficiencies, lower costs, maximize revenues and enhance property operating margins, which we expect will enhance returns to our shareholders. Key Indicators of Financial Condition and Operating Performance We measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ("RevPAR"); total revenue per available room ("Total RevPAR"); average daily rate ("ADR"); occupancy rate ("Occupancy"); funds from operations ("FFO"); earnings before interest, income taxes, depreciation and amortization ("EBITDA"); and EBITDA for real estate ("EBITDA re " ) . We evaluate individual hotel and company-wide performance with comparisons to budgets, prior periods and competing properties. ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events. 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, 2024 and 2023: For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Same-Property Occupancy 78.5 % 75.4 % 72.2 % 69.6 % Same-Property ADR $ 306.03 $ 312.05 $ 303.78 $ 309.42 Same-Property RevPAR $ 240.28 $ 235.16 $ 219.30 $ 215.39 Same-Property Total RevPAR $ 364.36 $ 354.87 $ 334.88 $ 327.81 For the three months ended September 30, 2024 and 2023, the above table of hotel operating statistics includes information from all hotels owned as of September 30, 2024, except for LaPlaya Beach Resort & Club due to its closure following Hurricane Ian. 25 Table of Contents For the nine months ended September 30, 2024 and 2023, the above table of hotel operating statistics includes information from all hotels owned as of September 30, 2024, except for LaPlaya Beach Resort & Club due to its closure following Hurricane Ian and Newport Harbor Island Resort for the first and second quarters only due to its redevelopment. Non-GAAP Financial Measures Non-GAAP financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with U.S. GAAP. We report FFO, EBITDA and EBITDA re , which are non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance. We calculate FFO in accordance with standards established by Nareit, formerly known as the National Association of Real Estate Investment Trusts, which defines FFO as net income (calculated in accordance with U.S. GAAP), excluding real estate related depreciation and amortization, gains (losses) from sales of real estate, impairments of real estate assets (including impairment of real estate related joint ventures), the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. 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, 2024 and 2023 (in thousands): For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Net income (loss) $ 45,145 $ (56,484) $ 49,864 $ (32,346) Adjustments: Real estate depreciation and amortization 57,466 63,186 171,807 179,341 Gain on sale of hotel properties — — — (30,219) Impairment 1,908 71,416 1,908 71,416 FFO $ 104,519 $ 78,118 $ 223,579 $ 188,192 Distribution to preferred shareholders and unit holders (11,795) (12,152) (35,386) (36,455) FFO available to common share and unit holders $ 92,724 $ 65,966 $ 188,193 $ 151,737 EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. The white paper issued by Nareit entitled “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate” defines EBITDA re as net income or loss (computed in accordance with U.S. GAAP), excluding interest expense, income tax, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and after comparable adjustments for our portion of these items related to unconsolidated affiliates. 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, 2024 and 2023 (in thousands): For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Net income (loss) $ 45,145 $ (56,484) $ 49,864 $ (32,346) Adjustments: Interest expense 27,925 31,022 82,285 87,996 Income tax expense (benefit) (25,213) 822 (24,157) 853 Depreciation and amortization 57,546 63,272 172,051 179,598 EBITDA $ 105,403 $ 38,632 $ 280,043 $ 236,101 Gain on sale of hotel properties — — — (30,219) Impairment 1,908 71,416 1,908 71,416 EBITDA re $ 107,311 $ 110,048 $ 281,951 $ 277,298 26 Table of Contents FFO, EBITDA and EBITDA re do not represent cash generated from operating activities as determined by U.S. GAAP and should not be considered as alternatives to U.S. GAAP net income (loss), as indications of our financial performance, or to U.S. GAAP cash flow from operating activities, as measures of liquidity. In addition, FFO, EBITDA and EBITDA re are not indicative of funds available to fund cash needs, including the ability to make cash distributions. Results of Operations At September 30, 2024 and 2023, we had 46 and 47, respectively, 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 or through their 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, 2024 and 2023. 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 The Heathman Hotel Portland, OR February 22, 2023 Retail at The Westin Michigan Avenue Chicago Chicago, IL March 17, 2023 Hotel Colonnade Coral Gables Coral Gables, FL March 28, 2023 Hotel Monaco Seattle Seattle, WA May 9, 2023 Hotel Vintage Seattle Seattle, WA May 24, 2023 Comparison of the three months ended September 30, 2024 to the three months ended September 30, 2023 Revenues — Total revenues increased by $8.7 million primarily due to increases at LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian, at Margaritaville Hotel San Diego Gaslamp Quarter, which was under renovation in 2023 and at The Westin Michigan Avenue Chicago. This increase was partially offset by a $4.7 million decrease due to the sales of our non-comparable properties in 2023. Hotel operating expenses — Total hotel operating expenses increased by $7.3 million primarily due to increased operations at LaPlaya Beach Resort & Club, Margaritaville Hotel San Diego Gaslamp Quarter and The Westin Michigan Avenue Chicago, as well as an increase in staffing, wage rates and benefits at our comparable properties due to higher demand levels. This increase was partially offset by a $2.7 million decrease due to the sales of our non-comparable properties in 2023. Depreciation and amortization — Depreciation and amortization expense decreased by $5.7 million primarily due to Newport Harbor Island Resort's useful life reduction of its furniture, fixtures and equipment in 2023 due to its scheduled renovation in November 2023 as well as the sales of our non-comparable properties in 2023. Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $2.4 million primarily due to an increase in real estate tax assessments. Impairment — We recognized an impairment loss of $1.9 million in 2024 related to damage caused by Hurricane Helene at LaPlaya Beach Resort & Club. We recognized an impairment loss of $71.4 million in 2023 related to three hotels. Business interruption insurance income — We recognized business interruption insurance income in 2024 and 2023 related to partial settlements with our insurance carriers for lost income at LaPlaya Beach Resort & Club. Other operating expenses — Other operating expenses decreased by $2.9 million primarily due to a decrease in hurricane related payroll costs and claims administration costs at LaPlaya Beach Resort & Club and a decrease in preopening expenses. Interest expense — Interest expense decreased by $3.1 million due to pay-downs on our term loans during the first quarter of 2024 and our senior notes during the fourth quarter of 2023. This decrease was partially offset by higher interest rates on our unhedged debt. Income tax (expense) benefit - The income tax benefit in 2024 was a result of the release of $32.8 million valuation allowance offset by current year income tax expense of $7.6 million. Non-controlling interests — Non-controlling interests represents the allocation of income or loss of the Operating Partnership to third-party common OP unit holders and to the preferred OP unit holders. Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023 Revenues — Total revenues increased by $29.8 million primarily due to an increase at LaPlaya Beach Resort & Club, which was partially closed in 2023 due to Hurricane Ian, at Margaritaville Hotel San Diego Gaslamp Quarter and Hilton San Diego Gaslamp Quarter, which were under renovation in 2023, and at The Westin Michigan Avenue Chicago. This increase was partially offset by a $22.0 million decrease due to the sales of our our non-comparable properties in 2023. 27 Hotel operating expenses — Total hotel operating expenses increased by $10.6 million primarily due to increased operations at LaPlaya Beach Resort & Club, Margaritaville Hotel San Diego Gaslamp Quarter, Hilton San Diego Gaslamp Quarter and The Westin Michigan Avenue Chicago, as well as an increase in staffing, wage rates and benefits at our comparable properties due to higher demand levels. This increase was partially offset by a $16.6 million decrease due to the sales of our non-comparable properties in 2023 as well as a decrease at Newport Harbor Island Resort due to its closure for redevelopment during the first quarter and part of the second quarter of 2024. Depreciation and amortization — Depreciation and amortization expense decreased by $7.5 million primarily due to the sales of our non-comparable properties in 2023 and Newport Harbor Island Resort's useful life reduction of its furniture, fixtures and equipment in 2023 due to its scheduled renovation in November 2023. This decrease was partially offset by an increase at LaPlaya Beach Resort & Club. Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $1.3 million primarily due to a $3.7 million increase in property insurance due to higher insurance premiums, partially offset by a $2.1 million decrease in real estate taxes due to lower tax assessments. General and administrative — General and administrative expenses increased by $3.2 million primarily due to an increase in employee compensation expense. General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses. Impairment — We recognized an impairment loss of $1.9 million in 2024 related to damage caused by Hurricane Helene at LaPlaya Beach Resort & Club. We recognized an impairment loss of $71.4 million in 2023 related to three hotels. Gain on sale of hotel properties — We recognized a gain on sale of $30.2 million related to the sales of The Heathman Hotel, the retail component of The Westin Michigan Avenue Chicago, Hotel Colonnade Coral Gables, Hotel Monaco Seattle and Hotel Vintage Seattle in 2023. Business interruption insurance income — We recognized business interruption insurance income in 2024 and 2023 related to partial settlements with our insurance carriers for lost income at LaPlaya Beach Resort & Club. Other operating expenses — Other operating expenses decreased by $5.8 million primarily due to a decrease in hurricane related payroll costs and claims administration costs at LaPlaya Beach Resort & Club. Interest expense — Interest expense decreased by $5.7 million due to interest being capitalized related to our Newport Harbor Island Resort renovation and due to pay-downs on our term loans during the first quarter of 2024 and our senior notes during the fourth quarter of 2023. This decrease was partially offset by higher interest rates on our unhedged debt. Other — Other decreased by $1.2 million due to a decrease in interest income earned on excess cash. Income tax (expense) benefit - The income tax benefit in 2024 was a result of the release of $32.8 million valuation allowance offset by current year income tax expense of $8.7 million. Non-controlling interests — Non-controlling interests represents the allocation of income or loss of the Operating Partnership to third-party common OP unit holders and to the preferred OP unit holders. Critical Accounting Policies Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. 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, 2023. New Accounting Pronouncements See Note 2. 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. 28 Table of Content 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 property sales. Our primary cash requirements in the short term (i.e., those requiring cash on or before September 30, 2025) 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 property operations. We believe our cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility, which totaled $780.6 million as of September 30, 2024, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements. As of September 30, 2024, 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, redevelopments and repayments of long-term debt. As such, we expect to continue to raise capital through equity and debt offerings to fund our growth. Our material cash requirements include the following contractual and other obligations. Debt 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 $2.2 billion as of September 30, 2024, as summarized below: September 30, 2024 (in thousands) Revolving credit facilities $ — Term loans 1,270,000 Convertible senior notes 750,000 Senior unsecured notes 2,400 Mortgage loans 196,120 Total debt at face value $ 2,218,520 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. On October 3, 2024, the Operating Partnership issued $400.0 million aggregate principal amount of its 6.375% senior notes due October 15, 2029. The net proceeds were approximately $390.0 million after deducting discounts and offering expenses paid by the Company, of which $353.3 million was used to repay all $43.3 million of its borrowings under Term Loan 2024, $210.0 million of its borrowings under Term Loan 2025 and $100.0 million of its borrowings under Term Loan 2027. On November 1, 2024, we entered into the Third Amendment to the Credit Agreement which extended the maturity date of $185.2 million borrowed under Term Loan 2025 to January 2029 and extended the maturity date of $602.0 million of the $602.0 million senior unsecured revolving credit facility from October 2026 to October 2028. 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 and after adjusting for the aforementioned term loan extension and repayments, we expect that future principal and interest payments associated with our remaining debt obligations outstanding as of September 30, 2024 will be $2.7 billion through their maturity, with $2.2 million of principal and $85.3 million of interest payable on or before September 30, 2025. We intend to pay amounts due with available cash, borrowings under our revolving credit facility, proceeds from property sales and/or to refinance amounts due with long-term debt. 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 may be 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. As of September 30, 2024, none of the mortgage loans was in a cash trap. 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. 29 Table of Content Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of September 30, 2024, with $22.9 million payable on or before September 30, 2025. Purchase commitments As of September 30, 2024, we had $4.9 million of outstanding purchase commitments, all of which will be paid on or before September 30, 2025. 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 and Series Z operating partnership units We expect to pay aggregate annual dividends and distributions of approximately $47.2 million on our outstanding Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares and Series Z Cumulative Perpetual Preferred Units on or before September 30, 2025 and in future years until the shares/units are redeemed. For further discussion on our preferred shares and preferred units, 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 operating activities was $205.8 million for the nine months ended September 30, 2024, and $202.3 million for the nine months ended September 30, 2023. 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. Investing Activities. Our net cash provided by (used in) investing activities was $(79.9) million for the nine months ended September 30, 2024, and $96.3 million for the nine months ended September 30, 2023. 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 nine months ended September 30, 2024, we invested $100.9 million in improvements to our hotel properties and received $21.7 million in property insurance proceeds. • During the nine months ended September 30, 2023, we invested $140.1 million in improvements to our hotel properties, received $224.4 million from the sales of four hotel properties and one retail component of a hotel property and received $14.4 million in property insurance proceeds. Financing Activities. Our net cash used in financing activities was $175.3 million for the nine months ended September 30, 2024, and $159.2 million for the nine months ended September 30, 2023. 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 nine months ended September 30, 2024, we repaid $111.4 million in other debt, repurchased $16.9 million of common shares through our common share repurchase program and for tax withholding purposes in connection with vestings of share-based equity awards, paid $6.4 million in deferred financing costs and paid $39.0 million in preferred and common distributions. • During the nine months ended September 30, 2023, we repurchased $92.8 million of common shares through our common share repurchase program and for tax withholding purposes in connection with vestings of share-based equity awards; repaid $21.5 million of other debt, net of refinancing proceeds; and paid $40.2 million in preferred and common distributions. 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. 30 Table of Content 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 nine months ended September 30, 2024, we invested $100.9 million in capital investments (or $81.7 million excluding the repair and remediation of LaPlaya Beach Resort & Club) to reposition and improve our properties, including the renovations of Newport Harbor Island Resort, Estancia La Jolla Hotel & Spa, Skamania Lodge, Southernmost Beach Resort and Jekyll Island Club Resort. Depending on market conditions, and in some instances subject to approval from governmental authorities, we expect to invest a total of $90.0 million to $95.0 million in capital investments in 2024, which includes normal hotel capital refurbishments as well as redevelopment and repositioning projects at Newport Harbor Island Resort, Estancia La Jolla Hotel & Spa and Skamania Lodge, and excludes capital expenditures related to the repair and remediation of LaPlaya Beach Resort & Club. Common Share Repurchase Programs and Preferred Share Repurchase Program Common Share Repurchase Programs On July 27, 2017, our Board of Trustees authorized a share repurchase program of up to $100.0 million of common shares. Under this program, we could repurchase common shares from time to time in transactions on the open market or by private agreement. As of June 30, 2023, no common shares remained available for repurchase under this program. On February 17, 2023, our Board of Trustees authorized a share repurchase program of up to $150.0 million of common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. Common shares repurchased by the Company cease to be outstanding and become authorized but unissued common shares. During the nine months ended September 30, 2024, we repurchased 1,127,255 common shares for an aggregate purchase price of $15.0 million, or an average of approximately $13.31 per share. As of September 30, 2024, $131.0 million of common shares remained available for repurchase under this program. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions. The program does not require us to repurchase any specific number of common shares. The program does not have an expiration date and may be suspended, modified or discontinued at any time. Preferred Share Repurchase Program On February 17, 2023, our Board of Trustees authorized a repurchase program of up to $100.0 million of preferred shares. Under the terms of the program, we may repurchase up to an aggregate of $100.0 million of our 6.375% Series E Cumulative Redeemable Preferred Shares, 6.30% Series F Cumulative Redeemable Preferred Shares, 6.375% Series G Cumulative Redeemable Preferred Shares and 5.70% Series H Cumulative Redeemable Preferred Shares from time to time in transactions on the open market or by private agreement. During the nine months ended September 30, 2024, no preferred shares were repurchased under this program. As of September 30, 2024, $84.2 million of preferred shares remained available for repurchase under this program. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions. The program does not require us to repurchase any specific number of Preferred Shares. The program does not have an expiration date and may be suspended, modified or discontinued at any time. Inflation We rely on the performance of the hotels to increase revenues to keep pace with inflation. Generally, our hotel operators possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than inflation or even at the same rate. Seasonality Demand in the lodging industry is affected by recurring seasonal patterns which are greatly influenced by overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, our hotels have lower revenue, operating income and cash flow in the first quarter of each year and higher revenue, operating income and cash flow in the third quarter of each year. 31 Table of Content Derivative Instruments In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are subject to fair value reporting at each reporting date and the increase or decrease in fair value is recorded in net income (loss) or accumulated other comprehensive income (loss), based on the applicable hedge accounting guidance. 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 we minimize the credit risk by transacting with major credit-worthy financial institutions. As of September 30, 2024, we have interest rate swap agreements with an aggregate notional amount of $855.0 million 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.