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Item 7. 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 REIT under 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, unless the context indicates otherwise.

Overview

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates, health official recommendations, corporate policy changes and individual responses, hotel demand dramatically declined and we implemented significant cost controls, salary reductions and the temporary suspension of operations at 47 of our properties in 2020, along with other actions to improve liquidity. All of our properties reopened in 2021 with the exception of 1 Hotel San Francisco (formerly Hotel Vitale), whose operations remained suspended until the completion of its renovations and repositioning in June 2022. Demand has significantly improved throughout 2022 led by strong leisure travel demand with a significant improvement in business travel compared to 2021. Recent inflation and the expectation of future inflation have caused labor, capital and other costs to increase and the reaction by the Federal Reserve to rapidly and substantially increase interest rates has created economic uncertainty and significant concerns and risk of an economic downturn, softening or recession.

During 2022, we acquired Inn on Fifth in Naples, Florida and Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) in Newport, Rhode Island for a gross purchase price of $330.0 million and we sold four hotels in separate transactions for aggregate sales prices of $260.9 million. In addition, as of December 31, 2022 we have entered into an agreement to sell The Heathman Hotel in Portland, Oregon for $45.0 million, however, no assurances can be given that the sale will be completed on these terms or at all.

On October 13, 2022, we refinanced our senior unsecured revolving credit facility and all of the term loans. Our new $2.0 billion credit facility provides for a $650.0 million senior unsecured revolving credit facility and three $460.0 million unsecured term loan facilities totaling $1.38 billion.

During the fourth quarter of 2022, we repurchased 4,559,839 common shares for an aggregate purchase price of $69.6 million under our existing common share repurchase programs. In addition, following an unsolicited private inquiry, we repurchased 1,000,000 shares of outstanding 5.70% Series H Cumulative Redeemable Preferred Shares for $16.0 million which was a discount to their $25.0 million liquidation value.

In September 2022, our LaPlaya Beach Resort & Club sustained damage as a result of Hurricane Ian and closed. We have continued to make progress completing significant repairs and rebuilding at the property. The resort will be reopened in stages through the middle of 2023. The first building reopened for guests in January 2023.

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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 ("EBITDAre"). 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 EBIDTAre.

Hotel Operating Statistics

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

For the year ended December 31,

Same-Property Occupancy 62.6 % 43.0 %

The above table of hotel operating statistics includes information from all hotels owned as of December 31, 2022 except for 1 Hotel San Francisco (formerly Hotel Vitale) for 2022 and 2021 due to its closure for renovation from the third quarter of 2021 to the second quarter of 2022, Inn on Fifth for the first quarter of 2022 and 2021 due to its acquisition on May 11, 2022, Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) for the first and the second quarters of 2022 and 2021 due to its acquisition on June 23, 2022 and LaPlaya Beach Resort & Club for the fourth quarter of 2022 and 2021 due to its closure following Hurricane Ian. Additionally, the schedule excludes The Marker San Francisco for the second, third and fourth quarters of 2022 and 2021 due to its sale on June 28, 2022, Sofitel Philadelphia at Rittenhouse Square for the third and fourth quarters of 2022 and 2021 due to its sale on August 2, 2022, Hotel Spero for the third and fourth quarters of 2022 and 2021 due to its sale on August 25, 2022 and Hotel Vintage Portland for the third and fourth quarters of 2022 and 2021 due to its sale on September 14, 2022.

Results of Operations

This section includes comparisons of certain 2022 financial information to the same information for 2021. Year-to-year comparisons of the 2021 financial information to the same information for 2020 are contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.

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At December 31, 2022 and 2021, our consolidated financial statements included the operations of 51 and 53 hotel properties, respectively, which have been included in our results of operations during the respective periods since their dates of acquisition or through their dates of disposition. Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the years ended December 31, 2022 and 2021. The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties":

Property Location Disposition Date

Sir Francis Drake San Francisco, CA April 1, 2021

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

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

The Marker San Francisco San Francisco, CA June 28, 2022

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

Hotel Spero San Francisco, CA August 25, 2022

Hotel Vintage Portland Portland, OR September 14, 2022

Property Location Acquisition Date

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

Margaritaville Hollywood Beach Resort Hollywood, FL September 23, 2021

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

Inn on Fifth Naples, FL May 11, 2022

Comparison of the year ended December 31, 2022 to the year ended December 31, 2021

Revenues — Total revenues increased by $658.8 million, of which $157.9 million was due to non-comparable properties, and the balance was primarily due to an increase in leisure and business travel in 2022. In addition, several of our hotels remained temporarily suspended throughout the first quarter of 2021.

Hotel operating expenses — Total hotel operating expenses increased by $386.9 million, of which $93.9 million was due to non-comparable properties, and the balance was primarily due to resuming operations at our comparable properties and returning demand in 2022.

Depreciation and amortization — Depreciation and amortization expense increased by $15.3 million primarily due to our property acquisitions in 2021 and 2022, offset by a decrease in depreciation from the properties sold in 2021 and 2022.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $14.5 million primarily due to an increase at our three non-comparable properties acquired in 2021.

General and administrative — General and administrative expense increased by $1.0 million due to compensation expense, offset by a decrease in legal fees. General and administrative expense consists of employee compensation costs, legal and professional fees, insurance and other expenses.

Impairment and other losses — We recognized impairment and other losses of $89.9 million in 2022 related to three properties as well as an impairment related to damage caused by Hurricane Ian at LaPlaya Beach Resort & Club in Naples, Florida and Southernmost Beach Resort in Key West, Florida. We recognized an impairment loss of $14.9 million in 2021 related to one hotel.

Gain on sale of hotel properties — We recognized a gain on sale of $6.2 million related to the sales of Sofitel Philadelphia Rittenhouse Square and Hotel Vintage Portland in 2022. We recognized a gain on sale of $64.7 million in 2021 primarily due to the sale of Sir Francis Drake.

Other operating expenses — Other operating expenses increased by $3.1 million primarily due to an increase in pre-opening expenses and hotel management transition costs.

Interest expense — Interest expense increased by $3.4 million due to the refinancing costs incurred in conjunction with the refinancing of our senior unsecured credit facility on October 13, 2022.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of the Operating Partnership to third-party common OP unit holders and to the preferred OP unit holders. In 2022, this amount includes $3.0 million in preferred distributions to the holders of Series Z Preferred Units which were issued in May 2022.

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Distributions to preferred shareholders — Distributions to preferred shareholders increased as a result of the issuance of the Series G Preferred Shares and Series H Preferred Shares in May 2021 and July 2021, respectively, being outstanding for all of 2022.

Redemption of preferred shares — Redemption of preferred shares in 2022 relates to the repurchase of one million Series H Preferred Shares for a repurchase amount below the carrying value, net of issuance costs of the shares redeemed. The Company redeemed the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021 at the carrying value and therefore the redemption of preferred shares in 2021 represented the issuance costs associated with the shares redeemed. These costs are included in the determination of net income (loss) attributable to common shareholders.

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 EBITDAre, 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 years ended December 31, 2022, 2021 and 2020 (in thousands):

For the year ended December 31,

Adjustments:

Redemption of preferred shares 8,186 (8,055) —

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 EBITDAre 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 EBITDAre 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).

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The following table reconciles net income (loss) to EBITDA and EBITDAre for the years ended December 31, 2022, 2021 and 2020 (in thousands):

For the year ended December 31,

Adjustments:

FFO, EBITDA and EBITDAre 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 EBITDAre are not indicative of funds available to fund cash needs, including the ability to make cash distributions.

Critical Accounting Policies

We consider these policies critical because they require estimates about matters that are inherently uncertain, involve various assumptions and require significant management judgment, and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Applying different estimates or assumptions may result in materially different amounts reported in our financial statements.

Investment in Hotel Properties

Estimation and judgment are required to determine the fair values of our acquired hotel properties. Upon acquiring a business or hotel property, we measure and recognize the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements assumed in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. We determine the acquisition-date fair values of all assets and assumed liabilities using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. Transaction costs are expensed for acquisitions that are considered business combinations and capitalized for asset acquisitions.

Impairment

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, we perform an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel's estimated fair market value is recorded and an impairment loss recognized. In the evaluation of impairment of our hotel properties, we make many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and holding period, future required capital expenditures, and fair values, including consideration of capitalization rates, discount rates, and comparable selling prices. We will adjust our assumptions with respect to the remaining useful life of the hotel property when circumstances change, such as an expiring ground lease or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

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New Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for recently issued accounting pronouncements that may affect us.

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 before January 1, 2024) 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 $689.7 million as of December 31, 2022, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements. As of December 31, 2022 we had no off-balance sheet arrangements.

In order to maintain our qualification as a REIT, we must pay dividends to our shareholders of at least 90% of our taxable income. As a result of this requirement, we cannot rely on retained earnings to fund long-term liquidity requirements such as hotel property acquisitions, redevelopements and repayments of long-term debt. As such, we expect to continue to raise capital through equity and debt offerings to fund our growth.

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 $2.4 billion as of December 31, 2022, as summarized below.

(in thousands)

Revolving credit facilities $ —

Convertible senior notes 750,000

Senior unsecured notes 50,000

Total debt at face value $ 2,400,985

For further discussion on the components of our debt, see Note 5.Debt to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We have the option to extend certain of our current debt maturities with the payment of extension fees. Assuming we exercise all extension options available in our debt agreements, we expect that future principal and interest payments associated with our debt obligations outstanding as of December 31, 2022 will be $2.7 billion through their maturity, with $49.6 million of principal and $93.0 million of interest payable on or before January 1, 2024. We intend to pay amounts due with available cash, borrowings under our revolving credit facility, or refinance 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 December 31, 2022, none of the mortgage loans were 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 IV, Item 15 of this Annual Report on Form 10-K, may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases.

Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of December 31, 2022, with $20.8 million payable on or before December 31, 2023.

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Purchase commitments

As of December 31, 2022, we had $5.5 million of outstanding purchase commitments, all of which will be paid on or before December 31, 2023. 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 $48.6 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 December 31, 2023 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 IV, Item 15 of this Annual Report on Form 10-K.

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 $278.7 million for the year ended December 31, 2022 and $70.8 million for the year ended December 31, 2021. Fluctuations in our net cash provided by operating activities are primarily the result of changes in hotel revenues, operating cash requirements and corporate expenses. The increase in cash provided by operations in 2022 as compared to 2021 is due to the resumption of operations at our hotels and continued improvement in travel demand. In addition, the operations at several of our hotels were temporarily suspended throughout the first quarter of 2021 but were operating in 2022.

Investing Activities. Our net cash used in investing activities was $109.4 million for the year ended December 31, 2022 and $81.6 million for the year ended December 31, 2021. Fluctuations in our net cash 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 year ended December 31, 2022, we invested $116.7 million in improvements to our hotel properties, received $248.9 million from the sale of four hotel properties and purchased two hotel properties using cash of $247.2 million.

•During the year ended December 31, 2021, we invested $83.8 million in improvements to our hotel properties, received $255.9 million from the sale of three hotel properties and purchased three hotel properties using cash of $253.5 million.

Financing Activities. Our net cash used in financing activities was $209.3 million for the year ended December 31, 2022 and $33.3 million for the year ended December 31, 2021. Fluctuations in our net cash 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 year ended December 31, 2022, we borrowed and repaid $190.2 million of revolving credit facility borrowings, repaid and borrowed $1.4 billion in other debt, repurchased $70.7 million of common shares through our common share repurchase program, paid $52.7 million in preferred and common distributions, used $16.0 million to redeem one million Series H Preferred Shares and paid $12.4 million in financing fees.

•During the year ended December 31, 2021, we received gross proceeds of $480.0 million from the issuance of our Series G and Series H Preferred Shares, which was partially offset by the payment $15.9 million in offering costs, received proceeds from the issuance of convertible notes and other debt of $268.6 million, repaid $392.2 million in other debt and $40.0 million of revolving credit facilities borrowings, used $250.0 million to redeem all our Series C and Series D Preferred Shares, paid $44.7 million in preferred and common distributions, purchased $21.0 million in Capped Call Transactions and paid $14.5 million in financing fees.

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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.

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 year ended December 31, 2022, we invested $116.7 million in capital investments to reposition and improve our properties, including the renovations of 1 Hotel San Francisco (formerly Hotel Vitale), Hotel Ziggy (formerly Grafton on Sunset) and Skamania Lodge.

Depending on market conditions, and in some instances subject to approval from governmental authorities, we expect to invest an additional $145.0 million to $155.0 million in capital investments in 2023, which includes normal hotel capital refurbishments, return of investment projects and major capital projects. We have the following significant capital projects that are expected to be completed in 2023 or 2024:

•$25.0 million comprehensive redevelopment and renovation of Hilton San Diego Gaslamp Quarter, which commenced in 2022 and is expected to be completed in the second quarter of 2023;

•$27.0 million comprehensive redevelopment and repositioning of Solamar Hotel into Margaritaville Hotel San Diego Gaslamp Quarter, which commenced in 2022 and is expected to be completed in the second quarter of 2023;

•$20.0 million to $22.0 million comprehensive renovation at Jekyll Island Club Resort, which commenced in 2022 and is expected to be completed in the second quarter of 2023;

•$20.0 million to $25.0 million comprehensive renovation of Estancia La Jolla Hotel & Spa, which commenced in 2022 and is expected to be completed in the second quarter of 2024; and

•$11.0 million first phase of a multi-phase master plan at Skamania Lodge, which commenced in 2022 and is expected to be completed in the third quarter of 2023.

Common Share Repurchase Programs, Preferred Share Repurchase Program and ATM Program

On February 22, 2016, we announced that our Board of Trustees authorized a share repurchase program of up to $150.0 million of the Company's outstanding common shares. 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. Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares. For the year ended December 31, 2022, the Company made $56.6 million in repurchases under this program and, as of December 31, 2022, no common shares remained available for repurchase under this program.

On July 27, 2017, we announced that our Board of Trustees authorized a new share repurchase program of up to $100.0 million of the Company's outstanding common shares. 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. For the year ended December 31, 2022, the Company made $13.0 million in repurchases under this program and, as of December 31, 2022, $87.0 million of common shares remained available for repurchase under this program.

On February 21, 2023, we announced that our Board of Trustees authorized a new share repurchase program of up to $150.0 million of the Company's outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. This $150.0 million common share repurchase program will commence upon the completion of the Company's $100.0 million common share repurchase program, under which approximately $74.0 million of common shares remained available for repurchase as of February 21, 2023. The timing, manner, price and amount of any repurchases under the program 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.

On February 21, 2023, we announced that our Board of Trustees approved a repurchase program of up to $100.0 million of our outstanding preferred shares (the “Preferred Share Repurchase Program”). 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%

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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. The aggregate liquidation value of our preferred shares that may be repurchased pursuant to the Preferred Shares Repurchase Program, as of February 21, 2023, was $715.0 million. 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.

On April 29, 2021, we filed a prospectus supplement with the SEC to sell up to $200.0 million of common shares under an "at the market" offering program (the "ATM program"). No common shares were issued or sold under the ATM program during the year ended December 31, 2022. As of December 31, 2022, $200.0 million of common shares remained available for issuance under the ATM program.

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

For discussion on the seasonality of our hotels' operations, see Part I, Item 1 of this Annual Report on Form 10-K.

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 December 31, 2022, we have interest rate swap agreements with an aggregate notional amount of $1.0 billion to hedge variable interest rates on our unsecured term loans. We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges. For a further discussion of our derivative instruments see Note 5, Debt, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Sensitivity

We are exposed to market risk from changes in interest rates. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. From time to time, we may enter into interest rate swap agreements or other interest rate hedging contracts. While these agreements are intended to lessen the impact of rising interest rates, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly effective cash flow hedges under guidance included in ASC 815 "Derivatives and Hedging."

The table below provides information about financial instruments that are sensitive to changes in interest rates, including senior notes, term loans, mortgage loans and credit facilities. For debt obligations, the table presents scheduled maturities, including annual amortization of principal, and related weighted-average interest rates for the debt maturing in each specified period (dollars in thousands).

Liabilities

Average interest rate — % 6.19 % 5.95 % — % 5.95 % — % 6.05 %

______________________

(1) Scheduled maturities assume we exercise all extension options available in our debt agreements. For a discussion of our debt, see Note 5, Debt, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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This table reflects indebtedness outstanding as of December 31, 2022 and does not reflect indebtedness, if any, incurred after that date. Our ultimate exposure to interest rate fluctuations depends on the amount of indebtedness that bears interest at variable rates, the time at which the interest rate is adjusted, the amount of adjustment, the ability to prepay or refinance variable rate indebtedness and hedging strategies used to reduce the impact of any increases in rates. As of December 31, 2022, the estimated fair value of our fixed rate debt was $700.5 million.

As of December 31, 2022, $501.5 million of the Company's aggregate indebtedness (20.9% of total indebtedness) was subject to variable interest rates, excluding amounts outstanding under the term loan facilities that have been effectively swapped into fixed rates. If interest rates on our unhedged variable rate debt increase or decrease by 0.1 percent, our annual interest expense will increase or decrease by approximately $0.5 million, respectively.

Item 8. Financial Statements and Supplementary Data.

See Financial Statements and index beginning on page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the original framework in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in InternalControl - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

We acquired Inn on Fifth on May 11, 2022 and Newport Harbor Island Resort (formerly Gurney's Newport Resort & Marina) on June 23, 2022 and have excluded the hotel operations of these properties from our assessment of effectiveness of internal control over financial reporting as of December 31, 2022. Total assets and revenues for these hotels of $2.8 million and $35.8 million, respectively, for the year ended December 31, 2022 have been excluded from our assessment.

KPMG LLP, an independent registered public accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-4, on the effectiveness of our internal control over financial reporting.

There was no change to our internal control over financial reporting during the fourth quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

47

PART III

Item 10. Trustees, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions, and Trustee Independence.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services.

Our independent registered public accounting firm is KPMG LLP, McLean, VA, Auditor Firm ID: 185.

The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders.

48

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements

Included herein on pages F-1 through F-34.

2. Financial Statement Schedules

The following financial statement schedule is included herein on pages F-35 through F-38.

Schedule III--Real Estate and Accumulated Depreciation

All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15.

3. Exhibits

The following exhibits are filed or furnished, as the case may be, as part of this Annual Report on Form 10-K:

49

Exhibit Number Description of Exhibit

4.1† Description of the Registrant's Securities.

50

21.1† List of Subsidiaries of Pebblebrook Hotel Trust.

23.1† Consent of KPMG LLP.

101.SCH Inline XBRL Taxonomy Extension Schema Document(1)

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document(1)

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document(1)

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document(1)

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document(1)

______________________

*Management agreement or compensatory plan or arrangement

†Filed herewith.

††Furnished herewith.

(1) Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; (v) Notes to Consolidated Financial Statements; and (vi) Cover Page (in connection with Exhibit 104).

51

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PEBBLEBROOK HOTEL TRUST

Date: February 21, 2023 /s/ JON E. BORTZ

Jon E. Bortz

Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name Title Date

Jon E. Bortz

Raymond D. Martz

/s/ CYDNEY C. DONNELL Trustee February 21, 2023

Cydney C. Donnell

/s/ RON E. JACKSON Trustee February 21, 2023

Ron E. Jackson

/s/ PHILLIP M. MILLER Trustee February 21, 2023

Phillip M. Miller

/s/ MICHAEL J. SCHALL Trustee February 21, 2023

Michael J. Schall

/s/ BONNY W. SIMI Trustee February 21, 2023

Bonny W. Simi

/s/ EARL E. WEBB Trustee February 21, 2023

Earl E. Webb

PEBBLEBROOK HOTEL TRUST

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page No.

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-5

Consolidated Statements of Operations and Comprehensive Income F-6

Consolidated Statements of Equity F-8

Consolidated Statements of Cash Flows F-11

Notes to Consolidated Financial Statements F-12

Schedule III - Real Estate and Accumulated Depreciation F-35

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees

Pebblebrook Hotel Trust:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pebblebrook Hotel Trust and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 5 to the consolidated financial statements, the Company has changed its method of accounting for convertible debt as of January 1, 2021 due to the adoption of ASU 2020-06.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of estimated holding periods for investments in hotel properties

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Investment in hotel properties, net of accumulated depreciation was96% of total assets as of December 31, 2022.

We identified the assessment of the estimated holding periods for hotel properties as a critical audit matter. A high degree of subjective and complex auditor judgment was required to assess the events or changes in circumstances used by the Company to evaluate the estimated holding periods. A shortened estimated holding period could indicate a potential impairment.

F-2

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the Company’s determination of the estimated holding periods for hotel properties. We evaluated the relevant events or changes in circumstances that the Company used to evaluate its estimated holding periods by:

•inspecting documents, such as meeting minutes of the board of trustees, to assess the likelihood that a property will be sold significantly before the end of its previously estimated holding periods

•reading certain publicly available information to identify information regarding potential sales of the Company’s hotel properties

•inquiring of Company officials, including those in the organization who are responsible for, and have authority over, disposition activities

•obtaining representations from the Company regarding the status of potential plans to dispose of hotel properties.

/s/ KPMG LLP

We have served as the Company's auditor since 2009.

McLean, Virginia

February 21, 2023

F-3

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees

Pebblebrook Hotel Trust:

Opinion on Internal Control Over Financial Reporting

We have audited Pebblebrook Hotel Trust and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 21, 2023 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired Inn on Fifth and Newport Harbor Island Resort during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, Inn on Fifth and Newport Harbor Island Resort’s internal control over financial reporting associatedwith total assets of $2.8 million and total revenues of $35.8 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Inn on Fifth and Newport Harbor Island Resort.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

McLean, Virginia

February 21, 2023

F-4

Table of Contents

ASSETS

Hotel held for sale 44,861 —

LIABILITIES AND EQUITY

Accounts payable, accrued expenses and other liabilities 250,518 250,584

Liabilities related to hotel held for sale 428 —

Commitments and contingencies (Note 11)

Shareholders’ equity:

Accumulated other comprehensive income (loss) 35,724 (19,442)

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

F-5

Table of Contents

For the year ended December 31,

Revenues:

Expenses:

Hotel operating expenses:

Net income (loss) attributable to non-controlling interests 2,190 (1,514) (864)

Redemption of preferred shares 8,186 (8,055) —

F-6

Table of Contents

For the year ended December 31,

Comprehensive Income:

Other comprehensive income (loss):

Amounts reclassified from other comprehensive income 52 25,210 28,505

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

F-7

Table of Contents

For the year ended December 31, 2020

Shares Amount Shares Amount

Issuance of shares, net of offering costs — — — — (119) — — (119) — (119)

Distributions on common shares/units — — — — — — (4,692) (4,692) (45) (4,737)

Other comprehensive income (loss):

F-8

Table of Contents

For the year ended December 31, 2021

Shares Amount Shares Amount

Distributions on common shares/units — — — — — — (5,032) (5,032) (66) (5,098)

Other comprehensive income (loss):

F-9

Table of Contents

For the year ended December 31, 2022

Shares Amount Shares Amount

Issuance of shares, net of offering costs — — — — (123) — — (123) — (123)

Issuance of operating partnership units — — — — — — — — 78,000 78,000

Distributions on common shares/units — — — — — — (5,035) (5,035) (69) (5,104)

Other comprehensive income (loss):

Amounts reclassified from other comprehensive income — — — — — 52 — 52 — 52

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

F-10

Table of Contents

Pebblebrook Hotel TrustConsolidated Statements of Cash Flows(in thousands)

For the year ended December 31,

Operating activities:

Changes in assets and liabilities:

Investing activities:

Property insurance proceeds 5,638 — —

Other investing activities (25) (128) —

Financing activities:

Gross proceeds from issuance of preferred shares — 480,000 —

Payment of offering costs — common and preferred shares (123) (15,947) (119)

Borrowings under revolving credit facilities 190,151 — 760,115

Purchases of capped calls for convertible senior notes — (20,975) (38,300)

Repayments of refundable membership deposits (2,462) (2,739) (1,354)

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

F-11

Table of Contents

PEBBLEBROOK HOTEL TRUST

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

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 U.S. 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 December 31, 2022, the Company owned interests in 51 hotels with a total of 12,756 guest rooms. The hotel properties are located in: Boston, Massachusetts; Chicago, Illinois; Hollywood, Florida; Jekyll Island, Georgia; Key West, Florida; Los Angeles, California (Beverly Hills, Santa Monica, and West Hollywood); Miami (Coral Gables), Florida; Naples, Florida; Newport, Rhode Island; Portland, Oregon; San Diego, California; San Francisco, California; Santa Cruz, California; Seattle, Washington; Stevenson, Washington; and Washington, D.C.

Substantially all of the Company’s assets are held by, and all of the Company's operations are conducted through, Pebblebrook Hotel, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of December 31, 2022, the Company owned 99.3% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.7% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to maintain its qualification as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "PHL"), a taxable REIT subsidiary ("TRS"), which in turn engage third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company’s financial statements.

COVID-19 Update

The COVID-19 pandemic, which began in early 2020, has had a significant negative impact on the Company's operations and financial results. Results have substantially improved through 2022. The Company exited its debt covenant waiver period under its credit facilities as of the end of the second quarter of 2022. As discussed in Note. 5 Debt, in October 2022, the Company refinanced its senior unsecured revolving credit facility and all of its term loans. There continues to be significant uncertainty regarding the trends and outlook as a result of new variants and individual and government responses.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The Company and its subsidiaries are separate legal entities and maintain records and books of account separate and apart from each other. The consolidated financial statements include all of the accounts of the Company and its subsidiaries and are presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities that the Company does not control, but over which the Company has the ability to exercise significant influence regarding operating and financial policies, are accounted for under the equity method.

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

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus the Company's financial position. It is uncertain what the future affects of the COVID-19 pandemic will have on the overall economy or travel. In addition, the rise in inflation and corresponding increase in interest rates may also impact the overall economy. A decline in travel or a significant increase in costs may impact the Company's cash flow and ability to service debt or meet other financial obligations.

Fair Value Measurements

F-12

Table of Contents

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:

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

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

3.Level 3 – Model-derived valuations with unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 5. Debt to the accompanying consolidated financial statements for disclosures on the fair value of debt and derivative instruments.

Investment in Hotel Properties

Upon acquiring a business or hotel property, the Company measures and recognizes the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections, including hotel revenues and net operating income, at the respective hotel properties.

Transaction costs related to business combinations are expensed as incurred and included on the consolidated statements of operations and comprehensive income. Transaction costs related to asset acquisitions are capitalized and recorded to investment in hotel property.

Hotel renovations and replacements of assets that improve or extend the life of the asset are recorded at cost and depreciated over their estimated useful lives. Furniture, fixtures and equipment under finance leases are recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.

Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. Intangible assets arising from contractual arrangements are typically amortized over the life of the contract. The Company is required to make subjective assessments as to the useful lives and classification of properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets. These assessments may impact the Company’s results of operations.

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposition, expected useful life and estimated holding period, future required capital expenditures, and fair values, including consideration of expected terminal capitalization rates, discount rates, and comparable selling prices. The Company will adjust its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

F-13

Table of Contents

The Company will classify a hotel as held for sale and will cease recording depreciation expense when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, approval of the Company's board of trustees (the "Board of Trustees") has been obtained, no significant financing contingencies exist, and the sale is expected to close within one year. If the fair value less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. The Company will classify the loss, together with the related operating results, as continuing or discontinuing operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.

Intangible Assets and Liabilities

Intangible assets or liabilities are recorded on non-market contracts assumed as part of the acquisition of certain hotels. The Company reviews the terms of agreements assumed in conjunction with the purchase of a hotel to determine if the terms are over or under market compared to an estimated market agreement at the acquisition date. Under market lease assets or over market contract liabilities are recorded at the acquisition date and amortized using the straight-line method over the term of the agreement. The Company does not amortize intangible assets with indefinite useful lives, but reviews these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term liquid investments with an original maturity of three months or less. The Company maintains cash and cash equivalents balances in excess of insured limits with various financial institutions. This may subject the Company to significant concentrations of credit risk. The Company performs periodic evaluations of the credit quality of these financial institutions.

Restricted Cash

Restricted cash primarily consists of reserves for replacement of furniture and fixtures, cash held in escrow pursuant to certain lender or hotel management agreement requirements to pay for real estate taxes, ground rent or property insurance and cash held in cash management and lockbox accounts pursuant to certain mortgage loan requirements.

Prepaid Expenses and Other Assets

The Company's prepaid expenses and other assets consist of prepaid real estate taxes, prepaid insurance, inventories, over or under market leases, and corporate office equipment and furniture.

Derivative Instruments

In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. Unrealized gains and losses of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Revenue Recognition

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over the length of a customer's hotel stay. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied.

The Company recognizes revenue related to nonrefundable membership initiation fees and refundable membership initiation deposits over the expected life of an active membership. For refundable membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as other operating revenues on the consolidated statements of operations and comprehensive income over the expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method using the Company's incremental borrowing rate. The accretion is included in interest expense.

F-14

Table of Contents

Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties. Lease revenue is recognized on a straight-line basis over the life of the lease and included in other operating revenues in the Company's consolidated statements of operations and comprehensive income.

The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations and comprehensive income. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.

Income Taxes

To qualify as a REIT for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, the Company's TRS lessees are subject to federal and state income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Share-based Compensation

The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share-based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available to common shareholders, as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.

Comprehensive Income (Loss)

The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss).

Segment Information

The Company separately evaluates the performance of each of its hotel properties. However, because each of the hotels has similar economic characteristics, facilities, and services, the hotel properties have been aggregated into a single operating segment.

Investments in Unconsolidated Entities

The Company owns a non-controlling equity interest in Fifth Wall Late-Stage Climate Technology Fund, L.P. As of December 31, 2022, the Company has invested $5.5 million. The Company's total equity commitment to the fund is $10.0 million.

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New Accounting Pronouncements

Reference Rate Reform

In March 2020, January 2021 and December 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, ASU 2021-01, Reference Rate Reform (Topic 848): Scope, and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, respectively. ASU 2020-04, ASU 2021-01 and ASU 2022-06 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The guidance in ASU 2020-04, ASU 2021-01 and ASU 2022-06 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2024. In October 2022, the Company amended the terms of its credit agreements to, among other things, change the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The Company also amended the terms of the interest rate swap derivatives to match the SOFR reference rate. The Company made certain ASC 848 elections related to the changes in critical terms of the hedging relationships which allowed the Company to not dedesignate these hedging relationships. The adoption of ASU 2020-04, ASU 2021-01 and ASU 2022-06 has not had and is not expected to have a material impact on the Company's consolidated financial statements.

Business Combinations

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company does not expect the adoption of ASU 2021-08 to have a material effect on its consolidated financial statements and disclosures.

Note 3. Acquisition and Disposition of Hotel Properties

Acquisitions

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

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

On October 20, 2021, the Company acquired the 19-room Avalon Bed & Breakfast and the 12-room Duval Gardens in Key West, Florida for $20.0 million, excluding prorations and transaction costs, using cash on hand. Both properties were consolidated into the Company's Southernmost Beach Resort.

On December 1, 2021, the Company acquired the leasehold interest in the 210-room Estancia La Jolla Hotel & Spa in La Jolla, California for $108.0 million, excluding prorations and transaction costs, using cash on hand and the assumption of a $61.7 million mortgage loan.

On May 11, 2022, the Company acquired the 119-room Inn on Fifth in Naples, Florida for $156.0 million, excluding prorations and transactions costs. 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 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.

See Note 5. Debt for additional information about the mortgage loans assumed and Note 11. Commitments and Contingencies for additional information about the leasehold interests acquired.

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Dispositions

The following table summarizes disposition transactions during the years ended December 31, 2022 and 2021 (in thousands):

Hotel Property Name Location Sale Date Sale Price

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

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

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

For the years ended December 31, 2022, 2021 and 2020, the accompanying consolidated statements of operations and comprehensive income included operating (loss) of $(2.3) million, $(21.7) million and $(32.4) 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 December 31, 2022, the Company had entered into an agreement to sell The Heathman Hotel for approximately $45.0 million. This hotel was designated as held for sale as it met the held for sale criteria, and as a result, the Company recorded an impairment to reduce the carrying value of the property. In addition, the Company classified all of the assets and liabilities related to this hotel as assets and liabilities held for sale in the accompanying consolidated balance sheets and ceased depreciating the assets. The Company expects to complete the sale in the first quarter of 2023, however, no assurances can be given that the sale will be completed on these terms or at all.

Note 4. Investment in Hotel Properties

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

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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 is expected to be re-opened in stages beginning in the first quarter of 2023. The Company anticipates LaPlaya to have reopened fully by the middle of 2023.

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 December 31, 2022, the Company recognized an impairment loss of $7.9 million for the damage to LaPlaya and Southernmost Beach Resort which is recorded in impairment and other losses in the Company’s accompanying consolidated statement of operations and comprehensive income. The Company recorded a receivable for costs incurred to remediate the damage in excess of the deductible. Through December 31, 2022, the Company has received $15.8 million in preliminary advances from the insurance providers and continues to work with the insurance providers on the settlement of the property and business interruption claims.

Impairment

The Company reviews its investment in hotel properties for impairment whenever events or circumstances indicate potential impairment. The Company periodically adjusts its estimate of future operating cash flows and estimated hold periods for certain properties. As a result of this review, 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 year ended December 31, 2022, the Company recognized an impairment loss of $81.7 million related to three hotels as a result of their fair values being lower than their carrying values. The impairment losses were determined using Level 2 inputs under authoritative guidance for fair value measurements using purchase and sale agreements and information from marketing efforts for these properties. For the year ended December 31, 2021, the Company recognized an impairment loss of $14.9 million related to one hotel as a result of its fair value being lower than its carrying value. The impairment loss was determined using Level 2 inputs under authoritative guidance for fair value measurements using information from marketing efforts for this property. For the year ended December 31, 2020, the Company recognized an impairment loss of $74.6 million related to three properties 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.

Right-of-use Assets and Lease Liabilities

The Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases. When the rate implicit in the lease could not be determined, the Company used incremental borrowing rates, which ranged from 4.7% to 7.6%. In addition, the term used includes any options to exercise extensions when it is reasonably certain the Company will exercise such option. See Note 11. Commitments and Contingencies for additional information about the ground leases.

The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of December 31, 2022, the Company's lease liabilities consisted of operating lease liabilities of $320.4 million and financing lease liabilities of $42.7 million. As of December 31, 2021, the Company's lease liabilities consisted of operating lease liabilities of $319.4 million and financing lease liabilities of $42.0 million. The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets.

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Note 5. Debt

In 2021, the Company amended the agreements governing its 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 exited the debt covenant waiver period as of the end of the second quarter of 2022.

On October 13, 2022, the Company entered into the Fifth Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent and certain other agents and lenders ("Credit Agreement"). The $2.0 billion Credit Agreement provides for a $650.0 million senior unsecured revolving credit facility and three $460.0 million unsecured term loan facilities totaling $1.38 billion. Proceeds from the new term loans and $26.7 million of cash on hand were used to repay the outstanding balances on the prior term loans. The Company incurred $7.4 million in costs related to the refinancing which were recorded in interest expense in the accompanying consolidated statement of operations. The Company may request additional lender commitments to increase the aggregate borrowing capacity under the Credit Agreement up to an additional $970.0 million.

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

Balance Outstanding as of

Revolving credit facilities

Senior unsecured credit facility - (1)(2) October 2026 $ — $ —

PHL unsecured credit facility - (1) October 2026 — —

Revolving credit facilities $ — $ —

Unsecured term loans

Senior unsecured notes

Mortgage loans

______________________

(1) Borrowings bear interest at floating rates. Interest rate at December 31, 2022 gives effect to interest rate hedges.

(2) The Company has the option to extend the maturity date of October 13, 2026 for up to twosix-month periods, pursuant to certain terms and conditions and payment of an extension fee, for a maximum maturity date of October 13, 2027.

(3) The Company intends to pay off the Series A Notes using available cash or borrowings under the revolving credit facility at maturity.

(4) In April 2022, the Company exercised its option to extend the maturity date to May 2023. The loan bears interest at a floating rate equal to one-month LIBOR plus a weighted-average spread of 2.37%. The Company has the option to extend the maturity date further to May 2024, which the Company expects to exercise.

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Unsecured Revolving Credit Facilities

The $650.0 million senior unsecured revolving credit facility provided for in the Credit Agreement matures in October 2026 and provides for twosix-month extension options, subject to certain terms and conditions and payment of an extension fee. All borrowings under the $650.0 million senior unsecured revolving credit facility bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus 0.10% (the “SOFR Adjustment”) plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The margins for revolving credit facility loans range in amount from 1.45% to 2.50% for SOFR-based loans and 0.45% to 1.50% for Base Rate-based loans, depending on the Company’s leverage ratio. As of December 31, 2022, the Company had no outstanding borrowings, $12.6 million of outstanding letters of credit and a borrowing capacity of $637.4 million remaining on its senior unsecured revolving credit facility. 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 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.

Under the terms of the credit agreement for the senior 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 facility. The Company pays a fee at a rate per annum equal to the applicable margin based upon the Company's leverage ratio. 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 December 31, 2022 and 2021, respectively.

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. On October 13, 2022, PHL amended and restated the agreement governing the PHL Credit Facility to extend the maturity to October 2026. The PHL Credit Facility has substantially similar terms as the Company's senior unsecured revolving credit facility. Borrowings on the PHL Credit Facility bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus the SOFR Adjustment plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Credit Agreement, which governs the Company's senior unsecured revolving credit facility. As of December 31, 2022, the Company had no borrowings under the PHL Credit Facility and had $20.0 million borrowing capacity remaining available under the PHL Credit Facility.

As of December 31, 2022, the Company was in compliance with all debt covenants of the credit agreements that govern the unsecured revolving credit facilities.

Unsecured Term Loan Facilities

The three $460.0 million term loans provided for in the Credit Agreement mature in October 2024, October 2025 and October 2027, respectively. The term loans bear interest at a rate per annum equal to, at the option of the Company, (i) SOFR plus the SOFR Adjustment plus a margin that is based upon the Company’s leverage ratio or (ii) the Base Rate (as defined by the Credit Agreement) plus a margin that is based on the Company’s leverage ratio. The margins for term loans range in amount from 1.40% to 2.45% for SOFR-based loans and 0.40% to 1.45% for Base Rate-based loans, depending on the Company's leverage ratio. The term loans are subject to the debt covenants in the Credit Agreement. As of December 31, 2022, the Company was in compliance with all debt covenants of its term loans.

The Company entered into interest rate swap agreements to fix the SOFR rate on a portion of these unsecured term loan facilities. See Derivative and Hedging Activities for further discussion on the interest rate swaps.

Convertible Senior Notes

In December 2020, the Company issued $500.0 million aggregate principal amount of 1.75% Convertible Senior Notes due December 2026 (the "Convertible Notes"). The net proceeds from this offering of the Convertible Notes were approximately $487.3 million after deducting the underwriting fees and other expenses paid by the Company.

In February 2021, the Company issued an additional $250.0 million aggregate principal amount of Convertible Notes. These additional Convertible Notes were sold at a 5.5% premium to par and generated net proceeds of approximately $257.2 million after deducting the underwriting fees and other expenses paid by the Company of $6.5 million, which was offset by a premium received in the amount of $13.8 million.

The Convertible Notes are governed by an indenture (the “Base Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The Convertible Notes bear interest at a rate of 1.75% per annum, payable semi-annually in arrears on June 15th and December 15th of each year, beginning on June 15, 2021. The Convertible Notes will mature on December 15, 2026. The Company recorded coupon interest expense of $13.1 million and $12.7 million for the years ended December 31, 2022 and 2021, respectively.

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The Company separated the Convertible Notes issued in December 2020 into liability and equity components. The initial carrying amount of the liability component was $386.1 million and was calculated using a discount rate of 6.25%. The discount rate was based on the terms of debt instruments that were similar to the Convertible Notes. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the principal amount of such Convertible Notes, or $113.9 million. The amount recorded in equity was not subject to remeasurement or amortization. The $113.9 million also represented the initial discount recorded on the Convertible Notes. As a result of the Company's early adoption of ASU 2020-06 on January 1, 2021, the Convertible Notes are now recorded as a single liability with no portion recorded in equity. The Company also ceased recording non-cash interest expense associated with the amortization of the debt discount.

Prior to June 15, 2026, the Convertible Notes will be convertible upon certain circumstances. On and after June 15, 2026, holders may convert any of their Convertible Notes into the Company’s common shares of beneficial interest (“common shares”) at the applicable conversion rate at any time at their election two days prior to the maturity date. The initial conversion rate is 39.2549 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $25.47 per share. The conversion rate is subject to adjustment in certain circumstances. As of December 31, 2022 and 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. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If certain make-whole fundamental changes occur, the conversion rate for the Convertible Notes may be increased.

In connection with the Convertible Notes issuances, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offerings of the Convertible Notes or their respective affiliates and other financial institutions. The Capped Call Transactions initially cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of common shares underlying the Convertible Notes. The Capped Call Transactions are expected generally to reduce the potential dilution to holders of common shares upon conversion of the Convertible Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Convertible Notes upon conversion thereof, with such reduction and/or offset subject to a cap. The upper strike price of the Capped Call Transactions is $33.0225 per share. The cost of the Capped Call Transactions entered into in December 2020 and February 2021 was $38.3 million and $21.0 million, respectively, and was recorded within additional paid-in capital.

Senior Unsecured Notes

The Company has $47.6 million of senior unsecured notes outstanding bearing a fixed interest rate of 4.70% per annum and maturing in December 2023 (the "Series A Notes") and $2.4 million of senior unsecured notes outstanding bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes"). 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 December 31, 2022, the Company was in compliance with all such debt covenants.

Mortgage Loans

On September 23, 2021, the Company assumed a $161.5 million loan secured by a first-lien mortgage on the leasehold interest of Margaritaville Hollywood Beach Resort ("Margaritaville"). The loan requires interest-only payments based on a floating interest rate of one-month LIBOR plus a weighted-average spread of 2.37%. In April 2022, the Company exercised its option to extend the maturity date to May 9, 2023. The Company has an option to extend the maturity date further to May 9, 2024, which the Company expects to exercise. If the loan is extended, the interest rate spread will increase by 20 basis points. The loan is also subject to an interest rate cap agreement.

On December 1, 2021, the Company assumed a $61.7 million loan secured by a first-lien mortgage on the leasehold interest of Estancia La Jolla Hotel & Spa ("Estancia"). The loan requires both principal and interest monthly payments based on a fixed interest rate of 5.07%. The loan matures on September 1, 2028.

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The Company's mortgage loans associated with Margaritaville and Estancia are non-recourse to the Company except for customary carve-outs to the general non-recourse liability. The loans contain customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions. Cash trap provisions are triggered if the hotel's performance is below a certain threshold. Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender. These properties are not in a cash trap and no event of default has occurred under the loan documents.

Interest Expense

The components of the Company's interest expense consisted of the following for the years ended December 31, 2022, 2021, and 2020 (in thousands):

For the year ended December 31,

Fair Value

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 December 31, 2022 and 2021 was $700.5 million and $747.8 million, respectively.

Future Minimum Principal Payments

As of December 31, 2022, the future minimum principal payments for the Company's debt, assuming all extension options available in the Company's debt agreements are exercised, are as follows (in thousands):

Total debt principle payments $ 2,400,985

Deferred financing costs, net (21,373)

Debt premium (discount), net 7,681

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. 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.

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

Aggregate Notional Value as of

______________________

(1) In October 2022, the Company transitioned from LIBOR-based interest rates to SOFR-based interest rates for its interest rate swap agreements. There are no other substantive changes to its interest rate swap agreements as part of this transition.

The Company records all derivative instruments at fair value in the accompanying consolidated balance sheets. Fair values of interest rate swaps and caps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (Overnight Index Swap curves) and volatilities (Level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company incorporates these counterparty credit risks in its fair value measurements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.

As of December 31, 2022, the Company's derivative instruments were in an asset position with an aggregate fair value of $36.0 million. None of the Company's derivative instruments was in a liability position as of December 31, 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. The Company expects approximately $23.2 million will be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months. In January 2023, the Company entered into interest rate swap agreements with an aggregate notional amount of $400.0 million, which will be effective in November 2023.

Note 6. Revenue

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 years ended December 31, 2022, 2021 and 2020 (in thousands):

For the year ended December 31,

______________________

(1) Other includes: Nashville, TN, New York, NY, Philadelphia, PA, Newport, RI and Santa Cruz, CA.

Payments from customers are primarily made when services are provided. Due to the short-term nature of the Company's contracts and the almost simultaneous receipt of payment, almost all of the contract liability balance at the beginning of the period is expected to be recognized as revenue over the following 12 months.

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Note 7. Equity

Common Shares

The Company is authorized to issue up to 500,000,000 common shares. Each outstanding common share entitles the holder to one vote on each matter submitted to a vote of shareholders. Holders of common shares are entitled to receive dividends when authorized by the Board of Trustees.

During the fourth quarter of 2022, the Company repurchased 4,559,839 common shares for an aggregate purchase price of $69.6 million, or an average of approximately $15.27 per share. Upon repurchase by the Company, these common shares ceased to be outstanding and became authorized but unissued common shares.

Common Share Repurchase Programs

On February 22, 2016, the Company announced that the Board of Trustees authorized a share repurchase program of up to $150.0 million of common shares. Under this program, the Company may repurchase common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares. For the year ended December 31, 2022, the Company repurchased $56.6 million of common shares, and as of December 31, 2022, no 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. Under this program, the Company may repurchase common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. For the year ended December 31, 2022, the Company repurchased $13.0 million common shares under this program and, as of December 31, 2022, $87.0 million of common shares remained available for repurchase under this program.

On February 21, 2023, we announced that our Board of Trustees authorized a new share repurchase program of up to $150.0 million of the Company's outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement.

ATM Program

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

Common Dividends

The Company declared the following dividends on common shares/units for the year ended December 31, 2022:

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

Preferred Shares

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

In May 2021, the Company issued 9,200,0006.375% Series G Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $222.6 million. In July 2021, the Company issued 10,000,0005.70% Series H Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $242.1 million.

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

On December 27, 2022, the Company repurchased 1,000,0005.70% Series H Cumulative Redeemable Preferred Shares at a privately negotiated price of $16.00 per share. The difference between the carrying amount of the repurchased shares, net of issuance costs, and the consideration paid to repurchase the shares is considered a return from preferred shareholders of $8.2 million and recorded as an adjustment to net income (loss) attributable to common shareholders on the Company's basic and diluted earnings per share.

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

The Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions. The Preferred Shares do not have any maturity date and are not subject to mandatory redemption. The Company may redeem the Series E and Series F Preferred Shares at any time. The Series G and Series H Preferred Shares may not be redeemed prior to May 13, 2026 and July 27, 2026, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below. On or after such dates, the Company may, at its option, redeem the Preferred Shares, in each case in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which the common shares and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE American or Nasdaq, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of common shares based on defined formulas subject to share caps. The share cap on each Series E Preferred Share is 1.9372 common shares, on each Series F Preferred Share is 2.0649 common shares, on each Series G Preferred Share is 2.1231 common shares, and on each Series H Preferred Share is 2.2311 common shares.

On February 21, 2023, the Company announced that its Board of Trustees approved a repurchase program of up to $100.0 million of the Preferred Shares. Under the terms of the program, the Company may repurchase up to an aggregate of $100.0 million of the Preferred Shares. The aggregate liquidation value of the Preferred Shares that may be repurchased pursuant to the Preferred Shares Repurchase Program, as of February 21, 2023, was $715.0 million. The timing, manner, price and amount of any repurchases will be determined by the Company in its 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.

Preferred Dividends

The Company declared the following dividends on preferred shares for the year ended December 31, 2022:

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Non-controlling Interest of Common Units in Operating Partnership

Holders of Operating Partnership units ("OP Units") have certain redemption rights that enable OP unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of common shares at the time of redemption or common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the Operating Partnership's limited partners or the Company's shareholders.

On November 30, 2018, in connection with the merger with LaSalle Hotel Properties ("LaSalle"), the Company issued 133,605 OP units in the Operating Partnership to third-party limited partners of LaSalle's operating partnership.

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

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

As of December 31, 2022, the Operating Partnership had two classes of long-term incentive partnership units ("LTIP units"), LTIP Class A units and LTIP Class B units. All of the outstanding LTIP units are held by officers of the Company.

As of December 31, 2022 and 2021, the Operating Partnership had 727,208 LTIP units outstanding. Of the 727,208 LTIP units outstanding at December 31, 2022, 127,111 LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above.

Non-controlling Interest of Preferred Units in Operating Partnership

On May 11, 2022, in connection with the acquisition of Inn on Fifth in Naples, Florida, the Company issued 3,104,400 preferred units in the Operating Partnership, designated as 6.0% Series Z Cumulative Perpetual Preferred Units ("Series Z Preferred Units"). The Series Z Preferred Units rank senior to the common OP units and on parity with the Operating Partnership's Series E, Series F, Series G and Series H Preferred Units. Holders of Series Z Preferred Units are entitled to receive quarterly distributions at an annual rate of 6.0% of the liquidation preference value of $25.00 per share.

At any time, holders of Series Z Preferred Units may elect to convert some or all of their units into any other series of the Operating Partnership’s preferred units outstanding at that time. After the second anniversary of the issuance of the Series Z Preferred Units, holders may elect to redeem some or all of their units for, at the Company’s election, cash, common shares having an equivalent value or preferred shares on a one-for-one basis. After the fifth anniversary of their issuance, the Company may redeem the Series Z Preferred Units for cash, common shares having an equivalent value or preferred shares on a one-for-one basis. 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 December 31, 2022, the Operating Partnership had 3,104,400 Series Z Preferred Units outstanding.

Note 8. Share-Based Compensation Plan

The Company maintains the 2009 Equity Incentive Plan, as amended and restated (as amended, the "Plan"), to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan vest over a period determined by the Board of Trustees, generally over three to five years. The Company pays or accrues for dividends on share-based awards. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. As of December 31, 2022, there were 1,718,248 common shares available for issuance under the Plan.

Service Condition Share Awards

From time to time, the Company awards restricted common shares under the Plan to members of the Board of Trustees, officers and employees. These shares generally vest over three to five years based on continued service or employment.

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

Shares Weighted-AverageGrant DateFair Value

The fair value of each of these service condition restricted share awards is determined based on the closing price of the Company’s common shares on the grant date and compensation expense is recognized on a straight-line basis over the vesting period. In March 2020, the Company canceled the February 2020 service condition share award (retention grant) and as a result accelerated and recognized an expense of $5.5 million. For the years ended December 31, 2022, 2021 and 2020, the Company recognized approximately $3.8 million, $4.1 million and $8.1 million, respectively, of share-based compensation expense related to these awards in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 2022, there was $7.3 million of total unrecognized share-based compensation expense related to unvested restricted shares. The unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.5 years.

Performance-Based Equity Awards

On February 15, 2017, the Board of Trustees approved a target award of 81,939 performance-based equity awards to officers and employees of the Company. In January 2020, these awards vested and the Company issued 1,972 and 405 common shares to officers and employees, respectively. The actual number of common shares that vested was based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2017 through December 31, 2019.

On February 14, 2018, the Board of Trustees approved a target award of 78,918 performance-based equity awards to officers and employees of the Company. In January 2021, none of these awards vested and the Company issued no common shares to officers or employees. The actual number of common shares that vested was based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2018 through December 31, 2020.

On February 13, 2019, the Board of Trustees approved a target award of 126,891 performance-based equity awards to officers and employees of the Company. In January 2022, none of these awards vested and the Company issued no common shares to officers or employees. The actual number of common shares that vested was based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2019 through December 31, 2021.

On February 12, 2020, the Board of Trustees approved a target award of 161,777 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2023. The actual number of common shares that ultimately vest will be from 0% to 200% of the target award and will be determined in 2023 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2020 through December 31, 2022.

On February 18, 2021, the Board of Trustees approved a target award of 189,348 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2024. The actual number of common shares that ultimately vest will be from 0% to 200% of the target award and will be determined in 2024 based on the performance criteria defined in the award agreements for the period of performance from January 1, 2021 through December 31, 2023.

On May 16, 2022, the Board of Trustees approved a target award of 175,898 performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2025. 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.

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The grant date fair value of the performance awards, with market conditions, were determined using a Monte Carlo simulation method with the following assumptions (dollars in millions):

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

Dividends on unvested performance-based equity awards accrue over the vesting period and will be paid on the actual number of shares that vest at the end of the applicable period. The Company recognizes compensation expense on a straight-line basis through the vesting date. As of December 31, 2022, there was approximately $6.0 million of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of 1.7 years. For the years ended December 31, 2022, 2021 and 2020 the Company recognized approximately $4.8 million, $4.9 million and $4.1 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

LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Operating Partnership and receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. LTIP units are allocated their pro-rata share of the Company's net income (loss). Vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership.

As of December 31, 2022, the Operating Partnership had two classes of LTIP units, LTIP Class A units and LTIP Class B units. All of the outstanding LTIP units are held by officers of the Company.

On February 12, 2020, the Board of Trustees granted 415,818 LTIP Class B units to executive officers of the Company. These LTIP units were to vest ratably on January 1, 2023, 2024, 2025 and 2026. In March 2020, the Company canceled this grant and as a result accelerated and recognized the full expense of $10.5 million.

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

On February 18, 2021, the Board of Trustees granted 600,097 LTIP Class B units to executive officers of the Company. These LTIP units vest ratably on January 1, 2023, 2024, 2025 and 2026, contingent upon continued employment with the Company. The fair value of each award was determined based on the closing price of the Company’s common shares on the grant date of $22.69 per unit. The aggregate grant date fair value of the LTIP Class B units was $13.6 million.

As of December 31, 2022 and 2021, the Operating Partnership had 727,208 LTIP units outstanding. Of the 727,208 LTIP units outstanding at December 31, 2022, 127,111 LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption.

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For the years ended December 31, 2022, 2021 and 2020, the Company recognized approximately $2.8 million, $2.4 million and $10.6 million, respectively, in expense related to these LTIP units. As of December 31, 2022, there was $8.4 million of unrecognized share-based compensation expense related to LTIP units. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s accompanying consolidated balance sheets.

Note 9. Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) to its shareholders. It is the Company's current intention to adhere to these requirements and maintain the Company's qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income of TRSs, including our TRS lessees, are subject to federal, state and local income taxes.

For federal income tax purposes, the cash distributions paid to the Company’s common shareholders and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions which could result in differences between cash basis and tax basis distribution amounts.

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The following characterizes distributions paid per common share and preferred share on a tax basis for the years ended December 31, 2022, 2021 and 2020:

Amount % Amount % Amount %

Common Shares:

Ordinary non-qualified income $ 0.0419 83.80 % $ — — % $ — — %

Qualified dividend — — % — — % — — %

Series C Preferred Shares:

Ordinary non-qualified income $ — — % $ — — % $ — — %

Qualified dividend — — % — — % — — %

Series D Preferred Shares: