1、2011 Annual Report2011 Annual ReportHotels:Affinia?50*New?York,?NY210?RoomsThe?Grand Hotel?MinneapolisMinneapolis,?MN140?RoomsSir?Francis?DrakeSan?Francisco,?CA416?RoomsAffinia?Dumont*New?York,?NY242?RoomsHotel?MilanoSan?Francisco,?CA108?RoomsSkamania?LodgeColumbia?River?Gorge,?WA254?RoomsAffinia?Ga
2、rdens*New?York,?NY129?RoomsHotel?Monaco?Washington DCWashington,?DC183?RoomsSofitel?PhiladelphiaPhiladelphia,?PA306?RoomsAffinia?Manhattan*New?York,?NY618?RoomsHotel?Monaco?SeattleSeattle,?WA189?RoomsThe?Benjamin*New?York,?NY209?RoomsAffinia?Shelburne*New?York,?NY325?RoomsInterContinental BuckheadBu
3、ckhead,?GA422?RoomsViceroy?MiamiMiami,?FL148?RoomsArgonaut?HotelSan?Francisco,?CA252?RoomsMondrian?Los?AngelesWest?Hollywood,?CA237?RoomsW?BostonBoston,?MA235?RoomsDoubleTree by?Hilton?Bethesda?Washington?DCBethesda,?MD270?RoomsSheraton?DelfinaSanta?Monica,?CA310?RoomsWestin?Gaslamp QuarterSan?Diego
4、,?CA450?Rooms*?This?hotel?is?a?part?of?the?Manhattan?Collection?joint?vProperty?LocationsColumbia?River?Gorge,?WASan?Francisco,?CABuckhead?Atlanta,?GABethesda,?MDWashington,?DCPhiladelphia,?PAMinneapolis,?MNBoston,?MANew?York,?NYMiami,?FLSanta?Monica,?CAWest?Hollywood,?CASan?Diego,?CASeattle,?WAentu
5、re,in which Pebblebrook owns a 49%equity interest.1?TO?OUR?FELLOW?SHAREHOLDERS?2011?was?a?fantastic?second?year?of?growth?and?development?for?Pebblebrook?Hotel?Trust.?Our?2011?acquisitions?totaled?$950?million,?bringing?the?full?amount?of?investments?since?our?December?2009?IPO?to?$1.7?billion?and?c
6、reating?a?collection?of?20?upper?upscale?hotels?with?5,545?guest?rooms?in?major?urban?markets?throughout?the?United?States.?We?added?six?high?quality?hotels?in?six?gateway?cities,?including?San?Francisco,?San?Diego,?West?Hollywood/LA,?Seattle,?Miami?and?Boston.?And?we?made?a?significant?investment?i
7、n?New?York?City?through?a?49%?joint?venture?in?the?$908?million?Manhattan?Collection,?which?includes?six?hotels?superbly?located?in?midtown?Manhattan.?Our?investments?to?date?have?been?made?at?very?attractive?prices?from?a?historical?basis,?at?the?lowest?risk?time?that?being?the?beginning?of?an?exte
8、nded?recovery?cycle,?with?strong?underlying?industry?operating?fundamentals?expected?for?several?years?to?come.?We?were?fortunate?that?we?were?able?to?accomplish?this?over?an?exceptionally?short?period,?far?exceeding?the?expectations?we?set?forth?when?we?founded?Pebblebrook?just?two?short?years?ago.
9、?This?was?due?primarily?to?the?distress?created?from?the?downturn?of?2008?2009?that?so?powerfully?impacted?the?lodging?industry.?Today,?Pebblebrooks?hotel?portfolio?is?comprised?of?upper?upscale?hotels?located?in?urban?markets?in?major?gateway?cities.?This?allows?us?to?benefit?from?the?continued?hig
10、h?barrier?to?entry?nature?of?these?markets?that?has?historically?led?them?to?outperform,?particularly?during?both?recoveries?and?growth?periods.?Six?of?our?acquisitions?to?date?were?non?marketed?opportunities?sourced?by?our?team,?taking?advantage?of?close?relationships?with?owners,?hotel?management?
11、companies?and?brands.?Three?hotels?were?purchased?through?bankruptcy,?receivership?or?a?bank?controlled?process.?We?were?able?to?purchase?these?hotels?at?20?to?50?percent?discounts?to?their?replacement?values,?and?all?offer?substantial?upside?opportunities?through?renovation,?repositioning,?new?oper
12、ating?strategies,?best?practice?implementation?and?relentless?asset?management.?We?have?reason?to?be?excited?about?the?properties?weve?acquired;?not?just?because?of?their?terrific?quality,?excellent?locations?and?attractive?pricing,?but?because?they?have?so?much?operational?upside.?This?should?allow
13、?us?to?deliver?outsized?growth?for?years?to?come.?Many?of?the?hotels?that?weve?acquired?during?the?past?two?years?suffered?from?considerable?deferred?capital?maintenance?or?lack?of?owner?attention?due?to?capital?constraints,?bankruptcy,?receivership?or?foreclosure.?Because?of?these?factors,?the?hote
14、ls?significantly?underperformed?their?competitive?markets?during?the?last?several?years.?Through?comprehensive?capital?investment?programs,?combined?with?Pebblebrooks?extensive?and?active?asset?management?program,?weve?begun?to?recapture?some?of?that?lost?business.?We?expect?the?benefits?of?this?sub
15、stantial?opportunity?to?play?out?over?the?next?several?years.?During?2011,?we?invested?approximately?$58?million?in?capital?improvements?throughout?our?portfolio.?This?included?$16.6?million?at?the?Westin?Gaslamp?Quarter?in?San?Diego,?$8.4?million?at?the?Sir?Francis?Drake?in?San?Francisco,?$6.0?mill
16、ion?at?the?InterContinental?Buckhead?and?$5.2?million?at?the?Grand?Minneapolis?all?properties?that?have?undergone?significant?renovations.?The?comprehensive?three?year?redevelopment?of?the?450?room?Westin?Gaslamp?will?be?completed?in?May?2012?and?result?in?a?completely?new?and?improved?guest?experie
17、nce.?Working?closely?with?Starwood,?this?transformational?renovation?has?encompassed?all?of?the?hotels?guestrooms,?32,000?SF?of?meeting?space,?which?has?been?updated?and?refurbished,?and?the?complete?reconfiguring?and?redesigning?of?the?entire?ground?floor,?including?the?exterior,?porte?cochere,?lob
18、by,?lounge?and?restaurant.?Since?the?Westin?Gaslamp?was?last?refurbished?in?2004,?the?changes?are?quite?spectacular?and?already?well?received?by?our?guests.?Were?confident?this?renovation?will?substantially?improve?the?hotels?competitive?positioning,?and?cash?flow?over?the?next?several?years.?Anothe
19、r?capital?reinvestment?project?of?which?we?are?quite?proud?is?the?one?weve?completed?at?the?historic?416?room?Sir?Francis?Drake,?located?just?one?block?from?San?Franciscos?famed?Union?Square.?The?renovation?of?the?hotel?concluded?in?the?fall?of?2011?and?included?all?guestrooms,?the?lobby?and?the?cel
20、ebrated?Starlight?Room.?We?have?successfully?repositioned?this?gracious?and?world?renowned?property?to?a?four?star?quality?hotel.?Appreciative?business?travelers?are?returning?to?the?Drake,?paying?increased?room?rates,?and?cash?flow?at?the?property?is?increasing?at?a?rapid?pace.?This?is?a?truly?uniq
21、ue?hotel?and?we?expect?it?will?continue?to?benefit?from?the?strength?of?the?overall?San?Francisco?hotel?market,?as?well?as?from?our?property?repositioning?program.?In?addition?to?our?successful?capital?reinvestment?programs,?we?have?made?significant?strides?identifying?and?implementing?operating?imp
22、rovements?across?all?20?hotels?in?the?portfolio?through?an?extensive?asset?management?program.?To?date,?weve?identified?over?$9?million?of?annual?operating?improvements?throughout?the?portfolio.?While?we?made?some?progress?in?2011,?we?expect?the?vast?majority?of?these?operational?improvements?to?be?
23、implemented?during?2012.?Our?asset?management?team,?working?collaboratively?with?our?hotel?managers,?focus?on?a?wide?array?of?operating?enhancements?such?as?efficiency?benchmarking?and?optimized?staffing?levels,?housekeeping?operating?procedures?and?green?programs,?food?&?beverage?purchasing?and?ope
24、rating?standards,?proper?and?consistent?menu?pricing,?energy?conservation?and?efficiency?programs,?insurance?reviews,?and?remixing?business?through?better?yield?management,?just?to?name?a?few?initiatives.?As?we?like?to?say?at?Pebblebrook,?asset?management?is?all?about?“pennies,?nickels?and?dimes.”?W
25、hile?we?have?begun?to?see?the?success?of?our?comprehensive?approach,?this?is?a?multi?year?2?program and the majority of the overall operating enhancements have yet to be implemented.Were excited about these upside opportunities?because?of?the?outsized?growth?they?will?provide,?and?because?we?didnt?u
26、nderwrite?or?pay?for?them?during?our?acquisition?process.?Due?to?our?energetic?acquisition?pace?during?2011,?we?were?also?very?active?with?our?capital?markets?activities,?raising?$493.4?million?of?common?and?preferred?equity?and?generating?$160?million?of?capital?through?several?new?debt?financing?e
27、xecutions.?In?January,?we?arranged?two?secured?loans?generating?$67?million?of?proceeds?at?a?combined?five?year?fixed?rate?of?5.35%.?In?March,?we?completed?our?first?preferred?equity?offering,?raising?$125?million?of?gross?proceeds?through?our?7.875%?Series?A?Preferred?Equity?offering.?In?April,?we?
28、successfully?raised?$236?million?in?gross?proceeds?through?a?third?follow?on?common?equity?offering.?In?June,?we?amended?and?restated?our?senior?credit?agreement?to?an?unsecured?facility,?increasing?the?availability?to?$200?million?while?also?substantially?improving?the?overall?terms?and?pricing?of?
29、the?facility.?In?July,?we?raised?an?additional?$15?million?of?preferred?equity?through?a?reopening?of?our?Series?A?Preferred?shares.?In?September,?we?completed?the?8.0%?Series?B?Preferred?Equity?offering,?raising?$85?million?of?gross?proceeds.?In?early?2012,?we?successfully?refinanced?our?debt?matur
30、ing?at?the?Hotel?Monaco?in?Washington?DC?and?the?Argonaut?Hotel?in?San?Francisco?at?a?combined?five?year?fixed?interest?rate?of?4.30%,?generating?$93?million?of?proceeds.?And?finally,?in?March?2012,?we?raised?$32.4?million?in?gross?proceeds?through?our?at?the?market?sale?of?common?shares.?Pebblebroo
31、ks?balance?sheet?remains?healthy.?We?continue?to?have?a?conservative?amount?of?debt,?consistent?with?our?low?leverage?strategy.?The?overall?interest?rate?on?our?debt?is?currently?3.9%,?which?is?very?favorable?compared?with?the?historical?interest?rates?on?hotel?assets.?We?continue?to?have?capacity?o
32、n?our?balance?sheet?for?additional?acquisitions?as?opportunities?present?themselves.?In?addition,?during?2011,?we?distributed?$0.48?per?share?in?common?dividends.?We?expect?that?our?dividend?will?increase?as?operating?cash?flow?grows?and?we?complete?additional?acquisitions.?During?2011,?the?hotel?in
33、dustry?experienced?its?second?strongest?year?in?terms?of?growth?in?room?revenue?per?available?room?(“RevPAR”)?since?Smith?Travel?Research?began?tracking?the?industry?in?1988.?This?was?largely?due?to?the?strength?of?business?travel,?particularly?transient?travelers,?as?well?as?leisure?travelers.?The?
34、recovery?in?group?travel?was?modest?in?2011,?but?appears?poised?to?gain?momentum?and?strength.?As?we?look?into?2012,?we?remain?extremely?optimistic?about?the?fundamental?strength?of?the?hotel?industry,?with?supply?in?check?and?demand?continuing?to?grow?as?the?economy?recovers.?New?hotel?supply?remai
35、ns?at?historically?low?levels?and?is?expected?to?remain?low?for?at?least?the?next?few?years?given?the?lack?of?available?financing?for?new?hotel?construction.?Hotel?demand?growth?remains?strong?despite?the?concerns?about?the?global?economic?recovery.?The?broadening?recovery?in?the?U.S.?continues?to?t
36、ake?shape?and?slowly?improve?from?the?worst?recession?our?country?has?experienced?since?the?Great?Depression.?Profits?in?Corporate?America?are?at?record?levels?and?continue?to?grow,?and?the?well?heeled?leisure?customer?continues?to?travel?and?vacation.?Because?of?this,?we?believe?the?vitality?of?bot
37、h?the?transient?business?customer?and?leisure?traveler?that?we?experienced?throughout?2011?will?continue?in?2012,?and?be?further?supported?by?the?slow?but?improving?recovery?in?group?travel.?Moreover,?since?many?gateway?urban?markets?are?now?operating?at?occupancy?rates?at?or?above?prior?peak?levels
38、,?including?a?number?of?our?markets,?and?with?new?hotel?supply?growth?remaining?very?low,?we?expect?the?ability?to?increase?room?rates?during?2012?and?beyond?to?continue?to?improve.?Consistent?with?prior?cyclical?recoveries,?we?expect?a?majority?of?the?RevPAR?increases?in?2012?and?beyond?will?come?f
39、rom?increases?in?average?daily?rates,?which?provides?better?flow?through?to?the?bottom?line?than?increases?in?occupancy.?For?our?portfolio,?we?remain?very?encouraged?for?2012?and?beyond.?We?expect?to?benefit?from?the?continued?strength?in?hotel?demand,?which?will?be?enhanced?by?strong?convention?cal
40、endars?in?many?of?our?cities,?including?Boston,?Philadelphia,?Atlanta,?San?Francisco?and?San?Diego.?Moreover,?we?expect?to?benefit?tremendously?from?the?property?renovations?at?Westin?Gaslamp?Quarter,?Sir?Francis?Drake,?InterContinental?Buckhead,?The?Grand?Minneapolis,?Argonaut?Hotel,?Monaco?Seattle
41、?and?Sheraton?Delfina.?Combined?with?the?implementation?of?our?asset?management?best?practices?program?and?operating?strategies,?we?anticipate?that?Pebblebrooks?hotel?portfolio?will?continue?to?outperform?the?industry,?from?both?a?revenue?growth?and?profit?growth?basis,?in?2012?and?for?the?next?seve
42、ral?years.?We?expect?that?the?property?transaction?environment?will?become?more?active?during?the?second?half?of?2012?and?we?expect?to?be?very?active?in?pursuing?acquisition?opportunities,?just?as?we?were?during?the?last?two?years.?We?believe?public?hotel?REITs,?like?Pebblebrook,?will?continue?to?ha
43、ve?distinct?advantages?in?the?acquisition?market?due?to?our?impeccable?track?record?of?closing?and?our?continued?ability?to?buy?with?“all?cash”?versus?private?buyers?that?require?debt.?However,?we?will?continue?to?exhibit?discipline?in?our?underwriting?assumptions?and?acquisition?decisions?and?will?
44、only?move?forward?on?a?purchase?if?we?believe?it?creates?shareholder?value.?Since?we?have?very?significant?operating?upside?within?the?current?portfolio?for?the?next?several?years,?we?dont?require?new?acquisitions?to?produce?cash?flow?improvements?that?exceed?what?the?industry?and?our?peers?generate
45、.?3?Overall,?we?continue?to?be?very?heartened?by?the?opportunities?in?front?of?us,?especially?the?upside?opportunities?within?our?existing?portfolio.?Our?team?remains?highly?energized,?focused?and?passionate?about?achieving?our?mission?to?be?the?most?respected?hotel?REIT?in?the?industry?by?outperfor
46、ming?on?an?ongoing?operating?basis,?while?at?the?same?time?taking?less?risk?and?delivering?industry?leading?returns?to?our?fellow?shareholders.?We?greatly?appreciate?the?support?shown?by?you,?our?fellow?shareholders,?and?we?will?continue?to?be?aggressive,?yet?disciplined,?in?pursuing?new?growth?and?
47、investment?opportunities?in?2012?and?beyond.?Sincerely,?Jon?E.?Bortz?Chairman,?President?and?Chief?Executive?Officer?THIS PAGE INTENTIONALLY LEFT BLANKUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE A
48、CTOF 1934For the fiscal year ended December 31,2011ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934For the transition period fromtoCommission File Number 001-34571PEBBLEBROOK HOTEL TRUSTMaryland27-1055421(State of Incorporationor Organization)(IRS EmployerIden
49、tification No.)2 Bethesda Metro Center,Suite 1530Bethesda,Maryland20814(Address of Principal Executive Offices)(Zip Code)240-507-1300(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of Each ClassName of Each Exchange on Which Registere
50、dCommon Shares of Beneficial Interest,par value$0.01 per shareNew York Stock Exchange7.875%Series A Cumulative Redeemable Preferred Shares of BeneficialInterest,par value$0.01 per shareNew York Stock Exchange8.00%Series B Cumulative Redeemable Preferred Shares of BeneficialInterest,par value$0.01 pe
51、r shareNew York Stock ExchangeSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes NoIndicate by check mark if the registrant is not required to file reports pursuant to
52、 Section 13 or Section 15(d)of the Act.Yes NoIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such
53、reports),and(2)has been subject to such filingrequirements for the past 90 days.Yes NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any,every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulati
54、on S-T during the preceding 12 months(or for such shorter period that the registrantwas required to submit and post such files).Yes NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,tothe best of regis
55、trants knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto the Form 10-K.Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting compa
56、ny.See the definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer Accelerated filerNon-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company Indicate by check mar
57、k whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes NoThe aggregate market value of the 50,615,359 common shares of beneficial interest held by non-affiliates of the registrant was$1,021,924,098 basedon the closing sale price on the New York Stock Exchange f
58、or such common shares of beneficial interest as of June 30,2011.The number of common shares of beneficial interest outstanding as of February 15,2012 was 50,951,943.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrants Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders(t
59、o be filed with the Securities and ExchangeCommission on or before April 30,2012)are incorporated by reference into this Annual Report on Form 10-K in response to Part III,Items 10,11,12,13and 14.THIS PAGE INTENTIONALLY LEFT BLANKPebblebrook Hotel TrustTABLE OF CONTENTSPageForward-Looking Statements
60、.1PART I1.Business.21A.Risk Factors.61B.Unresolved Staff Comments.302.Properties.303.Legal Proceedings.324.Mine Safety Disclosures.32PART II5.Market for Registrants Common Equity,Related Shareholder Matters and Issuer Purchases ofEquity Securities.336.Selected Financial Data.367.Managements Discussi
61、on and Analysis of Financial Condition and Results of Operations.377A.Quantitative and Qualitative Disclosures about Market Risk.478.Financial Statements and Supplementary Data.489.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.489A.Controls and Procedures.489B.
62、Other Information.48PART III10.Trustees,Executive Officers and Corporate Governance.4911.Executive Compensation.4912.Security Ownership of Certain Beneficial Owners and Management and Related ShareholderMatters.4913.Certain Relationships and Related Transactions,and Trustee Independence.4914.Princip
63、al Accountant Fees and Services.49PART IV15.Exhibits and Financial Statement Schedules.50THIS PAGE INTENTIONALLY LEFT BLANKFORWARD-LOOKING STATEMENTSThis report,together with other statements and information publicly disseminated by the Company,containscertain forward-looking statements within the m
64、eaning of Section 27A of the Securities Act of 1933,as amended(the“Securities Act”),and Section 21E of the Securities Exchange Act of 1934,as amended(the“ExchangeAct”).We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in th
65、e Private Securities Litigation Reform Act of 1995 and include this statementfor purposes of complying with these safe harbor provisions.Forward-looking statements,which are based oncertain assumptions and describe our future plans,strategies and expectations,are generally identifiable by use ofthe
66、words“may”,“will”,“should”,“potential”,“could”,“seek”,“assume”,“forecast”,“believe,”“expect,”“intend,”“anticipate,”“estimate,”“project”or similar expressions.Forward-looking statements in this reportinclude,among others,statements about our business strategy,including acquisition and development str
67、ategies,industry trends,estimated revenues and expenses,our ability to realize deferred tax assets and expected liquidityneeds and sources(including capital expenditures and our ability to obtain financing or raise capital).You shouldnot rely on forward-looking statements since they involve known an
68、d unknown risks,uncertainties and otherfactors that are,in some cases,beyond our control and which could materially affect actual results,performanceor achievements.Factors that may cause actual results to differ materially from current expectations include,butare not limited to:the timing and avail
69、ability of potential hotel acquisitions and our ability to identify and complete hotelacquisitions in accordance with our business strategy;risks associated with the hotel industry,including competition,increases in employment costs,energycosts and other operating costs,or decreases in demand caused
70、 by actual or threatened terrorist attacks,any type of flu or disease-related pandemic,or downturns in general and local economic conditions;the availability and terms of financing and capital and the general volatility of securities markets;our dependence on third-party managers of our hotels,inclu
71、ding our inability to implement strategicbusiness decisions directly;risks associated with the real estate industry,including environmental contamination and costs ofcomplying with the Americans with Disabilities Act and similar laws;interest rate increases;our possible failure to qualify as a real
72、estate investment trust(“REIT”)under the Internal RevenueCode of 1986,as amended(“the Code”),and the risk of changes in laws affecting REITs;the possibility of uninsured losses;risks associated with redevelopment and repositioning projects,including delays and cost overruns;andthe other factors disc
73、ussed under the heading“Risk Factors”in this Annual Report on Form 10-K.Accordingly,there is no assurance that our expectations will be realized.Except as otherwise required bythe federal securities laws,we disclaim any obligations or undertaking to publicly release any updates orrevisions to any fo
74、rward-looking statement contained herein(or elsewhere)to reflect any change in ourexpectations with regard thereto or any change in events,conditions or circumstances on which any suchstatement is based.The“Company,”“we”or“us”mean Pebblebrook Hotel Trust,a Maryland real estate investment trust,andon
75、e or more of its subsidiaries(including Pebblebrook Hotel,L.P.,our operating partnership),or,as the contextmay require,Pebblebrook Hotel Trust only or Pebblebrook Hotel,L.P.only.1PART IItem 1.Business.GeneralPebblebrook Hotel Trust is an internally managed hotel investment company,organized in Octob
76、er 2009 toopportunistically acquire and invest in hotel properties located primarily in major U.S.cities,with an emphasison urban markets in major gateway cities,which we believe present significant barriers-to-entry for new hotelsupply and provide diverse sources of meeting and room night demand ge
77、nerators.As of December 31,2011,theCompany owned interests in 20 hotels,including 14 wholly owned hotels with a total of 3,812 guest rooms and a49%joint venture interest in six hotels with 1,733 guest rooms(the“Manhattan Collection joint venture”).Substantially all of our assets are held by,and all
78、of our operations are conducted through,PebblebrookHotel,L.P.(our“Operating Partnership”).We are the sole general partner of our Operating Partnership.AtDecember 31,2011,we owned 98.2 percent of the common limited partnership interests issued by the OperatingPartnership(“common units”).The remaining
79、 1.8 percent of the common units issued by the OperatingPartnership were owned by the other limited partners of the Operating Partnership.We operate as a REIT forfederal income tax purposes.For us to qualify as a REIT under the Code,we cannot operate the hotels we own.Therefore,our Operating Partner
80、ship and its subsidiaries lease our hotel properties to our taxable REITsubsidiary(“TRS”),Pebblebrook Hotel Lessee,Inc.(“PHL”),and its subsidiary lessees(collectively,“TRSlessees”).Our TRS lessees engage third-party eligible independent contractors to manage our hotels.PHL istreated as a TRS for fed
81、eral income tax purposes and is subject to taxation like other regular C corporations.PHLand its wholly owned subsidiaries are consolidated into our financial statements.Business Objectives and StrategiesAcquisitions/InvestmentsWe invest in hotel properties located primarily in major U.S.cities,incl
82、uding Atlanta,Boston,Chicago,Minneapolis,New York,Philadelphia,Santa Monica,San Diego,San Francisco,Seattle,Washington,D.C.andWest Hollywood,California,with an emphasis on major gateway metropolitan markets.We believe thesemarkets have significant barriers-to-entry and provide diverse sources of mee
83、ting and room night demandgenerators.In addition,we also target investments in resort properties located near our primary urban targetmarkets,as well as in select destination resort markets such as Hawaii,south Florida and southern California.Wefocus on both branded and independent full-service hote
84、ls in the“upper upscale”segment of the lodgingindustry.The full-service hotels on which we focus our investment activity generally have one or morerestaurants,lounges,meeting facilities and other amenities,as well as high customer service levels.We believethat our target markets,including the major
85、gateway markets,are characterized by significant barriers-to-entryand that room-night demand and average daily rate(“ADR”)growth of these types of hotels will likely continueto outperform the national average,as they have in past cyclical recoveries and growth periods.We utilize extensive research t
86、o evaluate any target market and property,including a detailed review of thelong-term economic outlook,trends in local demand generators,competitive environment,property systems,physical condition and property financial performance.Specific acquisition criteria may include,but are notlimited to,the
87、following:premier locations,facilities and other competitive advantages not easily replicated;significant barriers-to-entry in the market,such as scarcity of development sites,regulatory hurdles,high per-room development costs and long lead times for new development;acquisition prices at a significa
88、nt discount to replacement cost;properties not subject to long-term management contracts with hotel management companies;2potential return on investment initiatives,including redevelopment,rebranding,redesign,expansionand change of management;opportunities to implement value-added operational improv
89、ements;andstrong demand growth characteristics supported by favorable demographic indicators.We believe that as the U.S.economy continues to recover and generate positive gross domestic product(“GDP”)growth,upper-upscale full-service hotels and resorts and upscale select-service hotels located in ma
90、jorU.S.urban,convention and drive-to and destination resort markets are likely to generate the most favorablereturns on investment in the lodging industry.Hotel developersinability to source construction financing overthe past several years has created an environment in which minimal new lodging sup
91、ply is expected to be addedthrough at least 2014.We believe that as transient and group travel increases,existing supply will accommodateincremental room-night demand,allowing hotel owners to grow occupancy and increase rates,thereby improvingprofitability.We believe that portfolio diversification w
92、ill allow us to capitalize from growth in various customersegments,including business transient,leisure transient and group and convention room-night demand.We generally seek to enter into flexible management contracts,when possible,with third-party hotelmanagement companies for the operation of our
93、 hotels that provide us with the ability to replace operators and/orreposition properties,to the extent that we determine to do so and align our operators with our objective ofmaximizing return on investment.In addition,we believe that flexible management contracts facilitate the sale ofhotels,and w
94、e may seek to sell hotels opportunistically if we believe sales proceeds may be invested in otherhotel properties that offer more attractive risk-adjusted returns.We currently do not intend to engage in significant development or redevelopment of hotel properties.However,we do expect to engage in pa
95、rtial redevelopment,renovation and repositioning of certain properties,aswe seek to maximize the financial performance of our hotels.In addition,we may acquire properties that requiresignificant capital improvement,renovation or refurbishment.Over the long-term,we may acquire hotel andresort propert
96、ies that we believe would benefit from significant redevelopment or expansion,including,forexample,adding rooms,meeting facilities or other amenities.We may consider acquiring outstanding debt secured by a hotel or resort property from lenders andinvestors if we believe we can foreclose on or acquir
97、e ownership of the property in the near-term.In connectionwith our acquisitions,we do not intend to originate any debt financing or purchase any debt where we do notexpect to gain ownership of the underlying property.Additionally,we have invested,and may in the future,co-invest in hotels with third
98、parties through partnerships,joint ventures or other entities,acquiringnon-controlling interests in or sharing responsibility for a property,partnership,joint venture or other entity.Asset ManagementAlthough we do not manage the daily operations of our hotels,we are actively involved in the assetman
99、agement of each of our hotels.We believe we can add significant value to our portfolio through our intensiveasset management strategies.Our executive and asset management team have significant experience in hoteloperations and creating and implementing innovative asset management initiatives.Our ass
100、et managementstrategies consist of capital investment coupled with revenue and expense management.We have developed strategic short and long-term capital investment plans to enhance our hotelsprofitability.Our capital investments consist of the strategic use of,among others,expansions,additions,reno
101、vations,technology upgrades and modifications,and energy efficiency improvements.We are also focusedon revenue and expense management at our properties.We work closely with our hotel operators to evaluateoptimal market mix and pricing strategies,ensure quality staffing and appropriate management foc
102、us,implementbest practices to minimize expenses,and aggressively monitor and evaluate the hotelsoperations andperformance.3Financing StrategiesOver time,we intend to finance our long-term growth with issuances of common and preferred equity anddebt financing having staggered maturities.Our debt incl
103、udes mortgage debt secured by our hotel properties orleasehold interests under the ground leases on our hotel properties and may include unsecured debt in the future.We anticipate using our senior unsecured revolving credit facility,common and preferred equity issuances,and mortgage debt financings
104、to fund future acquisitions as well as for property redevelopments,return oninvestment initiatives and working capital requirements.Subject to market conditions,we intend to repayamounts outstanding under the senior unsecured revolving credit facility from time to time with proceeds fromperiodic com
105、mon and preferred equity issuances,long-term debt financings and cash flows from operations.When purchasing hotel properties,we may issue limited partnership interests in our Operating Partnershipas full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale
106、 of a hotel orparticipate in the potential appreciation in value of our common shares.To date,we have not issued any limitedpartnership interests in our Operating Partnership to purchase hotel properties.CompetitionWe compete for hotel investment opportunities with institutional investors,private eq
107、uity investors,otherREITs and numerous local,regional and national owners,including franchisors,in each of our target markets.Some of these entities have substantially greater financial resources than we do and may be able and willing toaccept more risk than we can prudently manage.Competition gener
108、ally may increase the bargaining power ofproperty owners seeking to sell and reduce the number of suitable investment opportunities offered to us orpurchased by us.The hotel industry is highly competitive.Our hotels compete with other hotels for guests in our markets.Competitive factors include,amon
109、g others,location,convenience,brand affiliation,room rates,range of services,facilities and guest amenities or accommodations offered and quality of guest service.Competition in the marketsin which our hotels operate includes competition from existing,newly renovated and newly developed hotels inthe
110、 relevant segments.Competition can adversely affect the occupancy,ADR and room revenue per availableroom(“RevPAR”)of our hotels,and thus our financial results,and may require us to provide additionalamenities,incur additional costs or make capital improvements that we otherwise might not choose to m
111、ake,which may adversely affect our profitability.SeasonalityDemand in the lodging industry is affected by recurring seasonal patterns which are greatly influenced byoverall economic cycles,the geographic locations of the hotels and the customer mix at the hotels.Generally,ourhotels will have lower r
112、evenue,operating income and cash flow in the first quarter and higher revenue,operatingincome and cash flow in the third quarter.RegulationsOur hotel properties are subject to various federal,state and local environmental laws.Under these laws,courts and government agencies have the authority to req
113、uire us,as owner of a contaminated property,to cleanup the property,even if we did not know of or were not responsible for the contamination.These laws also applyto persons who owned a property at the time it became contaminated,and therefore it is possible we could incurthese costs even after we se
114、ll a property.In addition to the costs of cleanup,environmental contamination canaffect the value of a property and,therefore,an owners ability to borrow using the property as collateral or tosell the property.Under the environmental laws,courts and government agencies also have the authority torequ
115、ire that a person who sent waste to a waste disposal facility,such as a landfill or an incinerator,pay for theclean-up of that facility if it becomes contaminated and threatens human health or the environment.4Furthermore,various court decisions have established that third parties may recover damage
116、s for injurycaused by property contamination.For instance,a person exposed to asbestos while staying in a hotel may seekto recover damages if he or she suffers injury from the asbestos.Lastly,some of these environmental laws restrictthe use of a property or place conditions on various activities.An
117、example would be laws that require a businessusing chemicals(such as swimming pool chemicals at a hotel property)to manage them carefully and to notifylocal officials that the chemicals are being used.We could be responsible for any of the costs discussed above.The costs to clean up a contaminatedpr
118、operty,to defend against a claim,or to comply with environmental laws could be material and could adverselyaffect the funds available for distribution to our shareholders.Prior to closing a property acquisition,we obtainPhase I environmental site assessments,or ESAs,in order to attempt to identify p
119、otential environmental concernsat the properties.These assessments are carried out in accordance with an appropriate level of due diligence andgenerally include a physical site inspection,a review of relevant federal,state and local environmental and healthagency database records,one or more intervi
120、ews with appropriate site-related personnel,review of the propertyschain of title and review of historic aerial photographs and other information on past uses of the property.Wemay also conduct limited subsurface investigations and test for substances of concern where the results of thePhase I envir
121、onmental assessments or other information indicates possible contamination or where ourconsultants recommend such procedures.However,these ESAs or other investigations may not reveal allenvironmental costs that might have a material adverse effect on our business,assets,results of operations orliqui
122、dity and may not identify all potential environmental liabilities.We believe that our hotels are in compliance,in all material respects,with all federal,state and localenvironmental ordinances and regulations regarding hazardous or toxic substances and other environmentalmatters,the violation of whi
123、ch could have a material adverse effect on us.We have not received written noticefrom any governmental authority of any material noncompliance,liability or claim relating to hazardous or toxicsubstances or other environmental matters in connection with any of our present properties.Our properties mu
124、st comply with Title III of the Americans with Disabilities Act,or ADA,to the extent thatsuch properties are“public accommodations”as defined by the ADA.The ADA may require removal ofstructural barriers to access by persons with disabilities in certain public areas of our properties where suchremova
125、l is readily achievable.We believe that our properties are in substantial compliance with the ADA andthat we will not be required to make substantial capital expenditures to address the requirements of the ADA.However,noncompliance with the ADA could result in imposition of fines or an award of dama
126、ges to privatelitigants.The obligation to make readily achievable accommodations is an ongoing one,and we will continue toassess our properties and to make alterations as appropriate in this respect.Tax StatusWe have elected to be taxed as a REIT under Sections 856 through 860 of the Code.As a resul
127、t,wegenerally are not subject to corporate federal income tax on that portion of our REIT taxable income that wedistribute to our shareholders.A REIT is subject to numerous organizational and operational requirements,including requirements concerning the nature of our gross income and assets and spe
128、cifying generally that wemust distribute at least 90 percent of REIT taxable income each year.We will be subject to federal income tax onour taxable income at regular corporate rates if we fail to qualify as a REIT for federal income tax purposes inany taxable year,or to the extent we distribute les
129、s than 100 percent of REIT taxable income.We will also not bepermitted to qualify for treatment as a REIT for federal income tax purposes for four years following the yearduring which qualification is lost.Even if we continue to qualify as a REIT for federal income tax purposes,wewill be subject to
130、certain state and local income,franchise and property taxes.For us to qualify as a REIT under the Code,we cannot operate the hotels we acquire.Therefore,ourOperating Partnership and its subsidiaries lease our hotel properties to our TRS lessees who in turn engage third-party eligible independent con
131、tractors to manage our hotels.The properties owned by the Manhattan Collection5joint venture are leased to a lessee joint venture in which a wholly owned subsidiary of PHL owns a 49%interest.PHL is treated as a TRS for federal income tax purposes.The earnings of PHL are subject to taxation like othe
132、rregular C corporations.EmployeesWe currently employ 20 full-time employees.None of our employees is a member of a union;however,some employees of the hotel managers at several of our hotels are currently represented by labor unions and aresubject to collective bargaining agreements.Available Inform
133、ationOur Internet website is located at .Copies of the charters of the committees ofour board of trustees,our code of business conduct and ethics and our corporate governance guidelines areavailable on our website.All reports that we have filed with the Securities and Exchange Commission,or SEC,incl
134、uding this Annual Report on Form 10-K and our current reports on Form 8-K,can be obtained free of chargefrom the SECs website at www.sec.gov or through our website.In addition,all reports filed with the SEC maybe read and copied at the SECs Public Reference Room at 100 F Street,NE,Washington,D.C.205
135、49-1090.Further information regarding the operation of the public reference room may be obtained by calling the SEC at1-800-SEC-0330.Item 1A.Risk Factors.Our business is subject to numerous risks.Our results of operations depend upon many factors,includingour ability to implement our business strate
136、gy,the availability of opportunities to acquire assets,the level andvolatility of interest rates,the cost and availability of short-and long-term credit,financial market conditions andgeneral economic conditions.The following discussion concerns some of the risks associated with our business.These r
137、isks areinterrelated and you should treat them as a whole.Additional risks and uncertainties not presently known to usmay also materially and adversely affect the value of our common shares and our ability to pay dividends to ourshareholders.In connection with the forward-looking statements that app
138、ear in this Annual Report on Form 10-Kin these risk factors and elsewhere,you should carefully review the section entitled“Cautionary Statement AboutForward-Looking Statements.”Risks Related to Our Business and PropertiesWe depend on the efforts and expertise of our key executive officers and would
139、be adversely affected by theloss of their services.We depend on the efforts and expertise of our Chairman,President and Chief Executive Officer,as well asour other executive officers,to execute our business strategy.The loss of their services,and our inability to findsuitable replacements,would have
140、 an adverse effect on our business.Our returns could be negatively impacted if the third-party management companies that operate our hotelsdo not manage our hotel properties effectively.Because federal income tax laws restrict REITs and their subsidiaries from operating or managing a hotel,we do not
141、 operate or manage any of our hotel properties.Instead,we lease all of our hotel properties tosubsidiaries that qualify as TRSs,under applicable REIT laws,and our TRS lessees retain third-party managersto operate our hotels pursuant to management contracts.Our cash flow from the hotels may be advers
142、ely affectedif our managers fail to provide quality services and amenities or if they or their affiliates fail to maintain a quality6brand name.In addition,our managers or their affiliates may manage,and in some cases may own,invest in orprovide credit support or operating guarantees,to hotels that
143、compete with hotel properties that we own oracquire,which may result in conflicts of interest and decisions regarding the operation of our hotels that are notin our best interests.We do not have the authority to require any hotel property to be operated in a particular manner or to governany particu
144、lar aspect of the daily operations of any hotel property(for example,setting room rates).Thus,even ifwe believe our hotels are being operated inefficiently or in a manner that does not result in satisfactoryoccupancy rates,RevPAR and ADR,we may not be able to force the management company to change i
145、ts methodof operating our hotels.We generally will attempt to resolve issues with our managers through discussions andnegotiations.However,if we are unable to reach satisfactory results through discussions and negotiations,wemay choose to litigate the dispute or submit the matter to third-party disp
146、ute resolution.We can only seek redressif a management company violates the terms of the applicable management contract with a TRS lessee,and thenonly to the extent of the remedies provided for under the terms of the management contract.Additionally,in theevent that we need to replace any management
147、 company,we may be required by the terms of the managementcontract to pay substantial termination fees and may experience significant disruptions at the affected hotels.Our TRS lessee structure subjects us to the risk of increased hotel operating expenses.Our leases with our TRS lessees require our
148、TRS lessees to pay rent based in part on revenues from ourhotels.Our operating risks include decreases in hotel revenues and increases in hotel operating expenses,whichwould adversely affect our TRS lesseesability to pay rent due under the leases,including but not limited toincreases in:wage and ben
149、efit costs;repair and maintenance expenses;property taxes;insurance costs;and otheroperating expenses.Increases in these operating expenses can have a significant adverse impact on our financialcondition,results of operations,the market price of our common shares and our ability to make distribution
150、s toour shareholders.Our ability to make distributions to our shareholders is subject to fluctuations in our financial performance,operating results and capital improvements requirements.To qualify for taxation as a REIT,we are required to distribute at least 90 percent of our REIT taxableincome(det
151、ermined before the deduction for dividends paid and excluding any net capital gains)each year to ourshareholders and we generally expect to make distributions in excess of such amount.In the event of downturnsin our operating results,unanticipated capital improvements to our hotel properties or othe
152、r factors,we may beunable to declare or pay distributions to our shareholders.The timing and amount of distributions are in the solediscretion of our board of trustees which will consider,among other factors,our financial performance,any debtservice obligations,any debt covenants,and capital expendi
153、ture requirements.We cannot assure you that we willgenerate sufficient cash in order to fund distributions.We invest in the upper-upscale segment of the lodging market,which is highly competitive and generallysubject to greater volatility than most other market segments and could negatively affect o
154、ur profitability.The upper-upscale segment of the hotel business is highly competitive.Our hotel properties compete on thebasis of location,room rates,quality,service levels,reputation and reservations systems,among many factors.There are many competitors in the upper-upscale segment,and many of the
155、se competitors may have substantiallygreater marketing and financial resources than we have.This competition could reduce occupancy levels andRevPAR at our hotels.Over-building in the lodging industry may increase the number of rooms available andmay decrease occupancy and ADR.In addition,in periods
156、 of weak demand,as may occur during a generaleconomic recession,profitability is adversely affected by the relatively high fixed costs of operating upper-upscale hotels.7Restrictive covenants in our management contracts could preclude us from taking actions with respect tothe sale or refinancing of
157、a hotel property that would otherwise be in our best interest.We may enter into management contracts that contain some restrictive covenants or acquire propertiessubject to existing management contracts that do not allow the flexibility we seek,including managementcontracts that restrict our ability
158、 to terminate the contract or require us to pay significant termination fees.Forexample,the terms of some management contracts may restrict our ability to sell a property unless the purchaseris not a competitor of the manager and assumes the related management contract and meets specified othercondi
159、tions which may preclude us from taking actions that would otherwise be in our best interest or could causeus to incur substantial expense.Due to our concentration in hotel investments,a downturn in the lodging industry would adversely affectour operations and financial condition.Our primary busines
160、s is hotel-related.Therefore,a downturn in the lodging industry,in general,and thesegments and markets in which we operate,in particular,would have a material adverse effect on our financialcondition,results of operations,the market price of our common shares and our ability to make distributions to
161、our shareholders.Our joint venture investments and other joint venture investments that we may make could be adverselyaffected by our lack of sole decision-making authority,our reliance on our co-venturers financialcondition and disputes between us and our co-venturers.In July 2011,we acquired an in
162、terest in a joint venture that owns six hotels in Manhattan.We share majordecisions with our joint venture partner with respect to the joint venture and its hotels.The debt of the jointventure,while non-recourse to us,is secured by first mortgages on the hotels owned by the joint venture and anydefa
163、ult on such debt could adversely affect our equity investment in the joint venture.All of the first mortgageand mezzanine debt of the joint venture,which aggregated approximately$581.0 million as of December 31,2011,matures in February 2013,and there can be no assurance that the joint venture will b
164、e able to refinance thedebt on attractive terms,or at all.In addition,in order to maintain our ownership interest,we may need to investadditional equity into the joint venture in connection with any such refinancing which would reduce the amountwe have available to invest in additional acquisitions
165、or capital improvements to our existing hotels.We may co-invest in hotels in the future with third parties through partnerships,joint ventures or otherentities,acquiring non-controlling interests in or sharing responsibility for a property,partnership,joint ventureor other entity.In this event,we wo
166、uld not be in a position to exercise sole decision-making authority regardingthe property,partnership,joint venture or other entity.Investments through partnerships,joint ventures,or otherentities may,under certain circumstances,involve risks not present were a third party not involved,including the
167、possibility that partners or co-venturers might become bankrupt,fail to fund their share of required capitalcontributions,make dubious business decisions or block or delay necessary decisions.Partners or co-venturersmay have economic or other business interests or goals which are inconsistent with o
168、ur business interests orgoals,and may be in a position to take actions contrary to our policies or objectives.Such investments may alsohave the potential risk of impasses on decisions,such as a sale,because neither we nor the partner or co-venturerwould have full control over the partnership or join
169、t venture.Disputes between us and partners or co-venturersmay result in litigation or arbitration that would increase our expenses and prevent our officers and/or trusteesfrom focusing their time and effort on our business.Consequently,action by,or disputes with,partners orco-venturers might result
170、in subjecting properties owned by the partnership or joint venture to additional risk.Inaddition,we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.Unanticipated expenses and insufficient demand for hotels in new geographic markets could adverselyaf
171、fect our profitability and our ability to make distributions to our shareholders.As part of our business strategy,we have acquired and may in the future acquire or develop hotel propertiesin geographic areas in which our management may have little or no operating experience and in which potential8cu
172、stomers may not be familiar with the brand of that particular hotel.As a result,we may have to incur costsrelating to the opening,operation and promotion of such hotel properties that are substantially greater than thoseincurred in other areas.These hotels may attract fewer customers than other hote
173、l properties we may acquire,while at the same time,we may incur substantial additional costs with such hotel properties.Unanticipatedexpenses and insufficient demand at a new hotel property,therefore,could adversely affect our financialcondition and results of operations.Our hotels operated under fr
174、anchise agreements are subject to risks arising from adverse developments withrespect to the franchise brand and to costs associated with maintaining the franchise license.Certain of our hotel properties operate under franchise agreements and we anticipate that some of the hotelswe acquire in the fu
175、ture will operate under franchise agreements.We are therefore subject to the risks associatedwith concentrating hotel investments in several franchise brands,include reductions in business followingnegative publicity related to one of the brands or the general decline of a brand.The maintenance of t
176、he franchise licenses for branded hotel properties is subject to the franchisorsoperating standards and other terms and conditions.Franchisors periodically inspect hotel properties to ensurethat we and our lessees and management companies follow their standards.Failure by us,one of our TRS lesseesor
177、 one of our third-party management companies to maintain these standards or other terms and conditions couldresult in a franchise license being cancelled.If a franchise license is cancelled due to our failure to make requiredimprovements or to otherwise comply with its terms,we also may be liable to
178、 the franchisor for a terminationpayment,which varies by franchisor and by hotel property.As a condition of maintaining a franchise license,afranchisor could require us to make capital expenditures,even if we do not believe the capital improvements arenecessary or desirable or will result in an acce
179、ptable return on our investment.We may risk losing a franchiselicense if we do not make franchisor-required capital expenditures.If a franchisor terminates the franchise license or the license expires,we may try either to obtain a suitablereplacement franchise or to operate the hotel without a franc
180、hise license.The loss of a franchise license couldmaterially and adversely affect the operations and the underlying value of the hotel property because of the lossof associated name recognition,marketing support and centralized reservation system provided by the franchisorand adversely affect our re
181、venues.This loss of revenue could in turn adversely affect our financial condition,results of operations,the market price of our common shares and our ability to make distributions to ourshareholders.Debt service obligations could adversely affect our overall operating results,may require us to sell
182、 hotelproperties,may jeopardize our qualification as a REIT and could adversely affect our ability to makedistributions to our shareholders and the market price of our common shares.Our business strategy contemplates the use of both secured and unsecured debt to finance long-term growth.Incurring de
183、bt could subject us to many risks,including the risks that our cash flow from operations will beinsufficient to make required payments of principal and interest,our debt may increase our vulnerability toadverse economic and industry conditions,we may be required to dedicate a substantial portion of
184、our cash flowfrom operations to payments on our debt,thereby reducing cash available for distribution to our shareholders,funds available for operations and capital expenditures,future business opportunities or other purposes,the termsof any refinancing will not be as favorable as the terms of the d
185、ebt being refinanced and the use of leverage couldadversely affect our ability to make distributions to our shareholders and the market price of our common shares.If we do not have sufficient funds to repay our debt at maturity,it may be necessary to refinance the debtthrough additional debt or addi
186、tional equity financings.If,at the time of any refinancing,prevailing interest ratesor other factors result in higher interest rates on refinancings,increases in interest expense could adversely affectour cash flow,and,consequently,cash available for distribution to our shareholders.If we are unable
187、 to refinanceour debt on acceptable terms,we may be forced to dispose of hotel properties on disadvantageous terms,9potentially resulting in losses.We have placed and will continue to place mortgages on certain of our hotelproperties to secure debt.To the extent we cannot meet any of our debt servic
188、e obligations,we will risk losing toforeclosure some or all of our pledged hotel properties.Also,covenants applicable to debt could impair ourplanned investment strategy and,if violated,result in a default.If we violate covenants relating to indebtedness,we could be required to repay all or a portio
189、n of our indebtedness before maturity at a time when we might beunable to arrange financing for such repayment on attractive terms,if at all.In addition,future indebtednessagreements may require that we meet certain covenant tests in order to make distributions to our shareholders.Higher interest ra
190、tes could increase debt service requirements on any of our floating rate debt,including oursenior unsecured revolving credit facility,and could reduce the amounts available for distribution to ourshareholders,as well as reduce funds available for our operations,future business opportunities,or other
191、purposes.We may obtain one or more forms of interest rate protectionin the form of swap agreements,interestrate cap contracts or similar agreements that are consistent with our intention to remain qualified as a REITto“hedge”against the possible negative effects of interest rate fluctuations.However
192、,such hedging incurs costsand we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases orthat counterparties under these agreement will honor their obligations thereunder.Adverse economic conditionscould also cause the terms on which we borrow to b
193、e unfavorable.We could be required to liquidate one or moreof our hotel properties in order to meet our debt service obligations at times,which may not permit us to receivean attractive return on our investments.Our senior executive officers have broad discretion to make investments,and they may mak
194、e investmentswhere the returns are substantially below expectations or which result in net operating losses.Our senior executive officers have broad discretion,within the general investment criteria established by ourboard of trustees,to invest our capital and to determine the timing of such investm
195、ents.In addition,ourinvestment policies may be revised from time to time at the discretion of our board of trustees,without a vote ofour shareholders.Such discretion could result in investments that may not yield returns consistent withexpectations.The purchase of properties we put under contract ma
196、y not be consummated.From time to time,we enter into purchase and sale agreements for hotel properties.These transactions,whether or not consummated,require substantial time and attention from management.Furthermore,potentialacquisitions require significant expense,including expenses for due diligen
197、ce,legal fees and related overhead.Tothe extent we do not consummate one or more of the transactions and fail to acquire any or all of these hotels,these expenses will not be offset by revenues from these properties.We may use a portion of the net proceeds from our public offerings to make distribut
198、ions to ourshareholders,which would,among other things,reduce our cash available to invest in hotel properties andmay reduce the returns on your investment in our common shares.Prior to the time we have fully invested the net proceeds of our public offerings,we may fund distributionsto our sharehold
199、ers out of the net proceeds of these offerings,which would reduce the amount of cash we haveavailable to invest in hotel properties and may reduce the returns on your investment in our common shares.Theuse of these net proceeds for distributions to shareholders could adversely affect our financial r
200、esults.In addition,funding distributions from the net proceeds of these offerings may constitute a return of capital to ourshareholders,which would have the effect of reducing each shareholders tax basis in our common shares.If we cannot obtain financing,our growth will be limited.To qualify for tax
201、ation as a REIT,we are required to distribute at least 90 percent of our REIT taxableincome(determined before the deduction for dividends paid and excluding any net capital gains)each year to ourshareholders and we generally expect to make distributions in excess of such amount.As a result,our abili
202、ty to10retain earnings to fund acquisitions,redevelopment and development or other capital expenditures is and will belimited.Although our business strategy contemplates future access to debt financing(in addition to our seniorunsecured revolving credit facility)to fund acquisitions,redevelopment,de
203、velopment,return on investmentinitiatives and working capital requirements,there can be no assurance that we will be able to obtain suchfinancing on favorable terms or at all.Past events in the financial markets have adversely impacted the creditmarkets and,as a result,recently credit has become sig
204、nificantly more expensive and difficult to obtain,ifavailable at all.Some lenders are imposing more stringent credit terms,there has been and may continue to be ageneral reduction in the amount of credit available and many banks are either unable or unwilling to provide newasset-based lending.Tighte
205、ning credit markets may have an adverse effect on our ability to obtain financing onfavorable terms,if at all,thereby increasing financing costs and/or requiring us to accept financing with increasedrestrictions.If adverse conditions in the credit marketsin particular with respect to real estate or
206、lodgingindustry financematerially deteriorate,our business could be materially and adversely affected.Our long-termability to grow through investments in hotel properties will be limited if we cannot obtain additional financing.Market conditions may make it difficult to obtain financing,and we canno
207、t assure you that we will be able toobtain additional debt or equity financing or that we will be able to obtain it on favorable terms.Our cash and cash equivalents are maintained in a limited number of financial institutions and the funds inthose institutions may not be fully or federally insured.W
208、e maintain cash balances in a limited number of financial institutions.Our cash balances are generally inexcess of federally insured limits.The failure or collapse of one or more of these financial institutions maymaterially adversely affect our ability to recover our cash balances.Our conflicts of
209、interest policy may not adequately address all of the conflicts of interest that may arise withrespect to our activities.In order to avoid any actual or perceived conflicts of interest with our trustees,officers or employees,wehave adopted a conflicts of interest policy to specifically address some
210、of the conflicts relating to our activities.Although under this policy any transaction,agreement or relationship in which any of our trustees,officers oremployees has an interest must have the approval of a majority of our disinterested trustees,there is no assurancethat this policy will be adequate
211、 to address all of the conflicts that may arise or will address such conflicts in amanner that is favorable to us.Risks Related to Debt and FinancingOur existing indebtedness contains financial covenants that could limit our operations and our ability tomake distributions to our shareholders.Our exi
212、sting senior unsecured revolving credit facility contains financial and operating covenants,such asnet worth requirements,fixed charge coverage,debt ratios and other limitations that restrict our ability to makedistributions or other payments to our stockholders,sell all or substantially all of our
213、assets and engage inmergers,consolidations and certain acquisitions without the consent of the lenders.In addition,our existingproperty-level debt contains restrictions(including cash management provisions)that may under circumstancesspecified in the loan agreements prohibit our subsidiaries that ow
214、n our hotels from making distributions orpaying dividends,repaying loans to us or other subsidiaries or transferring any of their assets to us or anothersubsidiary.Failure to meet our financial covenants could result from,among other things,changes in our resultsof operations,the incurrence of addit
215、ional debt or changes in general economic conditions.This could cause oneor more of our lenders to accelerate the timing of payments and could have a material adverse effect on ourbusiness,financial condition,results of operations and our ability to make distributions to our shareholders.Theterms of
216、 our debt may restrict our ability to engage in transactions that we believe would otherwise be in the bestinterests of our shareholders.11Many of our existing mortgage debt agreements contain“cash trap”provisions that could limit our abilityto make distributions to our shareholders.Certain of our l
217、oan agreements contain cash trap provisions that may be triggered if the performance of thehotels securing the loans declines below a threshold.When these provisions are triggered,substantially all of theprofit generated by the hotel is deposited directly into a lockbox account and then swept into a
218、 cash managementaccount for the benefit of the lender.Cash is distributed to us only after certain items are paid,including depositsinto leasing and maintenance reserves and the payment of debt service,insurance,taxes,operating expenses andextraordinary capital expenditures and leasing expenses.This
219、 could adversely affect our liquidity and our abilityto make distributions to our shareholders.There is refinancing risk associated with our debt.Our typical debt contains limited principal amortization;therefore the vast majority of the principal must berepaid at the maturity of the loan in a so-ca
220、lled“balloon payment.”At the maturity of these loans,assuming wedo not have sufficient funds to repay the debt,we will need to refinance this debt.If the credit environment isconstrained at the time of our debt maturities,we would have a very difficult time refinancing debt.If we areunable to refina
221、nce our debt on acceptable terms,we may be forced to choose from a number of unfavorableoptions.These options include agreeing to otherwise unfavorable financing terms on one or more of ourunencumbered assets,selling one or more hotels at disadvantageous terms,including unattractive prices,ordefault
222、ing on the mortgage and permitting the lender to foreclose.Any one of these options could have a materialadverse effect on our business,financial condition,results of operations and our ability to make distributions toour shareholders.If we default on our secured debt in the future,the lenders may f
223、oreclose on our hotels.All of our indebtedness for borrowed money,except our senior unsecured revolving credit facility,issecured by either single property first mortgage liens or leasehold interests under the ground leases on theapplicable hotel.If we default on any of the secured loans,the applica
224、ble lender will be able to foreclose on theproperty pledged to secure the loan.In addition to losing the property,a foreclosure may result in recognition of taxable income.Under theCode,a foreclosure would be treated as a sale of the property for a purchase price equal to the outstandingbalance of t
225、he debt secured by the mortgage.If the outstanding balance of the debt secured by the mortgageexceeds our tax basis in the property,we would recognize taxable income on foreclosure even though we did notreceive any cash proceeds.As a result,we may be required to identify and utilize other sources of
226、 cash fordistributions to our shareholders.If this occurs,our financial condition,cash flow and ability to satisfy our otherdebt obligations or ability to pay distributions may be adversely affected.Acquiring outstanding debt secured by a hotel or resort property may expose us to risks of costs andd
227、elays in acquiring the underlying property.We may acquire outstanding debt secured by a hotel or resort property from lenders and investors if webelieve we can ultimately foreclose or otherwise acquire ownership of the underlying property in the near-termthrough foreclosure,deed-in-lieu of foreclosu
228、re or other means.However,if we do acquire such debt,borrowersmay seek to assert various defenses to our foreclosure or other actions and we may not be successful in acquiringthe underlying property on a timely basis,or at all,in which event we could incur significant costs andexperience significant
229、 delays in acquiring such properties,all of which could adversely affect our financialperformance and reduce our expected returns from such investments.In addition,we may not earn a currentreturn on such investments particularly if the loan that we acquire is in default.12Risks Related to the Lodgin
230、g IndustryCurrent economic conditions may reduce demand for hotel properties and adversely affect hotelprofitability.The performance of the lodging industry has historically been closely linked to the performance of thegeneral economy and,specifically,growth in U.S.GDP.It is also sensitive to busine
231、ss and personal discretionaryspending levels.Declines in corporate travel budgets and consumer demand due to adverse general economicconditions,such as declines in U.S.GDP,risks affecting or reducing travel patterns,lower consumer confidenceor adverse political conditions can lower the revenues and
232、profitability of hotel properties and therefore the netoperating profits of our TRS lessees to whom we lease our hotel properties.The recent global economicdownturn led to a significant decline in demand for products and services provided by the lodging industry,loweroccupancy levels and significant
233、ly reduced room rates.We anticipate that recovery of demand for products and services provided by the lodging industry will lagimprovement in economic conditions.We cannot predict how slow the global economic recovery will be or howslow the recovery in the lodging industry will be.A new period of ec
234、onomic weakness would likely have anadverse impact on our revenues and negatively affect our financial condition,results of operations,the marketprice of our common shares and our ability to make distributions to our shareholders.Our operating results and ability to make distributions to our shareho
235、lders may be adversely affected byvarious operating risks common to the lodging industry.Our hotel properties have different economic characteristics than many other real estate assets and a hotelREIT is structured differently than many other types of REITs.A typical office property owner,for exampl
236、e,haslong-term leases with third-party tenants,which provide a relatively stable long-term stream of revenue.OurTRS lessees,on the other hand,do not enter into a lease with a hotel manager.Instead,our TRS lessees engagethe hotel manager pursuant to a management contract and pay the manager a fee for
237、 managing the hotel.TheTRS lessees receive all the operating profit or losses at the hotel.Moreover,virtually all hotel guests stay at ahotel for only a few nights at a time,so the rate and occupancy at each of our hotels changes every day.As aresult,we may have highly volatile earnings.In addition,
238、our hotel properties are subject to various operating risks common to the lodging industry,manyof which are beyond our control,including the following:competition from other hotel properties in our markets;over-building of hotels in our markets,which could adversely affect occupancy and revenues at
239、ourhotel properties;dependence on business and commercial travelers and tourism;increases in energy costs and other expenses affecting travel,which may affect travel patterns andreduce the number of business and commercial travelers and tourists;increases in operating costs due to inflation and othe
240、r factors that may not be offset by increased roomrates;changes in interest rates and in the availability,cost and terms of debt financing;changes in governmental laws and regulations,fiscal policies and zoning ordinances and the relatedcosts of compliance with laws and regulations,fiscal policies a
241、nd ordinances;adverse effects of international,national,regional and local economic and market conditions;unforeseen events beyond our control,such as terrorist attacks,travel related health concerns includingpandemics and epidemics such as H1N1 influenza(swine flu),avian bird flu and SARS,political
242、instability,regional hostilities,imposition of taxes or surcharges by regulatory authorities,travel13related accidents and unusual weather patterns,including natural disasters such as hurricanes,tsunamisor earthquakes;adverse effects of a downturn in the lodging industry;andrisks generally associate
243、d with the ownership of hotel properties and real estate,as we discuss in moredetail below.These factors could reduce the revenues and net operating profits of our TRS lessees,which in turn couldadversely affect our financial condition,results of operations,the market price of our common shares,and
244、ourability to make distributions to our shareholders.Competition for acquisitions may reduce the number of properties we can acquire.We compete for investment opportunities with entities that may have substantially greater financial andother resources than we have.These entities generally may be abl
245、e to accept more risk than we can prudentlymanage.This competition may generally limit the number of suitable investment opportunities offered to us orthe number of properties that we are able to acquire.This competition may also increase the bargaining power ofproperty owners seeking to sell to us,
246、making it more difficult for us to acquire new properties on attractiveterms.The seasonality of the lodging industry may cause fluctuations in our quarterly revenues that cause us toborrow money to fund distributions to our shareholders.The lodging industry is seasonal in nature.This seasonality can
247、 be expected to cause quarterly fluctuationsin our revenues.Our quarterly earnings may be adversely affected by factors outside our control,includingweather conditions and poor economic factors.As a result,we may have to enter into short-term borrowings incertain quarters in order to offset these fl
248、uctuations in revenues and to make distributions to our shareholders.The cyclical nature of the lodging industry may cause the returns from our investments to be less than weexpect.The lodging industry is highly cyclical in nature.Fluctuations in lodging demand and,therefore,hoteloperating performan
249、ce,are caused largely by general economic and local market conditions,which subsequentlyaffect levels of business and leisure travel.In addition to general economic conditions,new hotel room supply isan important factor that can affect lodging industry fundamentals,and overbuilding has the potential
250、 to furtherexacerbate the negative impact of poor economic conditions.Room rates and occupancy,and thus RevPAR,tendto increase when demand growth exceeds supply growth.A decline in lodging demand,or a continued growth inlodging supply,could result in continued deterioration in lodging industry funda
251、mentals and returns that aresubstantially below expectations,or result in losses,which could adversely affect our financial condition,resultsof operations,the market price of our common shares and our ability to make distributions to our shareholders.Capital expenditure requirements at our propertie
252、s may be costly and require us to incur debt,postponeimprovements,reduce distributions or otherwise adversely affect the results of our operations and themarket price of our common shares.Some of the hotel properties we acquire need renovations and capital improvements at the time ofacquisition and
253、all the hotel properties we have acquired and will acquire in the future will have an ongoing needfor renovations and other capital improvements,including replacement,from time to time,of furniture,fixturesand equipment.The franchisors of these hotel properties also require periodic capital improvem
254、ents as acondition to our maintaining the franchise licenses.In addition,our lenders often require that we set aside annualamounts for capital improvements to our hotel properties.These capital improvements may give rise to thefollowing risks:possible environmental problems;14construction cost overr
255、uns and delays;the possibility that revenues will be reduced while rooms or restaurants are out of service due to capitalimprovement projects;a possible shortage of available cash to fund capital improvements and the related possibility thatfinancing for these capital improvements may not be availab
256、le to us on attractive terms;anduncertainties as to market demand or a loss of market demand after capital improvements have begun.The costs of renovations and capital improvements could adversely affect our financial condition,results ofoperations,the market price of our common shares and our abili
257、ty to make distributions to our shareholders.Hotel and resort development and redevelopment is subject to timing,budgeting and other risks that mayadversely affect our financial condition,results of operations,the market price of our common shares andour ability to make distributions to our sharehol
258、ders.Though not currently intended to be a primary focus of our initial investment strategy,we may engage inhotel development and redevelopment if suitable opportunities arise.Hotel development and redevelopmentinvolves a number of risks,including risks associated with:construction delays or cost ov
259、erruns that may increase project costs;the receipt of zoning,occupancy and other required governmental permits and authorizations;development costs incurred for projects that are not pursued to completion;acts of God such as earthquakes,hurricanes,floods or fires that could adversely impact a projec
260、t;the negative impact of construction on operating performance during and soon after the constructionperiod;the ability to raise capital;andgovernmental restrictions on the nature or size of a project.We cannot assure you that any development or redevelopment project will be completed on time or wit
261、hinbudget.Our inability to complete a project on time or within budget could adversely affect our financialcondition,results of operations,the market price of our common shares and our ability to make distributions toour shareholders.The increasing use of Internet travel intermediaries by consumers
262、may reduce our revenues.Some of our hotel rooms are booked through Internet travel intermediaries,such as T,E and P.As these Internet bookings increase,these intermediaries may be able to obtainhigher commissions,reduced room rates or other significant contract concessions from the managementcompani
263、es that operate the hotels we own and acquire.Moreover,some of these Internet travel intermediaries areattempting to offer hotel rooms as a commodity,by increasing the importance of price and general indicators ofquality(such as“three-star downtown hotel”),at the expense of brand identification or q
264、uality of product orservice.These intermediaries hope that consumers will eventually develop brand loyalties to their reservationssystem rather than to lodging brands or properties.If the amount of bookings made through Internet travelintermediaries proves to be more significant than we expect,room
265、revenues may be lower than expected,and ourfinancial condition,results of operations,the market price of our common shares and our ability to makedistributions to our shareholders may be adversely affected.15We may be adversely affected by increased use of business-related technology which may reduc
266、e the needfor business-related travel.The increased use of teleconference and video-conference technology by businesses could result indecreased business travel as companies increase the use of technologies that allow multiple parties from differentlocations to participate at meetings without travel
267、ing to a centralized meeting location.To the extent that suchtechnologies play an increased role in day-to-day business and the necessity for business-related travel decreases,hotel room demand may decrease and our financial condition,results of operations,the market price of ourcommon shares and ou
268、r ability to make distributions to our shareholders may be adversely affected.We and our hotel managers rely on information technology in our operations,and any material failure,inadequacy,interruption or security failure of that technology could harm our business.We and our hotel managers rely on i
269、nformation technology networks and systems,including the Internet,toprocess,transmit and store electronic information,and to manage or support a variety of business processes,including financial transactions and records,personal identifying information,reservations,billing and operatingdata.We purch
270、ase some of our information technology from vendors,on whom our systems depend.We rely oncommercially available systems,software,tools and monitoring to provide security for processing,transmissionand storage of confidential customer information,such as individually identifiable information,includin
271、ginformation relating to financial accounts.Although we have taken steps to protect the security of ourinformation systems and the data maintained in those systems,it is possible that our safety and security measureswill not be able to prevent the systemsimproper functioning or damage,or the imprope
272、r access or disclosure ofpersonally identifiable information such as in the event of cyber attacks.Security breaches,including physical orelectronic break-ins,computer viruses,attacks by hackers and similar breaches,can create system disruptions,shutdowns or unauthorized disclosure of confidential i
273、nformation.Any failure to maintain proper function,security and availability of our information systems could interrupt our operations,damage our reputation,subject us to liability claims or regulatory penalties and could have a material adverse effect on our business,financial condition and results
274、 of operations.Terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S.travel andhospitality industries over the past several years,often disproportionately to the ef
275、fect on the overall economy.The impact that terrorist attacks in the U.S.or elsewhere could have on domestic and international travel and ourbusiness in particular cannot be definitively determined,but any such attacks or the threat of such attacks couldhave a material adverse effect on our business
276、,our ability to finance our business,our ability to insure ourproperties and our results of operations and financial condition.Uninsured and underinsured losses could result in a loss of capital.We maintain comprehensive insurance on each of our hotel properties,including liability,fire and extended
277、coverage,of the type and amount we believe are customarily obtained for or by hotel owners.There are noassurances that coverage will remain available at reasonable rates.Various types of catastrophic losses,likeearthquakes and floods,and losses from terrorist activities may not be insurable in whole
278、 or in part or may not beavailable on terms that we consider acceptable.In the event of a substantial loss,our insurance coverage may not be sufficient to cover the full market valueor replacement cost of our lost investment.Should an uninsured loss or a loss in excess of insured limits occur,we cou
279、ld lose all or a portion of the capital we have invested in a hotel property,as well as the anticipated futurerevenue from the property.In that event,we might nevertheless remain obligated for any mortgage debt or otherfinancial obligations related to the property.Inflation,changes in building codes
280、 and ordinances,environmentalconsiderations and other factors might also keep us from using insurance proceeds to replace or renovate a hotelafter it has been damaged or destroyed.Under those circumstances,the insurance proceeds we receive might beinadequate to restore our economic position on the d
281、amaged or destroyed property.16Our hotels may be subject to unknown or contingent liabilities which could cause us to incur substantialcosts.The hotel properties that we own or may acquire are or may be subject to unknown or contingent liabilitiesfor which we may have no recourse,or only limited rec
282、ourse,against the sellers.In general,the representationsand warranties provided under the transaction agreements related to the sales of the hotel properties may notsurvive the closing of the transactions.While we will seek to require the sellers to indemnify us with respect tobreaches of representa
283、tions and warranties that survive,such indemnification may be limited and subject tovarious materiality thresholds,a significant deductible or an aggregate cap on losses.As a result,there is noguarantee that we will recover any amounts with respect to losses due to breaches by the sellers of theirre
284、presentations and warranties.In addition,the total amount of costs and expenses that may be incurred withrespect to liabilities associated with these hotels may exceed our expectations,and we may experience otherunanticipated adverse effects,all of which may adversely affect our financial condition,
285、results of operations,themarket price of our common shares and our ability to make distributions to our shareholders.Noncompliance with environmental laws and regulations could subject us to fines and liabilities whichcould adversely affect our operating results.Our hotel properties are subject to v
286、arious federal,state and local environmental laws.Under these laws,courts and government agencies have the authority to require us,as owner of a contaminated property,to cleanup the property,even if we did not know of or were not responsible for the contamination.These laws also applyto persons who
287、owned a property at the time it became contaminated,and therefore it is possible we could incurcleanup costs even after we sell some of the properties we acquire.In addition to the costs of cleanup,environmental contamination can affect the value of a property and,therefore,an owners ability to borr
288、ow fundsusing the property as collateral or to sell the property.Under the environmental laws,courts and governmentagencies also have the authority to require that a person who sent waste to a waste disposal facility,such as alandfill or an incinerator,pay for the clean-up of that facility if it bec
289、omes contaminated and threatens humanhealth or the environment.A person that arranges for the disposal or transports for disposal or treatment of ahazardous substance at a property owned by another may be liable for the costs of removal or remediation ofhazardous substances released into the environ
290、ment at that property.Furthermore,various court decisions have established that third parties may recover damages for injurycaused by property contamination.For instance,a person exposed to asbestos while staying in a hotel may seekto recover damages if he or she suffers injury from the asbestos.Als
291、o,some of these environmental laws restrictthe use of a property or place conditions on various activities.An example would be laws that require a businessusing chemicals(such as swimming pool chemicals at a hotel property)to manage them carefully and to notifylocal officials that the chemicals are
292、being used.We could be responsible for any of the costs discussed above.The costs to clean up a contaminatedproperty,to defend against a claim,or to comply with environmental laws could be material and could adverselyaffect our financial condition,results of operations,the market price of our common
293、 shares and our ability tomake distributions to our shareholders.As a result,we may become subject to material environmental liabilities.We can make no assurances thatfuture laws or regulations will not impose material environmental liabilities or that the current environmentalcondition of our hotel
294、 properties will not be affected by the condition of the properties in the vicinity of our hotelproperties(such as the presence of leaking underground storage tanks)or by third parties unrelated to us.Compliance with the Americans with Disabilities Act could require us to incur substantial costs.Und
295、er the Americans with Disabilities Act of 1990,or the ADA,all public accommodations must meetvarious federal requirements related to access and use by disabled persons.While we believe that our hotels are17substantially in compliance with these requirements,a determination to the contrary could requ
296、ire removal ofaccess barriers and non-compliance could result in the U.S.government imposing fines or in private litigantswinning damages.In March 2012,a substantial number of changes to the Accessibility Guidelines under the ADA will takeeffect.The new guidelines could cause some of our hotel prope
297、rties to incur costly measures to become fullycompliant.If we are required to make substantial modifications to our hotel properties,whether to comply with theADA or other changes in governmental rules and regulations,our financial condition,results of operations,themarket price of our common shares
298、 and our ability to make distributions to our shareholders could be adverselyaffected.General Risks Related to the Real Estate IndustryIlliquidity of real estate investments could significantly impede our ability to sell hotels or otherwise respondto adverse changes in the performance of our hotel p
299、roperties.Because real estate investments are relatively illiquid,our ability to promptly sell one or more hotelproperties for reasonable prices in response to changing economic,financial and investment conditions will belimited.The real estate market is affected by many factors beyond our control,i
300、ncluding:adverse changes in international,national,regional and local economic and market conditions;changes in interest rates and in the availability,cost and terms of debt financing;changes in governmental laws and regulations,fiscal policies and zoning ordinances and the relatedcosts of complianc
301、e with laws and regulations,fiscal policies and ordinances;the ongoing need for capital improvements,particularly in older structures;changes in operating expenses;andcivil unrest,acts of God,including earthquakes,floods and other natural disasters,which may result inuninsured losses,and acts of war
302、 or terrorism.During 2010,we acquired the Monaco Washington DC by acquiring a leasehold interest in land underlyingthe property from the U.S.government and in February 2011,we acquired the Argonaut Hotel in a similarfashion.We may acquire additional hotels in the future through the purchase of hotel
303、s subject to ground leases.Sale of property subject to ground leases may require the consent of the lessor.This consent requirement maymake it more difficult or expensive to sell or finance the hotels subject to ground leases.We may decide to sell hotel properties in the future.We cannot predict whe
304、ther we will be able to sell anyhotel property for the price or on the terms set by us,or whether any price or other terms offered by a prospectivepurchaser would be acceptable to us.We also cannot predict the length of time needed to find a willing purchaserand to close the sale of a hotel property
305、.We may be required to expend funds to correct defects or to make improvements before a hotel property canbe sold.We cannot assure you that we will have funds available to correct those defects or to make thoseimprovements.In acquiring a hotel property,we may agree to lock-out provisions that materi
306、ally restrict us fromselling that property for a period of time or impose other restrictions,such as a limitation on the amount of debtthat can be placed or repaid on that property.These factors and any others that would impede our ability torespond to adverse changes in the performance of the hotel
307、 properties or a need for liquidity could adverselyaffect our financial condition,results of operations,the market price of our common shares and our ability tomake distributions to our shareholders.18Increases in property taxes would increase our operating costs,reduce our income and adversely affe
308、ct ourability to make distributions to our shareholders.Each of our hotel properties is subject to real and personal property taxes.These taxes may increase as taxrates change and as the properties are assessed or reassessed by taxing authorities.If property taxes increase,ourfinancial condition,res
309、ults of operations and our ability to make distributions to our shareholders could bematerially and adversely affected and the market price of our common shares could decline.The costs of compliance with or liabilities under environmental laws could significantly reduce ourprofitability.Operating ex
310、penses at our hotels could be higher than anticipated due to the cost of complying with existingor future environmental laws and regulations.In addition,an owner of real property can face liability forenvironmental contamination created by the presence or discharge of hazardous substances on the pro
311、perty.Wemay face liability regardless of:our lack of knowledge of the contamination;the timing of the contamination;the cause of the contamination;orthe party responsible for the contamination of the property.Environmental laws also impose ongoing compliance requirements on owners and operators of r
312、ealproperty.Environmental laws potentially affecting us address a wide variety of matters,including,but not limitedto,asbestos-containing building materials,storage tanks,storm water and wastewater discharges,lead-basedpaint,mold/mildew and hazardous wastes.Failure to comply with these laws could re
313、sult in fines and penaltiesand/or expose us to third-party liability.Some of our properties may have conditions that are subject to theserequirements,and we could be liable for such fines or penalties and/or liable to third parties.Certain hotel properties we own or may own in the future may contain
314、,or may have contained,asbestos-containing building materials,or ACBMs.Environmental laws require that ACBMs be properly managed andmaintained and may impose fines and penalties on building owners and operators for failure to comply with theserequirements.Also,certain properties may be adjacent or n
315、ear other properties that have contained or currentlycontain storage tanks for the storage of petroleum products or other hazardous or toxic substances.Theseoperations create a potential for the release of petroleum products or other hazardous or toxic substances.Thirdparties may be permitted by law
316、 to seek recovery from owners or operators for property damage and/or personalinjury associated with exposure to contaminants,including,but not limited to,petroleum products,hazardous ortoxic substances and asbestos fibers.We have obtained Phase I environmental site assessments,or ESAs,on our hotel
317、properties and expect to doso for the hotel properties we acquire in the future.ESAs are intended to evaluate information regarding theenvironmental condition of the surveyed property and surrounding properties based generally on visualobservations,interviews and certain publicly available databases
318、.These assessments do not typically take intoaccount all environmental issues including,but not limited to,testing of soil or groundwater or the possiblepresence of asbestos,lead-based paint,radon,wetlands or mold.As a result,these assessments may fail to revealall environmental conditions,liabiliti
319、es or compliance concerns.Material environmental conditions,liabilities orcompliance concerns may arise after the ESAs and future laws,ordinances or regulations may impose materialadditional environmental liability.We cannot assure you that costs of future environmental compliance will notaffect our
320、 ability to make distributions to our shareholders or that such costs or other remedial measures will notbe material to us.The presence of hazardous substances on a property may limit our ability to sell the property on favorableterms or at all,and we may incur substantial remediation costs.The disc
321、overy of material environmental19liabilities at our properties could subject us to unanticipated significant costs,which could significantly reduceour profitability and the cash available for distribution to our shareholders.Our properties may contain or develop harmful mold,which could lead to liab
322、ility for adverse health effectsand costs of remediating the problem.When excessive moisture accumulates in buildings or on building materials,mold growth may occur,particularly if the moisture problem remains undiscovered or is not addressed over a period of time.Some moldsmay produce airborne toxi
323、ns or irritants.Concern about indoor exposure to mold has been increasing as exposureto mold may cause a variety of adverse health effects and symptoms,including allergic or other reactions.Someof our properties may contain microbial matter such as mold and mildew.The presence of significant mold at
324、 anyof our properties could require us to undertake a costly remediation program to contain or remove the mold fromthe affected property.The presence of significant mold could expose us to liability from hotel guests,hotelemployees and others if property damage or health concerns arise.Our mortgage
325、debt obligations expose us to increased risk of property losses to foreclosure,which couldadversely affect our financial condition,cash flow and ability to satisfy our other debt obligations and makedistributions to our shareholders.Incurring mortgage debt increases our risk of property losses,becau
326、se any defaults on indebtedness securedby properties may result in foreclosure actions initiated by lenders and ultimately our loss of the propertysecuring the loan for which we are in default.For tax purposes,a foreclosure of any of our properties would betreated as a sale of the property for a pur
327、chase price equal to the outstanding balance of the debt secured by themortgage.If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property,we would recognize taxable income on foreclosure but would not receive any cash proceeds.As a result,we maybe required
328、to identify and utilize other sources of cash for distributions to our shareholders with respect to thatincome.In addition,any default under our mortgage debt obligations may increase the risk of our default on otherindebtedness.If this occurs,our financial condition,results of operations,the market
329、 price of our common sharesand our ability to make distributions to our shareholders may be adversely affected.Risks Related to Our Organization and StructureProvisions of our declaration of trust may limit the ability of a third party to acquire control of us byauthorizing our board of trustees to
330、authorize issuances of additional securities.Our declaration of trust authorizes our board of trustees to issue up to 500,000,000 common shares and up to100,000,000 preferred shares.In addition,our board of trustees may,without shareholder approval,amend ourdeclaration of trust to increase the aggre
331、gate number of our shares or the number of shares of any class or seriesthat we have the authority to issue and to classify or reclassify any unissued common shares or preferred sharesand to set the preferences,rights and other terms of the classified or reclassified shares.As a result,our board oft
332、rustees may authorize the issuance of additional shares or establish a series of common or preferred shares thatmay have the effect of delaying or preventing a change in control of our company,including transactions at apremium over the market price of our shares,even if shareholders believe that a
333、change of control is in theirinterest.Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring ourboard of trustees or shareholders to approve proposals to acquire our company or effect a change ofcontrol.Certain provisions of the Maryland General Corporation Law,or the MGCL,applicable to Maryland realestate investment trusts may have the effect of in
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