Pebblebrook Hotel Trust(PEB) - 2021 Q4 - Annual Report

Forward-Looking Statements This section outlines forward-looking statement disclaimers and key risk factors that could materially affect the company's results - Forward-looking statements are identified by words such as 'may', 'will', 'should', 'potential', 'could', 'seek', 'assume', 'forecast', 'believe', 'expect', 'intend', 'anticipate', 'estimate', 'project' or similar expressions[15] - Key risk factors include the significant and ongoing impact of the COVID-19 pandemic on financial condition and operations, potential non-compliance with debt covenants, and general hotel industry risks[18] PART I Item 1. Business Pebblebrook Hotel Trust is an internally managed REIT investing in upper-upscale hotels in major U.S. gateway coastal markets - Pebblebrook Hotel Trust is an internally managed hotel investment company, formed as a Maryland REIT in October 2009, focused on acquiring and investing in hotel properties primarily in major U.S. cities, with an emphasis on major gateway coastal markets[20] Hotel Portfolio Overview (as of Dec 31, 2021) | Metric | Value | | :----- | :---- | | Hotels Owned (as of Dec 31, 2021) | 53 | | Total Guest Rooms (as of Dec 31, 2021) | 13,247 | - The company operates through Pebblebrook Hotel, L.P. (Operating Partnership), with the Company owning 99.3% of common limited partnership units, and hotels leased to a Taxable REIT Subsidiary (TRS) managed by third-party contractors to ensure REIT qualification[21][47] - Acquisition strategy focuses on premier locations, high barriers-to-entry markets, acquisition prices at a discount to replacement cost, properties not subject to long-term management contracts, and opportunities for value-added improvements[23][25] - The company launched Curator Hotel & Resort Collection in 2020, a collection of independent lifestyle hotels, in which it owns a majority equity interest[32] - Financing strategy involves using common and preferred equity securities and debt financings (senior unsecured credit facilities, term loans, convertible debt, unsecured notes, mortgage debt) with staggered maturities to fund growth, redevelopments, and working capital[33][35] - Hotel demand is affected by recurring seasonal patterns, with lower revenue and cash flow in Q1 and higher in Q3, with a return to normal seasonality expected in 2022 after COVID-19 disruptions[39] - The company has elected to be taxed as a REIT, generally avoiding corporate federal income tax on distributed taxable income, but must distribute at least 90% of its REIT taxable income annually, while TRS lessees are subject to corporate income tax[46][47] Item 1A. Risk Factors This section details comprehensive risks across business, financing, lodging, real estate, structure, and tax compliance - The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the company's financial condition, results of operations, cash flows, liquidity, and prospects, leading to temporary hotel suspensions and reduced demand[98][99] - Dependence on third-party management companies means the company cannot directly implement strategic business decisions or force operational changes, and may incur substantial termination fees if managers are replaced[62][64] - Inability to obtain financing on favorable terms could limit growth, as the company is required to distribute at least 90% of its REIT taxable income, limiting retained earnings for acquisitions and capital expenditures[66] - The lodging industry is highly competitive and cyclical, with demand affected by economic conditions, travel policies, operating costs, and unforeseen events, which can reduce occupancy, ADR, and RevPAR[38][110][111] - Compliance with REIT requirements is complex and continuous, potentially forcing the company to forego attractive business opportunities or liquidate investments, and failure to qualify would result in higher taxes and reduced cash for distributions[171][177] - Capital expenditure requirements for renovations and improvements can be costly, potentially requiring debt, postponing projects, or reducing distributions, and hotel development projects are subject to timing, budgeting, and other risks[112][113] - Risks related to debt and financing include insufficient cash flow for payments, increased vulnerability to adverse conditions, restrictive covenants, 'cash trap' provisions in mortgage loans, refinancing risks, and potential foreclosure on hotels[83][87][88][89][91] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[202] Item 2. Properties This section lists the company's 53 hotel properties, management agreements, and franchise agreements as of December 31, 2021 - As of December 31, 2021, the company owned 53 hotels with a total of 13,247 guest rooms, all consolidated in its financial statements[203][205] Hotel Portfolio Overview (as of December 31, 2021) | Property | Location | Date Acquired | Number of Guest Rooms | | :------- | :------- | :------------ | :-------------------- | | L'Auberge Del Mar | Del Mar, CA | Nov 30, 2018 | 121 | | Hotel Palomar Los Angeles Beverly Hills | Los Angeles, CA | Nov 20, 2014 | 264 | | W Los Angeles - West Beverly Hills | Los Angeles, CA | Aug 23, 2012 | 297 | | Chamberlain West Hollywood Hotel | West Hollywood, CA | Nov 30, 2018 | 115 | | Grafton on Sunset | West Hollywood, CA | Nov 30, 2018 | 108 | | Le Parc Suite Hotel | West Hollywood, CA | Nov 30, 2018 | 154 | | Mondrian Los Angeles | West Hollywood, CA | May 3, 2011 | 236 | | Montrose West Hollywood | West Hollywood, CA | Nov 30, 2018 | 133 | | Le Méridien Delfina Santa Monica | Santa Monica, CA | Nov 19, 2010 | 310 | | Viceroy Santa Monica Hotel | Santa Monica, CA | Nov 30, 2018 | 169 | | Embassy Suites San Diego Bay - Downtown | San Diego, CA | Jan 29, 2013 | 341 | | Hilton San Diego Gaslamp Quarter | San Diego, CA | Nov 30, 2018 | 286 | | Paradise Point Resort & Spa | San Diego, CA | Nov 30, 2018 | 462 | | San Diego Mission Bay Resort | San Diego, CA | Nov 30, 2018 | 357 | | Solamar Hotel | San Diego, CA | Nov 30, 2018 | 235 | | The Westin San Diego Gaslamp Quarter | San Diego, CA | Apr 6, 2011 | 450 | | Estancia La Jolla Hotel & Spa | La Jolla, CA | Dec 1, 2021 | 210 | | Argonaut Hotel | San Francisco, CA | Feb 16, 2011 | 252 | | Harbor Court Hotel San Francisco | San Francisco, CA | Nov 30, 2018 | 131 | | Hotel Spero | San Francisco, CA | Nov 30, 2018 | 236 | | Hotel Vitale | San Francisco, CA | Nov 30, 2018 | 200 | | Hotel Zelos San Francisco | San Francisco, CA | Oct 25, 2012 | 202 | | Hotel Zephyr Fisherman's Wharf | San Francisco, CA | Dec 9, 2013 | 361 | | Hotel Zeppelin San Francisco | San Francisco, CA | May 22, 2014 | 196 | | Hotel Zetta San Francisco | San Francisco, CA | Apr 4, 2012 | 116 | | Hotel Zoe Fisherman's Wharf | San Francisco, CA | Jun 11, 2015 | 221 | | The Marker San Francisco | San Francisco, CA | Nov 30, 2018 | 208 | | Chaminade Resort & Spa | Santa Cruz, CA | Nov 30, 2018 | 156 | | George Hotel | Washington, DC | Nov 30, 2018 | 139 | | Hotel Monaco Washington DC | Washington, DC | Sep 9, 2010 | 184 | | Hotel Zena Washington DC | Washington, DC | Nov 30, 2018 | 191 | | Viceroy Washington DC | Washington, DC | Nov 30, 2018 | 178 | | Southernmost Beach Resort | Key West, FL | Nov 30, 2018 | 293 | | The Marker Key West Harbor Resort | Key West, FL | Nov 30, 2018 | 96 | | Hotel Colonnade Coral Gables, Autograph Collection | Miami, FL | Nov 12, 2014 | 157 | | Margaritaville Hollywood Beach Resort | Hollywood, FL | Sep 23, 2021 | 369 | | LaPlaya Beach Resort & Club | Naples, FL | May 21, 2015 | 189 | | Jekyll Island Club Resort | Jekyll Island, GA | Jul 22, 2021 | 200 | | Hotel Chicago Downtown, Autograph Collection | Chicago, IL | Nov 30, 2018 | 354 | | The Westin Michigan Avenue Chicago | Chicago, IL | Nov 30, 2018 | 752 | | Hyatt Regency Boston Harbor | Boston, MA | Nov 30, 2018 | 270 | | Revere Hotel Boston Common | Boston, MA | Dec 18, 2014 | 356 | | The Liberty, a Luxury Collection Hotel, Boston | Boston, MA | Nov 30, 2018 | 298 | | The Westin Copley Place, Boston | Boston, MA | Nov 30, 2018 | 803 | | W Boston | Boston, MA | Jun 8, 2011 | 238 | | Hotel Vintage Portland | Portland, OR | Jul 9, 2012 | 117 | | The Heathman Hotel | Portland, OR | Nov 30, 2018 | 151 | | The Hotel Zags | Portland, OR | Aug 28, 2013 | 174 | | The Nines, a Luxury Collection Hotel, Portland | Portland, OR | Jul 17, 2014 | 331 | | Sofitel Philadelphia at Rittenhouse Square | Philadelphia, PA | Dec 3, 2010 | 306 | | Hotel Monaco Seattle | Seattle, WA | Apr 7, 2011 | 189 | | Hotel Vintage Seattle | Seattle, WA | Jul 9, 2012 | 125 | | Skamania Lodge | Stevenson, WA | Nov 3, 2010 | 260 | - Management agreements typically include base management fees (1-4% of revenues) and incentive management fees (10-20% of net operating income above thresholds), with terms ranging from 1 to 22 years (up to 52 years with renewals), often terminable with fees[208] - Franchise and sub-license agreements require fees of approximately 1-5% of gross room revenues, plus other marketing and reservation service fees, with key agreements expiring between January 2028 and July 2112[210] Item 3. Legal Proceedings The company is not subject to material litigation or threatened litigation beyond routine business claims - The company is not presently subject to any material litigation nor, to its knowledge, is any litigation threatened against it, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, which are not expected to have a material adverse effect on its liquidity, results of operations or its financial condition[211] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[212] PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities This section covers common share market data, shareholder information, distribution policy, equity compensation, and share repurchase programs - Pebblebrook Hotel Trust common shares trade on the NYSE under the symbol 'PEB' since December 9, 2009, with 84 holders of record as of February 18, 2022[214][215] Cumulative Total Return (December 31, 2016 - December 31, 2021) | Name | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | :---------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | Pebblebrook Hotel Trust | $100.00 | $130.72 | $103.92 | $103.81 | $73.02 | $87.03 | | Russell 2000 | $100.00 | $114.63 | $101.99 | $127.98 | $153.49 | $176.18 | | FTSE Nareit Equity REITs | $100.00 | $108.67 | $104.25 | $134.12 | $127.31 | $179.85 | - Distributions on common shares are currently prohibited above $0.01 per share by debt covenants, unless necessary to maintain REIT status, due to the adverse financial effects of the COVID-19 pandemic[222] Securities Authorized for Issuance Under Equity Compensation Plan (as of December 31, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :---------------------------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------- | | Equity compensation plans approved by security holders | — | — | 1,809,516 | | Equity compensation plans not approved by security holders | — | — | — | | Total | — | — | 1,809,516 | - As of December 31, 2021, $56.6 million remained available for repurchase under the $150.0 million share repurchase program authorized in 2016, though repurchases are prohibited until compliance with certain financial covenants is certified through June 30, 2022, with a new $100.0 million program to commence thereafter[225][226] - No common shares were issued or sold under the $200.0 million 'at the market' (ATM) offering program during 2021, with the full amount remaining available[286] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operations, focusing on COVID-19 impact, liquidity, and 2021 transactions Overview The COVID-19 pandemic significantly impacted 2021 operations, leading to debt covenant amendments and key transactions to enhance liquidity - The COVID-19 pandemic had a significant negative impact on operations and financial results throughout 2021, though results improved relative to 2020, with further recovery anticipated in 2022, especially in leisure travel[230][370] - Debt agreements were amended in 2021 to waive quarterly financial covenants until Q2 2022 (with less-restrictive covenants through Q1 2023), extend over $1.0 billion of debt maturities, increase pricing, and impose restrictions on share repurchases, dividends, capital improvements, and hotel property acquisitions[231][371] - Key transactions in 2021 included: issuing an additional $250.0 million in convertible notes; selling Sir Francis Drake ($157.6 million), The Roger New York ($19.0 million), and Villa Florence San Francisco ($87.5 million); raising $222.6 million and $242.1 million from Series G and Series H Preferred Shares, respectively; acquiring Jekyll Island Club Resort ($94.0 million), Margaritaville Hollywood Beach Resort ($270.0 million), Avalon B&B/Duval Gardens ($20.0 million), and Estancia La Jolla Hotel & Spa ($108.0 million); redeeming Series C and Series D Preferred Shares; and repaying $431.9 million of debt[232][372] Key Indicators of Financial Condition and Operating Performance The company uses RevPAR, Total RevPAR, ADR, Occupancy, FFO, EBITDA, and EBITDAre to measure hotel performance, showing significant improvement in 2021 - Key performance indicators include RevPAR, Total RevPAR, ADR, Occupancy, FFO, EBITDA, and EBITDAre, which are evaluated against budgets, prior periods, and competitors[234] Same-Property Hotel Operating Statistics (Years Ended December 31) | Metric | 2021 | 2020 | Change (YoY) | | :------------------- | :----- | :----- | :----------- | | Same-Property Occupancy | 40.4 % | 26.5 % | +13.9 pp | | Same-Property ADR | $257.86 | $233.25 | +$24.61 | | Same-Property RevPAR | $104.12 | $61.72 | +$42.40 | | Same-Property Total RevPAR | $157.69 | $95.15 | +$62.54 | Results of Operations Total revenues increased by $290.2 million in 2021, driven by leisure travel, leading to improved operating results and reduced impairment losses - Total revenues increased by $290.2 million in 2021 compared to 2020, primarily due to increased demand from leisure travel and easing governmental restrictions[239] - Total hotel operating expenses increased by $117.2 million in 2021, mainly due to resuming operations and returning demand at comparable properties[240] - Real estate taxes, personal property taxes, property insurance, and ground rent decreased by $2.7 million in 2021, primarily due to successful property tax appeals, partially offset by increased ground rent on percentage leases and new acquisitions[241] - The company recognized an impairment loss of $14.9 million in 2021 (related to one hotel), a significant decrease from $74.6 million in 2020 (related to two hotels and a retail component)[243] - A net gain on sale of hotel properties of $64.7 million was recognized in 2021, primarily from the sale of Sir Francis Drake, compared to $117.4 million in 2020[244] - Interest expense decreased by $7.5 million in 2021, mainly due to decreased borrowings and debt paydowns, partially offset by increased interest on convertible senior notes and amortization of deferred financing fees[245] - Distributions to preferred shareholders increased in 2021 due to the issuance of Series G and Series H Preferred Shares, partially offset by the redemption of Series C and Series D Preferred Shares[247] Net Income (Loss) to FFO Reconciliation (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net income (loss) | $(186,372) | $(392,593) | $115,725 | | Real estate depreciation and amortization | 223,813 | 224,124 | 234,591 | | (Gain) loss on sale of hotel properties | (64,729) | (117,401) | (2,819) | | Impairment loss | 14,856 | 74,556 | — | | FFO | $(12,432) | $(211,314) | $347,497 | | Distribution to preferred shareholders | (42,105) | (32,556) | (32,556) | | Issuance costs of redeemed preferred shares | (8,055) | — | — | | FFO available to common share and unit holders | $(62,592) | $(243,870) | $314,941 | Net Income (Loss) to EBITDA and EBITDAre Reconciliation (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net income (loss) | $(186,372) | $(392,593) | $115,725 | | Interest expense | 96,633 | 104,098 | 108,474 | | Income tax expense (benefit) | 61 | (3,697) | 5,172 | | Depreciation and amortization | 224,251 | 224,560 | 234,880 | | EBITDA | $134,573 | $(67,632) | $464,251 | | (Gain) loss on sale of hotel properties | (64,729) | (117,401) | (2,819) | | Impairment loss | 14,856 | 74,556 | — | | EBITDAre | $84,700 | $(110,477) | $461,432 | Critical Accounting Policies The company's critical accounting policies involve significant estimates for hotel property investments and impairment assessments - Estimation and judgment are required to determine the fair values of acquired hotel properties, using market, cost, and income approaches based on significant Level 2 and Level 3 inputs[256] - Investments in hotel properties are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable[257] - Impairment analysis involves determining if estimated undiscounted future cash flows exceed carrying value, and if not, reducing the carrying amount to estimated fair market value, requiring assumptions on cash flows, useful life, holding period, capital expenditures, and fair values[257] Liquidity and Capital Resources The company's liquidity is sourced from operations, credit facilities, and offerings, with $730.1 million available as of December 31, 2021 - Primary liquidity sources are cash from operations, credit facility borrowings, equity/debt offerings, and property sales, with short-term cash requirements including property lease obligations, debt service, capital improvements, dividends, and working capital[260] - As of December 31, 2021, the company had $730.1 million in cash, cash equivalents, restricted cash, and available revolving credit, which is believed to be sufficient for short-term cash requirements[260] Total Debt at Face Value (as of December 31, 2021) | Debt Type | Amount (in thousands) | | :---------------------- | :-------------------- | | Revolving credit facilities | $— | | Term loans | $1,433,068 | | Convertible senior notes | $750,000 | | Senior unsecured notes | $50,000 | | Mortgage loans | $222,873 | | Total debt at face value | $2,455,941 | - Mortgage loans for Margaritaville Hollywood Beach Resort and Estancia La Jolla Hotel & Spa triggered cash trap provisions prior to acquisition, with cash from operations held by lenders as restricted cash, but the company expects to exceed thresholds to exit these provisions in 2022[270] - Future fixed minimum payments for hotel, ground, and finance leases total $1.8 billion as of December 31, 2021, with $20.4 million payable within the next 12 months[272] - Planned capital investments for 2022 are estimated at $100.0 million to $120.0 million, including renovations for Paradise Point Resort & Spa, Hotel Vitale, Hilton San Diego Gaslamp Quarter, Jekyll Island Club Resort, Solamar Hotel, and Estancia La Jolla Hotel & Spa[284][287] Net Cash Flow Activities (Years Ended December 31, in thousands) | Activity | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net cash provided by (used in) operating activities | $70,766 | $(201,776) | $395,202 | | Net cash provided by (used in) investing activities | $(81,569) | $250,117 | $299,968 | | Net cash provided by (used in) financing activities | $(33,250) | $31,084 | $(746,106) | Inflation The company relies on its hotels' ability to increase revenues to keep pace with inflation - The company relies on hotel performance to increase revenues to keep pace with inflation, with operators generally able to adjust room rates daily, subject to competitive pressures[288] Seasonality For a discussion on the seasonality of the company's hotel operations, refer to Part I, Item 1 of this Annual Report on Form 10-K - Discussion on the seasonality of hotel operations is provided in Part I, Item 1 of this Annual Report on Form 10-K[289] Derivative Instruments The company uses interest rate swaps to manage interest rate risk on its variable-rate debt, with $1.3 billion in agreements as of December 31, 2021 - The company uses interest rate swaps to hedge variable interest rate risk on unsecured term loans, designating them as cash flow hedges[290][291] Interest Rate Swaps (Aggregate Notional Value, in thousands) | Maturity | 2021 | 2020 | | :--------- | :------- | :------- | | January 2021 | $— | $490,000 | | October 2021 | $— | $110,000 | | January 2022 | $180,000 | $180,000 | | April 2022 | $100,000 | $100,000 | | January 2023 | $200,000 | $— | | November 2023 | $250,000 | $250,000 | | January 2024 | $300,000 | $300,000 | | February 2026 | $290,000 | $— | | Total | $1,320,000 | $1,430,000 | - As of December 31, 2021, derivative instruments had aggregate asset fair values of $0.6 million and liability fair values of $20.2 million, with approximately $13.2 million expected to be reclassified to interest expense within the next 12 months[449] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to interest rate market risk and mitigation strategies - The company is exposed to market risk from changes in interest rates and uses derivative instruments like interest rate swaps to manage or hedge this risk[292] - As of December 31, 2021, $274.6 million (11.2% of total indebtedness) was subject to variable interest rates, with a 0.1% change impacting annual interest expense by approximately $0.3 million[294] Debt Maturities and Average Interest Rates (as of December 31, 2021, in thousands) | Liabilities | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :---------------- | :----- | :----- | :----- | :----- | :----- | :--------- | :---------- | | Fixed rate debt | $1,887 | $49,588 | $2,084 | $4,602 | $752,318 | $50,894 | $861,373 | | Average interest rate | 5.07 % | 4.71 % | 5.07 % | 5.00 % | 1.76 % | 5.07 % | 2.16 % | | Variable rate debt | $60,237 | $588,831 | $945,500 | $— | $— | $— | $1,594,568 | | Average interest rate | 2.52 % | 3.37 % | 2.85 % | — % | — % | — % | 3.03 % | | Total | $62,124 | $638,419 | $947,584 | $4,602 | $752,318 | $50,894 | $2,455,941 | Item 8. Financial Statements and Supplementary Data This item directs readers to the Financial Statements and their index, which begin on page F-1 - Financial Statements and index begin on page F-1[295] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - There are no changes in and disagreements with accountants on accounting and financial disclosure[297] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - The company's disclosure controls and procedures were effective as of December 31, 2021, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[298] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[299] - The hotel operations of Jekyll Island Club Resort, Margaritaville Hollywood Beach Resort, and Estancia La Jolla Hotel & Spa, acquired in 2021, were excluded from the assessment of internal control over financial reporting effectiveness as of December 31, 2021, representing $7.8 million in total assets and $35.5 million in revenues[300] Item 9B. Other Information This item states that there is no other information to report - There is no other information to report[303] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[304] PART III Item 10. Trustees, Executive Officers and Corporate Governance Information on trustees, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information regarding Trustees, Executive Officers and Corporate Governance is incorporated by reference to the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders[307] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the 2022 Proxy Statement - Information regarding Executive Compensation is incorporated by reference to the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders[307] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - Information regarding Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters is incorporated by reference to the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders[308] Item 13. Certain Relationships and Related Transactions, and Trustee Independence Information on certain relationships, related transactions, and trustee independence is incorporated by reference from the 2022 Proxy Statement - Information regarding Certain Relationships and Related Transactions, and Trustee Independence is incorporated by reference to the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders[308] Item 14. Principal Accountant Fees and Services KPMG LLP is the independent registered public accounting firm, with fee information incorporated by reference from the 2022 Proxy Statement - KPMG LLP, McLean, VA, Auditor Firm ID: 185, is the independent registered public accounting firm[309] - Information regarding Principal Accountant Fees and Services is incorporated by reference to the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders[309] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, Schedule III, and a comprehensive list of exhibits filed with the report - The report includes Financial Statements on pages F-1 through F-35[311] - Schedule III—Real Estate and Accumulated Depreciation is included on pages F-36 through F-39[311] - A list of exhibits, including organizational documents, debt agreements, and equity compensation plans, is filed or furnished as part of this Annual Report on Form 10-K[312][313][314] Signatures This section contains the required signatures for the Annual Report on Form 10-K, certifying the report on behalf of Pebblebrook Hotel Trust - The report is signed by Jon E. Bortz (Chairman, President and Chief Executive Officer), Raymond D. Martz (Executive Vice President, Chief Financial Officer, Treasurer and Secretary), and several Trustees, dated February 22, 2022[321][322] Index to Consolidated Financial Statements This section provides an index to the consolidated financial statements and related schedules, indicating their respective page numbers - The index lists the Reports of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements, and Schedule III—Real Estate and Accumulated Depreciation[324] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements, highlighting hotel impairment assessment as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the three-year period ended December 31, 2021, stating they present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[327] - The assessment of hotel properties for impairment was identified as a critical audit matter, requiring significant auditor judgment to evaluate key assumptions like estimated holding period, expected terminal capitalization rate, and projected undiscounted cash flows, especially given the increased uncertainty from COVID-19[334][335] - The company changed its method of accounting for convertible debt as of January 1, 2021, due to the adoption of ASU 2020-06[329] Report of Independent Registered Public Accounting Firm (Internal Control) KPMG LLP provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021 - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013)[339] - The audit of internal control over financial reporting excluded an evaluation of the internal control over financial reporting of Jekyll Island Club Resort, Margaritaville Hollywood Beach Resort, and Estancia La Jolla Hotel & Spa, which were acquired during 2021[341] Consolidated Financial Statements This section presents the company's core consolidated financial statements, providing a comprehensive view of its financial position, performance, and liquidity Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position as of December 31, 2021, and 2020, showing an increase in total assets and liabilities Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | Change (YoY) | | :------------------------------------ | :------------------ | :------------------ | :----------- | | Investment in hotel properties, net | $6,079,333 | $5,882,022 | +$197,311 | | Cash and cash equivalents | $58,518 | $124,274 | $(65,756) | | Restricted cash | $33,729 | $12,026 | +$21,703 | | Total assets | $6,261,190 | $6,076,366 | +$184,824 | | Debt | $2,441,888 | $2,280,471 | +$161,417 | | Lease liabilities - operating leases | $319,426 | $255,106 | +$64,320 | | Total liabilities | $3,097,285 | $2,812,040 | +$285,245 | | Total shareholders' equity | $3,156,181 | $3,257,337 | $(101,156) | | Total equity | $3,163,905 | $3,264,326 | $(100,421) | Consolidated Statements of Operations and Comprehensive Income Total revenues significantly rebounded in 2021 to $733.0 million, improving the operating loss and net loss attributable to common shareholders Consolidated Statements of Operations Highlights (Years Ended December 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Total revenues | $733,044 | $442,888 | $1,612,213 | | Total hotel operating expenses | $496,580 | $379,426 | $974,168 | | Depreciation and amortization | $224,251 | $224,560 | $234,880 | | Impairment loss | $14,856 | $74,556 | $— | | (Gain) loss on sale of hotel properties | $(64,729) | $(117,401) | $(2,819) | | Operating income (loss) | $(89,791) | $(292,709) | $229,342 | | Interest expense | $(96,633) | $(104,098) | $(108,474) | | Net income (loss) attributable to common shareholders | $(235,018) | $(424,285) | $82,886 | | Net income (loss) per share, basic | $(1.80) | $(3.25) | $0.63 | | Net income (loss) per share, diluted | $(1.80) | $(3.25) | $0.63 | Comprehensive Income (Loss) Highlights (Years Ended December 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net income (loss) | $(186,372) | $(392,593) | $115,725 | | Change in fair value of derivative instruments | $15,289 | $(63,861) | $(25,785) | | Amounts reclassified from other comprehensive income | $25,210 | $28,505 | $(260) | | Comprehensive income (loss) attributable to the Company | $(144,622) | $(427,015) | $89,471 | Consolidated Statements of Equity Total equity decreased to $3.16 billion in 2021, impacted by preferred share redemptions, new issuances, and a convertible debt accounting adjustment Total Equity (Years Ended December 31, in thousands) | Year | Total Equity | | :--- | :----------- | | 2021 | $3,163,905 | | 2020 | $3,264,326 | | 2019 | $3,631,936 | - In 2021, the company redeemed $250.0 million of preferred shares (Series C and D) and issued $464.1 million (net of offering costs) of new preferred shares (Series G and H)[360] - A cumulative effect adjustment of $(113.1) million was recorded in 2021 due to the early adoption of ASU 2020-06 for convertible debt[360] - Share-based compensation contributed $12.9 million to equity in 2021, while distributions to common and preferred shareholders totaled $(5.1) million and $(42.1) million, respectively[360] Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $70.8 million in 2021, while investing and financing activities resulted in net cash uses Consolidated Statements of Cash Flows Highlights (Years Ended December 31, in thousands) | Activity | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net cash provided by (used in) operating activities | $70,766 | $(201,776) | $395,202 | | Net cash provided by (used in) investing activities | $(81,569) | $250,117 | $299,968 | | Net cash provided by (used in) financing activities | $(33,250) | $31,084 | $(746,106) | | Net change in cash and cash equivalents and restricted cash | $(44,053) | $79,425 | $(50,936) | | Cash and cash equivalents and restricted cash, end of year | $92,247 | $136,300 | $56,875 | - In 2021, investing activities included $255.9 million from property sales, $253.5 million for property acquisitions, and $83.8 million for hotel improvements[279] - Financing activities in 2021 included $480.0 million gross proceeds from preferred share issuance, $268.6 million from convertible notes and other debt, $392.2 million in other debt repayments, $250.0 million for preferred share redemption, and $44.7 million in preferred and common distributions[278] Notes to Consolidated Financial Statements This section provides detailed disclosures for the consolidated financial statements, covering organization, accounting policies, acquisitions, debt, equity, and commitments Note 1. Organization Pebblebrook Hotel Trust, a Maryland REIT, owned 53 hotels as of December 31, 2021, with operations significantly impacted by the COVID-19 pandemic - Pebblebrook Hotel Trust is an internally managed hotel investment company, formed as a Maryland REIT in October 2009, owning 53 hotels with 13,247 guest rooms as of December 31, 2021[366][367] - The company operates through Pebblebrook Hotel, L.P. (Operating Partnership), with hotels leased to a Taxable REIT Subsidiary (TRS) that engages third-party independent contractors to manage the hotels, essential for maintaining REIT qualification[368] - The COVID-19 pandemic significantly impacted 2021 operations, leading to cost controls, temporary suspensions, and debt agreement amendments to waive financial covenants, extend maturities, increase pricing, and impose restrictions on share repurchases, dividends, and capital improvements[369][371] - Significant transactions in 2021 included: issuing $250.0 million in convertible notes; selling Sir Francis Drake, The Roger New York, and Villa Florence San Francisco; raising $222.6 million and $242.1 million from Series G and Series H Preferred Shares; acquiring Jekyll Island Club Resort, Margaritaville Hollywood Beach Resort, Avalon Bed & Breakfast/Duval Gardens, and Estancia La Jolla Hotel & Spa; redeeming Series C and Series D Preferred Shares; and repaying $431.9 million of debt[372] Note 2. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, including fair value measurements, hotel property accounting, revenue recognition, and tax status - Fair value measurements are categorized into Level 1 (quoted prices in active markets for identical assets), Level 2 (quoted prices for similar assets or observable inputs), and Level 3 (unobservable inputs)[378][385] - Impairment reviews for hotel properties are triggered by events like current or projected operating losses or likelihood of sale, requiring analysis of estimated undiscounted future cash flows and fair market value using various assumptions[384] - Revenue from hotel operations (rooms, food & beverage, ancillary services) is recognized over the length of stay or at the point of service, while lease revenue is recognized on a straight-line basis[392][395] - To qualify as a REIT, the company must distribute at least 90% of its taxable income, while its TRS lessees are subject to federal and state income taxes[397] - The company early adopted ASU 2020-06 effective January 1, 2021, simplifying convertible debt accounting by recording it as a single liability and eliminating non-cash interest expense from debt discount amortization[402][404] - The company elected to apply hedge accounting expedients related to probability and effectiveness assessments for future LIBOR-indexed cash flows due to reference rate reform (ASU 2020-04 and 2021-01)[405][406] Note 3. Acquisition and Disposition of Hotel Properties In 2021, the company acquired four leasehold interests totaling $492.0 million and disposed of three properties for $264.1 million - In 2021, the company acquired the leasehold interests in Jekyll Island Club Resort ($94.0 million), Margaritaville Hollywood Beach Resort ($270.0 million, including $161.5 million mortgage assumption), Avalon Bed & Breakfast and Duval Gardens ($20.0 million), and Estancia La Jolla Hotel & Spa ($108.0 million, including $61.7 million mortgage assumption)[407][408][409][410] Disposition Transactions (in thousands) | Hotel Property Name | Location | Sale Date | Sale Price | | :------------------------------------ | :-------------------- | :---------- | :--------- | | Sir Francis Drake | San Francisco, CA | April 1, 2021 | $157,625 | | The Roger New York | New York, NY | June 10, 2021 | $19,000 | | Villa Florence San Francisco on Union Square | San Francisco, CA | September 9, 2021 | $87,500 | | 2021 Total | | | $264,125 | | Sofitel Washington DC Lafayette Square and InterContinental Buckhead Atlanta | Washington, DC / Buckhead, GA | March 6, 2020 | $331,000 | | Union Station Hotel Nashville, Autograph Collection | Nashville, TN | July 29, 2020 | $56,000 | | 2020 Total | | | $387,000 | - Operating income (loss) from sold hotel properties was $(6.5) million in 2021, compared to $(15.5) million in 2020 and $33.8 million in 2019[411] Note 4. Investment in Hotel Properties Net investment in hotel properties increased to $6.08 billion in 2021, with an impairment loss of $14.9 million recognized Investment in Hotel Properties (in thousands) | Asset Category | December 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------------ | :------------------ | | Land | $926,330 | $973,848 | | Buildings and improvements | $5,197,816 | $4,849,644 | | Furniture, fixtures and equipment | $535,607 | $515,975 | | Finance lease asset | $91,181 | $114,835 | | Construction in progress | $15,869 | $5,443 | | Right-of-use asset, operating leases | $378,939 | $320,564 | | Investment in hotel properties, net | $6,079,333 | $5,882,022 | - An impairment loss of $14.9 million was recognized in 2021 related to one hotel, a decrease from $74.6 million in 2020 related to two hotels and a retail component, with losses determined using Level 2 inputs for fair value measurements[415] - Operating lease liabilities increased to $319.4 million as of December 31, 2021, from $255.1 million in 2020, with corresponding right-of-use assets recognized[417] Note 5. Debt Total debt at face value was $2.46 billion as of December 31, 2021, following significant amendments to credit agreements and senior notes - In February and December 2021, the company amended its credit agreements and senior notes, waiving financial covenants until Q2 2022 (with less-restrictive covenants through Q1 2023), extending over $1.0 billion of debt maturities, and increasing interest rate spreads[418][419] Debt Outstanding (in thousands) | Debt Type | December 31, 2021 | December 31, 2020 | | :-------------------------- | :------------------ | :------------------ | | Revolving credit facilities | $— | $40,000 | | Unsecured term loans | $1,433,068 | $1,775,000 | | Convertible senior notes | $750,000 | $500,000 | | Senior unsecured notes | $50,000 | $100,000 | | Mortgage loans | $222,873 | $— | | Total debt at face value | $2,455,941 | $2,415,000 | - The company has a $650.0 million senior unsecured revolving credit facility (with $637.9 million available) and a $20.0 million PHL unsecured revolving credit facility, both maturing in March 2023 with extension options[423][424] - In 2021, the company issued an additional $250.0 million in 1.75% Convertible Senior Notes due December 2026, bringing the total principal amount to $750.0 million, with capped call transactions to reduce potential dilution[429][430][436] - Mortgage loans assumed in 2021 for Margaritaville Hollywood Beach Resort ($161.5 million) and Estancia La Jolla Hotel & Spa ($61.7 million) triggered cash trap provisions, holding hotel cash flow in restricted accounts[438][439][442] Interest Expense (Years Ended December 31, in thousands) | Expense Category | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Unsecured revolving credit facilities | $2,092 | $10,210 | $4,530 | | Unsecured term loan facilities | $61,529 | $72,642 | $79,813 | | Convertible senior notes | $12,662 | $365 | $— | | Senior unsecured notes | $3,562 | $4,792 | $4,792 | | Mortgage debt | $1,375 | $— | $2,293 | | Amortization of deferred financing fees, (premiums) and discounts | $9,741 | $7,296 | $7,115 | | Other | $5,672 | $8,793 | $9,931 | | Total interest expense | $96,633 | $104,098 | $108,474 | Future Minimum Principal Payments for Debt (as of December 31, 2021, in thousands) | Year | Amount | | :--- | :------- | | 2022 | $62,124 | | 2023 | $638,419 | | 2024 | $947,584 | | 2025 | $4,602 | | 2026 | $752,318 | | Thereafter | $50,894 | | Total debt principle payments | $2,455,941 | Note 6. Revenue Total revenues significantly increased to $733.0 million in 2021, with Southern Florida/Georgia and San Diego, CA showing the highest revenues Revenues by Geographic Location (Years Ended December 31, in thousands) | Location | 2021 | 2020 | 2019 | | :-------------------- | :------- | :------- | :------- | | Southern Florida/Georgia | $166,310 | $76,971 | $115,600 | | San Diego, CA | $165,977 | $96,071 | $243,598 | | Boston, MA | $124,440 | $63,356 | $273,669 | | Los Angeles, CA | $94,275 | $51,664 | $200,398 | | Portland, OR | $53,978 | $27,174 | $105,571 | | San Francisco, CA | $43,601 | $66,896 | $319,195 | | Other | $28,608 | $27,453 | $128,627 | | Chicago, IL | $27,279 | $15,604 | $82,690 | | Washington, D.C. | $20,630 | $12,739 | $111,552 | | Seattle, WA | $7,946 | $4,960 | $31,313 | | Total revenues | $733,044 | $442,888 | $1,612,213 | - Payments from customers are primarily made when services are provided, and almost all contract liability balances at the beginning of a period are expected to be recognized as revenue within the following 12 months[450] Note 7. Equity As of December 31, 2021, the company had 130.8 million common shares and 29.6 million preferred shares outstanding, with active repurchase and ATM programs restricted by debt covenants - As of December 31, 2021, the company had 130,813,750 common shares outstanding and 29,600,000 preferred shares outstanding (Series E, F, G, H)[348][461] - A $150.0 million share repurchase program had $56.6 million remaining as of December 31, 2021, but repurchases are prohibited until compliance with financial covenants is certified through June 30, 2022, with a $100.0 million program to commence thereafter[453][454] - The company has a $200.0 million 'at the market' (ATM) offering program, with no shares issued or sold in 2021, leaving the full amount available[455] Common Dividends Declared (2021) | Quarter Ended | Dividend per Share/Unit | | :-------------- | :---------------------- | | March 31, 2021 | $0.01 | | June 30, 2021 | $0.01 | | September 30, 2021 | $0.01 | | December 31, 2021 | $0.01 | - In 2021, the company issued 9,200,000 Series G Preferred Shares ($222.6 million net proceeds) and 10,000,000 Series H Preferred Shares ($242.1 million net proceeds), and redeemed all outstanding Series C and Series D Preferred Shares[458][459] - Preferred Shares rank senior to common shares for distributions and liquidation, with aggregate liquidation preference of approximately $740.0 million and annual dividends of $45.4 million as of December 31, 2021[166][274][461] - As of December 31, 2021, the Operating Partnership had 133,605 OP units and 727,208 LTIP units outstanding, with 127,111 LTIP units vested[466][468] Note 8. Share-Based Compensation Plan The 2009 Equity Incentive Plan grants various equity awards, with 1,809,516 common shares available for issuance as of December 31, 2021 - The 2009 Equity Incentive Plan provides for grants of common share options, share awards, share appreciation rights, performance units, and other equity-based awards, with 1,809,516 common shares available for issuance as of December 31, 2021[469] Service Condition Restricted Share Activity (Shares) | Activity | 2021 | 2020 | 2019 | | :------------------------ | :------- | :------- | :------- | | Unvested at January 1 | 242,727 | 149,179 | 127,732 | | Granted | 415,531 | 390,242 | 88,430 | | Vested | (81,591) | (72,824) | (66,276) | | Forfeited | (9,236) | (6,787) | (707) | | Cancelled | — | (217,083) | — | | Unvested at December 31 | 567,431 | 242,727 | 149,179 | - Share-based compensation expense for service condition awards was $4.1 million in 2021, $8.1 million in 2020, and $2.4 million in 2019, with $8.8 million of unrecognized expense remaining over a weighted-average of 3.2 years[471] - Performance-based equity awards are granted with vesting contingent on performance criteria, with target awards approved in 2019 (126,891 units, vesting 2022), 2020 (161,777 units, vesting 2023), and 2021 (189,348 units, vesting 2024)[476][477][478] - Share-based compensation expense for performance-based equity awards was $4.9 million in 2021, $4.1 million in 2020, and $4.8 million in 2019, with $5.8 million of unrecognized expense remaining over a weighted-average of 1.7 years[481] - As of December 31, 2021, 727,208 LTIP units were outstanding (127,111 vested), with $11.2 million of unrecognized compensation expense, and expense related to LTIP units was $2.4 million in 2021, $10.6 million in 2020, and $1.1 million in 2019[488][489] Note 9. Income Taxes The company's REIT tax status requires distributing at least 90% of taxable income, while TRS lessees are subject to income taxes - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually, generally avoiding federal corporate income tax on distributed income, while TRS lessees are subject to federal and state income taxes[490] Tax Characterization of Distributions (2021) | Share Type | Ordinary Non-Qualified Income | Qualified Dividend | Capital Gain | Return of Capital | Total | | :----------- | :---------------------------- | :----------------- | :----------- | :---------------- | :---- | | Common Shares | $— (0%) | $— (0%) | $0.0128 (32.00%) | $0.0272 (68.00%) | $0.0400 | | Series C Preferred | $— (0%) | $— (0%) | $0.1725 (12.45%) | $1.2133 (87.55%) | $1.3858 | | Series D Preferred | $— (0%) | $— (0%) | $0.1692 (12.49%) | $1.1855 (87.51%) | $1.3547 | | Series E Preferred | $— (0%) | $— (0%) | $0.5118 (32.11%) | $1.0819 (67.89%) | $1.5937 | | Series F Preferred | $— (0%) | $— (0%) | $0.5058 (32.11%) | $1.0692 (67.89%) | $1.5750 | | Series G Preferred | $— (0%) | $— (0%) | $0.5787 (86.00%) | $0.0942 (14.00%) | $0.6729 | | Series H Preferred | $— (0%) | $— (0%) | $0.2655 (86.01%) | $0.0432 (13.99%) | $0.3087 | Income Tax Expense (Benefit) (Years Ended December 31, in thousands) | Tax Type | 2021 | 2020 | 2019 | | :-------------------- | :----- | :------- | :------- | | Federal Current | $— | $(127) | $3,061 | | Federal Deferred | $— | $(6,266) | $(106) | | State and local Current | $61 | $668 | $3,938 | | State and local Deferred | $— | $2,028 | $(1,721) | | Total income tax expense (benefit) | $61 | $(3,697) | $5,172 | - A valuation allowance of $44.0 million was provided against federal and state deferred tax assets at December 31, 2021, due to the uncertainty of realizing the loss in future years[497] Note 10. Earnings Per Share Net loss per common share improved to $(1.80) in 2021, with certain equity awards and convertible shares excluded from diluted EPS due to anti-dilutive effects Basic and Diluted Earnings Per Common Share (Years Ended December 31) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :----- | :----- | :----- | | Net income (loss) per share available to common shareholders — basic | $(1.80) | $(3.25) | $0.63 | | Net income (loss) per share available to common shareholders — diluted | $(1.80) | $(3.25) | $0.63 | - For 2021 and 2020, 1,033,747 and 600,436 unvested service condition restricted shares and performance-based equity awards, respectively, were excluded from diluted weighted-average common shares due to their anti-dilutive effect[499] - For 2021 and 2020, 29,441,175 and 19,627,450 common shares underlying the Convertible Notes, respectively, were excluded from diluted shares as their effect would have been anti-dilutive[499] Note 11. Commitments and Contingencies The company has significant commitments including hotel management agreements, reserve funds, restricted cash, and $1.71 billion in future lease obligations - Hotel management agreements generally provide for base management fees (1-4% of revenues) and potential incentive management fees, with most agreements terminable at will or upon sale, often with termination fees[500][501] Combined Base and Incentive Management Fees (Years Ended December 31, in thousands) | Year | Amount | | :--- | :------- | | 2021 | $18,400 | | 2020 | $9,400 | | 2019 | $44,800 | - Reserve funds for non-routine repairs and capital replacements are typically 4.0% of hotel revenues, with restricted cash totaling $33.7 million at December 31, 2021 (up from $12.0 million in 2020)[502][503] Ground Rent Expense (Years Ended December 31, in thousands) | Expense Type | 2021 | 2020 | 2019 | | :------------- | :----- | :----- | :----- | | Fixed ground rent | $16,825 | $17,220 | $17,042 | | Variable ground rent | $9,616 | $4,924 | $14,689 | | Total ground rent | $26,441 | $22,144 | $31,731 | Future Maturities of Lease Liabilities (Operating Leases, as of December 31, 2021, in thousands) | Year | Amount | | :--- | :------- | | 2022 | $20,556 | | 2023 | $20,252 | | 2024 | $20,356 | | 2025 | $20,485 | | 2026 | $20,781 | | Thereafter | $1,605,674 | | Total lease payments | $1,708,104 | | Less: Imputed interest | $(1,388,678) | | Present value of lease liabilities | $319,426 | Note 12. Supplemental Information to Statements of Cash Flows This note provides supplemental cash flow information, including $84.5 million in interest paid and significant non-cash investing and financing activities in 2021 Supplemental Cash Flow Information (Years Ended December 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Interest paid, net of capitalized interest | $84,453 | $90,655 | $91,918 | | Income taxes paid (refunded) | $(258) | $3,469 | $4,568 | | Convertible debt discount adjustment | $113,099 | $— | $— | | Mortgage loans assumed in connection with acquisition of hotel properties | $223,177 | $— | $— | | Right of use assets obtained in exchange for lease liabilities | $65,599 | $— | $257,167 | Note 13. Subsequent Events On February 18, 2022, the Board of Trustees granted 303,858 service condition restricted common shares and target performance-based equity awards to executive officers and employees - On February 18, 2022, the Board of Trustees granted 303,858 service condition restricted common shares and target performance-based equity awards to executive officers and employees, which will vest over three years, with performance-based shares determined in early 2025 based on 2022-2024 performance criteria[511] Schedule III--Real Estate and Accumulated Depreciation This schedule details the company's real estate assets and accumulated depreciation as of December 31, 2021, including initial costs, capitalized costs, and net book value - The schedule provides detailed information on each hotel property, including initial costs, capitalized subsequent costs, gross amounts, accumulated depreciation, and net book value as of December 31, 2021[514][516][518][519] Reconciliation of Real Estate (in thousands) | Metric | Amount | | :------------------------ | :------- | | Balance at December 31, 2018 | $7,077,623 | | Acquisitions | $23,472 | | Capital expenditures | $159,574 | | Disposal of Assets | $(503,383) | | Other | $(24,649) | | Balance at December 31, 2019 | $6,732,637 | | Capital expenditures | $115,850 | | Disposal of Assets | $(314,186) | | Other | $(74,556) | | Balance at December 31, 2020 | $6,459,745 | | Acquisitions | $488,447 | | Capital expenditures | $86,936 | | Disposal of Assets | $(253,469) | | Other | $(14,856) | | Balance at December 31, 2021 | $6,766,803 | Reconciliation of Accumulated Depreciation (in thousands) | Metric | Amount | | :------------------------ | :------- | | Balance at December 31, 2018 | $543,430 | | Depreciation | $226,953 | | Disposal of Assets | $(35,061) | | **Balance at De