# Pebblebrook Hotel Trust (PEB) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Pebblebrook Hotel Trust's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1474098/000147409824000040/peb-20231231.htm
Accession: 0001474098-24-000040
Filing date: 2024-02-21
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PEB/
All MD&A years: /company/PEB/mda/
Previous year: /company/PEB/mda/fy2022/ (FY 2022)
Next year: /company/PEB/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Pebblebrook Hotel Trust is a Maryland real estate investment trust that conducts its operations so as to qualify as a REIT under the Code. Substantially all of the operations are conducted through Pebblebrook Hotel, L.P. (our "Operating Partnership"), a Delaware limited partnership of which Pebblebrook Hotel Trust is the sole general partner. In this report, we use the terms "the Company", "we" or "our" to refer to Pebblebrook Hotel Trust and its subsidiaries, unless the context indicates otherwise.

Overview

Our hotel portfolio continued to recover in 2023 with strong growth in occupancy at many of our urban properties, especially our properties in Washington, D.C. and San Francisco, which had trailed the recovery in other markets and our resort properties. We have observed continued stable demand from both the business and leisure segments. We believe 2024 will continue this trend and anticipate positive benefits from a robust convention calendar in many urban markets, including San Diego, Washington, D.C., Boston and Chicago. International inbound travel is expected to continue to recover. Our LaPlaya Beach Resort & Club, which was closed in 2022 due to Hurricane Ian, has been substantially restored. Two of the resort buildings were fully operational for most of 2023 and the final resort building, the Beach House, is expected to be substantially completed by the end of this month. We have agreed to a partial business interruption insurance settlement with our insurance company during 2023 and will continue to work with our insurance company through full completion of our insurance claim.

During 2023, we sold five hotels and two retail components of our hotels in separate transactions for an aggregate sales price of $330.8 million.

During 2023, we repurchased 6,498,901 common shares for an aggregate purchase price of $91.0 million, or an average of $14.01 per share, and 1,000,000 preferred shares for an aggregate purchase price of $15.8 million, or an average of $15.79 per share, under our existing common and preferred share repurchase programs.

During 2023, we repaid $71.1 million of debt, which includes of $47.6 million of senior unsecured notes and $23.5 million of mortgage loans.

In January 2024, we extended the maturity date of $356.7 million borrowed under Term Loan 2024 to January 2028. We also repaid $60.0 million outstanding on Term Loan 2024 and $50.0 million outstanding on the Term Loan 2025 with available cash. The remaining $43.3 million of Term Loan 2024 that was not extended will continue to mature in October 2024.

While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels’ operations, including property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction. Through these efforts, we seek to improve property efficiencies, lower costs, maximize revenues and enhance property operating margins, which we expect will enhance returns to our shareholders.

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Key Indicators of Financial Condition and Operating Performance

We measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ("RevPAR"); total revenue per available room ("Total RevPAR"); average daily rate ("ADR"); occupancy rate ("Occupancy"); funds from operations ("FFO"); earnings before interest, income taxes, depreciation and amortization ("EBITDA"); and EBITDA for real estate ("EBITDAre"). We evaluate individual hotel and company-wide performance with comparisons to budgets, prior periods and competing properties. ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events. See Non-GAAP Financial Measures for further discussion of FFO, EBITDA and EBIDTAre.

Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics for our hotels for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","For the year ended December 31,"],["","","2023","","2022"],["Same-Property Occupancy","","67.7","%","","63.1","%"],["Same-Property ADR","","$","302.96","","","$","312.01"],["Same-Property RevPAR","","$","205.24","","","$","196.96"],["Same-Property Total RevPAR","","$","316.02","","","$","298.38"]]
[[/GREPCENT_TABLE]]

The above table of hotel operating statistics includes information from all hotels owned as of December 31, 2023, except for LaPlaya Beach Resort & Club due to its closure following Hurricane Ian, 1 Hotel San Francisco for the first and second quarters only due to its closure for redevelopment and Newport Harbor Island Resort for the fourth quarter only due to its ongoing redevelopment. The above table of hotel operating statistics also includes Hotel Monaco Seattle and Hotel Vintage Seattle for the first quarter only due to their sales in May 2023, Retail at The Westin Michigan Avenue Chicago for the first quarter only due to its sale in March 2023, Hotel Zoe Fisherman’s Wharf for the first, second and third quarters only due to its sale in November 2023, and Marina City Retail at Hotel Chicago Downtown, Autograph Collection for the first, second and third quarters only due to its sale in December 2023.

Results of Operations

This section includes comparisons of certain 2023 financial information to the same information for 2022. Year-to-year comparisons of the 2022 financial information to the same information for 2021 are contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.

At December 31, 2023 and 2022, our consolidated financial statements included the operations of 46 and 51 hotel properties, respectively, which have been included in our results of operations during the respective periods since their dates of acquisition or through their dates of disposition. Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the years ended December 31, 2023 and 2022. The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties":

[[GREPCENT_TABLE]]
[["Property","","Location","","Disposition Date"],["The Marker San Francisco","","San Francisco, CA","","June 28, 2022"],["Sofitel Philadelphia at Rittenhouse Square","","Philadelphia, PA","","August 2, 2022"],["Hotel Spero","","San Francisco, CA","","August 25, 2022"],["Hotel Vintage Portland","","Portland, OR","","September 14, 2022"],["The Heathman Hotel","","Portland, OR","","February 22, 2023"],["Retail at The Westin Michigan Avenue Chicago","","Chicago, IL","","March 17, 2023"],["Hotel Colonnade Coral Gables","","Coral Gables, FL","","March 28, 2023"],["Hotel Monaco Seattle","","Seattle, WA","","May 9, 2023"],["Hotel Vintage Seattle","","Seattle, WA","","May 24, 2023"],["Hotel Zoe Fisherman\u2019s Wharf","","San Francisco, CA","","November 14, 2023"],["Marina City Retail at Hotel Chicago Downtown, Autograph Collection","","Chicago, IL","","December 21, 2023"],["Property","","Location","","Acquisition Date"],["Inn on Fifth","","Naples, FL","","May 11, 2022"],["Newport Harbor Island Resort","","Newport, RI","","June 23, 2022"]]
[[/GREPCENT_TABLE]]

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Comparison of the year ended December 31, 2023 to the year ended December 31, 2022

Revenues — Total revenues increased by $28.1 million, which includes a $63.3 million increase at our comparable properties primarily due to an increase in leisure and business travel as well as a significant increase in revenue at 1 Hotel San Francisco, which was under renovation through June 2022 and began ramping up operations in the third quarter of 2022. These increases were partially offset by a $35.2 million decrease due to our non-comparable properties as well as a significant decrease in revenue at LaPlaya Beach Resort & Club, which was closed in September 2022 as a result of Hurricane Ian and was partially reopened in 2023.

Hotel operating expenses — Total hotel operating expenses increased by $57.6 million as a result of an increase in staffing, wages and benefits to accommodate occupancy increases, particularly at our urban properties, as well as an increase in hotel operating expenses at 1 Hotel San Francisco, which was closed most of the first and second quarters of 2022 for renovations. Our overall increase in hotel operating expenses was partially offset by a $27.1 million decrease due to our non-comparable properties.

Depreciation and amortization — Depreciation and amortization expense increased by $1.1 million primarily due to redevelopment and renovation activities at Margaritaville Hotel San Diego Gaslamp Quarter and Estancia La Jolla Hotel & Spa which commenced in 2022.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $1.5 million primarily due to a $9.3 million decrease in real estate taxes as a result of tax appeals and lower tax assessments. This decrease was partially offset by a $5.9 million increase in property insurance due to higher insurance premium assessments and a $1.9 million increase in ground rent on ground leases whose rent is based on a percentage of revenues.

General and administrative — General and administrative expense increased by $5.6 million primarily due to an increase in professional fees and employee compensation expense. General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Impairment — We recognized an impairment loss of $81.8 million in 2023 related to three hotels and one retail component of a hotel property. We recognized an impairment loss of $89.6 million in 2022 related to three hotels as well as an impairment related to damage caused by Hurricane Ian at LaPlaya Beach Resort & Club in Naples, Florida and Southernmost Beach Resort in Key West, Florida.

Gain on sale of hotel properties — We recognized a gain on sale of $30.4 million primarily due to the sales of five hotels and two retail components of our hotels in 2023. We recognized a gain on sale of $6.2 million primarily due to the sales of four hotels in 2022.

Business interruption insurance income — We recognized business interruption insurance income of $33.0 million in 2023 related to a partial settlement with the insurance carriers for lost income at LaPlaya Beach Resort & Club.

Other operating expenses — Other operating expenses increased by $7.3 million primarily due to payroll and claims administration costs at LaPlaya Beach Resort & Club for which reimbursement from insurance policies is uncertain.

Interest expense — Interest expense increased by $15.7 million as a result of higher interest rates on floating rate debt.

Other — Other increased by $3.7 million due to an increase in interest income earned on excess cash.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of the Operating Partnership to third-party common OP unit holders and to the preferred OP unit holders.

Distributions to preferred shareholders — Distributions to preferred shareholders decreased by $1.4 million as result of the redemption of one million of our 5.70% Series H Cumulative Redeemable Preferred Shares in December 2022 and the redemption of one million of our 5.70% Series H Cumulative Redeemable Preferred Shares in November 2023.

Non-GAAP Financial Measures

Non-GAAP financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with U.S. GAAP. We report FFO, EBITDA and EBITDAre, which are non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance.

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We calculate FFO in accordance with standards established by Nareit, formerly known as the National Association of Real Estate Investment Trusts, which defines FFO as net income (calculated in accordance with U.S. GAAP), excluding real estate related depreciation and amortization, gains (losses) from sales of real estate, impairments of real estate assets (including impairment of real estate related joint ventures), the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization, gains (losses) from sales of real estate and impairments of real estate assets (including impairment of real estate related joint ventures), all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that FFO provides investors a useful financial measure to evaluate our operating performance.

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the years ended December 31, 2023, 2022 and 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["","2023","","2022","","2021"],["Net income (loss)","$","(74,276)","","","$","(84,981)","","","$","(186,372)"],["Adjustments:"],["Real estate depreciation and amortization","240,304","","","239,231","","","223,813"],["Gain on sale of hotel properties","(30,375)","","","(6,194)","","","(64,729)"],["Impairment loss","81,788","","","89,633","","","14,856"],["FFO","$","217,441","","","$","237,689","","","$","(12,432)"],["Distribution to preferred shareholders and unit holders","(48,306)","","","(48,049)","","","(42,105)"],["Redemption of preferred shares","8,396","","","8,186","","","(8,055)"],["FFO available to common share and unit holders","$","177,531","","","$","197,826","","","$","(62,592)"]]
[[/GREPCENT_TABLE]]

EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. The white paper issued by Nareit entitled “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate” defines EBITDAre as net income or loss (computed in accordance with U.S. GAAP), excluding interest expense, income tax, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and after comparable adjustments for our portion of these items related to unconsolidated affiliates. We believe that EBITDA and EBITDAre provide investors useful financial measures to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

The following table reconciles net income (loss) to EBITDA and EBITDAre for the years ended December 31, 2023, 2022 and 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["","2023","","2022","","2021"],["Net income (loss)","$","(74,276)","","","$","(84,981)","","","$","(186,372)"],["Adjustments:"],["Interest expense","115,660","","","99,988","","","96,633"],["Income tax expense (benefit)","655","","","277","","","61"],["Depreciation and amortization","240,645","","","239,583","","","224,251"],["EBITDA","$","282,684","","","$","254,867","","","$","134,573"],["(Gain) loss on sale of hotel properties","(30,375)","","","(6,194)","","","(64,729)"],["Impairment loss","81,788","","","89,633","","","14,856"],["EBITDAre","$","334,097","","","$","338,306","","","$","84,700"]]
[[/GREPCENT_TABLE]]

FFO, EBITDA and EBITDAre do not represent cash generated from operating activities as determined by U.S. GAAP and should not be considered as alternatives to U.S. GAAP net income (loss), as indications of our financial performance, or to U.S. GAAP cash flow from operating activities, as measures of liquidity. In addition, FFO, EBITDA and EBITDAre are not indicative of funds available to fund cash needs, including the ability to make cash distributions.

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Critical Accounting Policies

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

Investment in Hotel Properties

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

Impairment

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

New Accounting Pronouncements

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

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by our operations, borrowings under our credit facilities, net proceeds from equity and debt offerings, and net proceeds from property sales. Our primary cash requirements in the short term (i.e., those requiring cash on or before December 31, 2024) will be to fund property lease obligations, interest and current principal on debt, capital improvements, dividends on common and preferred shares, and working capital of our property operations. We believe our cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility, which totaled $830.0 million as of December 31, 2023, along with cash generated from ongoing operations will be sufficient to satisfy our short-term cash requirements. As of December 31, 2023 we had no off-balance sheet arrangements.

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

Our material cash requirements include the following contractual and other obligations.

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Debt

Our outstanding debt consisted of floating- and fixed-rate unsecured term loans, convertible senior notes, senior unsecured notes and mortgage loans with varying maturities. Our total debt had an aggregate face value of $2.3 billion as of December 31, 2023, as summarized below:

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["","(in thousands)"],["Revolving credit facilities","$","\u2014"],["Term loans","1,380,000"],["Convertible senior notes","750,000"],["Senior unsecured notes","2,400"],["Mortgage loans","197,497"],["Total debt at face value","$","2,329,897"]]
[[/GREPCENT_TABLE]]

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

On January 3, 2024, the Company entered into the First Amendment to the Fifth Amended and Restated Credit Agreement ("Credit Agreement") which extended the maturity date of $356.7 million borrowed under Term Loan 2024 to January 2028. In connection with the extension, the Company also repaid $60.0 million of its outstanding Term Loan 2024 obligation with available cash. The remaining $43.3 million of Term Loan 2024's balance will continue to mature in October 2024 and will be paid with available cash or borrowings under the revolving credit facility at maturity. On January 3, 2024, the Company also repaid $50.0 million of its outstanding Term Loan 2025 obligation with available cash.

We have the option to extend certain of our current debt maturities with the payment of extension fees. Assuming we exercise all extension options available in our debt agreements and after adjusting for the aforementioned January 2024 term loan extension and repayments, we expect that future principal and interest payments associated with our remaining debt obligations outstanding as of December 31, 2023 will be $2.6 billion through their maturity, with $45.2 million of principal and $102.4 million of interest payable on or before December 31, 2024. We intend to pay amounts due with available cash, borrowings under our revolving credit facility, proceeds from property sales and/or refinance with long-term debt.

We are in compliance with all of our debt covenants.

Our mortgage loans contain customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions. Cash trap provisions may be triggered if the hotel's performance is below a certain threshold. Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender. As of December 31, 2023, none of the mortgage loans were in a cash trap.

Hotel, ground and finance lease obligations

Our properties that are subject to hotel, ground or finance leases, as noted in Note 11. Commitment and Contingencies to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases.

Future fixed minimum payments associated with our hotel, ground and finance leases total $1.8 billion as of December 31, 2023, with $21.5 million payable on or before December 31, 2024.

Purchase commitments

As of December 31, 2023, we had $15.4 million of outstanding purchase commitments, all of which will be paid on or before December 31, 2024. These purchase commitments represent outstanding purchase orders and contracts that have been executed for capital and renovation projects at our properties. See Capital Investments for discussion on planned capital investments.

Preferred dividends and Series Z preferred operating partnership units

We expect to pay aggregate annual dividends and distributions of approximately $47.2 million on our outstanding Series E, Series F, Series G and Series H Cumulative Redeemable Preferred Shares and Series Z Cumulative Perpetual Preferred Units on or before December 31, 2024 and in future years until the shares/units are redeemed. For further discussion on our preferred shares and preferred units, see Note 7. Equity to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Sources and Uses of Cash

Our principal sources of cash are cash from operations, draws on our credit facilities, net proceeds from equity and debt offerings, and net proceeds from property sales. Our principal uses of cash are asset acquisitions, debt service payments, the redemption of equity securities, capital investments, operating costs, corporate expenses and dividends.

Operating Activities. Our net cash provided by operating activities was $236.2 million for the year ended December 31, 2023 and $278.7 million for the year ended December 31, 2022. Fluctuations in our net cash provided by operating activities are primarily the result of changes in hotel revenues, operating cash requirements and corporate expenses. The decrease in cash provided by operations in 2023 as compared to 2022 is primarily due to the disposition of five hotel properties and two retail components of our hotel properties in 2023.

Investing Activities. Our net cash provided by (used in) investing activities was $142.0 million for the year ended December 31, 2023 and $(109.4) million for the year ended December 31, 2022. Fluctuations in our net cash provided by (used in) investing activities are primarily the result of acquisition and disposition activities, as well as capital improvements and additions to our properties.

•During the year ended December 31, 2023, we invested $200.6 million in improvements to our hotel properties, received $314.9 million from the sale of five hotel properties and two retail components of our hotel properties and received $30.2 million in property insurance proceeds.

•During the year ended December 31, 2022, we invested $116.7 million in improvements to our hotel properties, received $248.9 million from the sale of four hotel properties and purchased two hotel properties using cash of $247.2 million.

Financing Activities. Our net cash used in financing activities was $236.8 million for the year ended December 31, 2023 and $209.3 million for the year ended December 31, 2022. Fluctuations in our net cash used in financing activities are primarily the result of our issuance and repurchase of debt and equity securities and distributions paid on our preferred and common shares.

•During the year ended December 31, 2023, we borrowed and repaid $10.0 million of revolving credit facility borrowings, borrowed $140.0 million and repaid $211.1 million in other debt, repurchased $92.8 million and $15.8 million of common shares and preferred shares, respectively, through our common and preferred share repurchase programs, and paid $53.6 million in preferred and common distributions.

•During the year ended December 31, 2022, we borrowed and repaid $190.2 million of revolving credit facility borrowings, borrowed and repaid $1.4 billion in other debt, repurchased $70.7 million of common shares through our common share repurchase program, paid $52.7 million in preferred and common distributions, used $16.0 million to redeem one million Series H Preferred Shares and paid $12.4 million in financing fees.

Capital Investments

We maintain and intend to continue maintaining all of our hotels in good repair and condition, in conformity with applicable laws and regulations, in accordance with franchisor standards when applicable and in accordance with agreed-upon requirements in our management agreements. Routine capital investments will be administered by the hotel management companies. However, we maintain approval rights over the capital investments as part of the annual budget process and as otherwise required from time to time.

Certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guest rooms, meeting space and restaurants, in order to better compete with other hotels in our markets. In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if any, to complete a property improvement plan (“PIP”) in order to bring the hotel property up to the franchisor’s or brand’s standards. Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility or proceeds from new debt or equity offerings.

For the year ended December 31, 2023, we invested $200.6 million in capital investments to reposition and improve our properties, including the renovations of Newport Harbor Island Resort, Margaritaville Hotel San Diego Gaslamp Quarter, Estancia La Jolla Hotel & Spa, Jekyll Island Club Resort, Hilton San Diego Gaslamp Quarter and Skamania Lodge, as well as capital expenditures related to the repair and remediation of LaPlaya Beach Resort & Club and Southernmost Beach Resort, which were damaged by Hurricane Ian.

Depending on market conditions, and in some instances subject to approval from governmental authorities, we expect to invest an additional $85.0 million to $90.0 million in capital investments in 2024, which includes normal hotel capital refurbishments, return of investment projects and major capital projects. We have the following significant capital projects that are expected to be completed in 2024:

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•$49.0 million comprehensive redevelopment of Newport Harbor Island Resort, which commenced in 2023 and is expected to be completed in the second quarter of 2024;

•$26.0 million comprehensive redevelopment of Estancia La Jolla Hotel & Spa, which commenced in 2022 and is expected to be completed in the second quarter of 2024; and

•$20.0 million first phase of a multi-phase master plan at Skamania Lodge, which commenced in 2022 and is expected to be completed in the second quarter of 2024.

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

Common Share Repurchase Programs

On July 27, 2017, our Board of Trustees authorized a share repurchase program of up to $100.0 million of our outstanding common shares. Under this program, we could repurchase common shares from time to time in transactions on the open market or by private agreement. During the year ended December 31, 2023, we repurchased $87.0 million of common shares under this program, and as of December 31, 2023, no common shares remained available for repurchase under this program.

On February 17, 2023, our Board of Trustees authorized a share repurchase program of up to $150.0 million of our outstanding common shares. Under this program, we may repurchase common shares from time to time in transactions on the open market or by private agreement. We may suspend or discontinue this program at any time. Common shares repurchased by the Company cease to be outstanding and become authorized but unissued common shares. During the year ended December 31, 2023, we repurchased $4.0 million of common shares under this program, and as of December 31, 2023, $146.0 million of common shares remained available for repurchase under this program.

During the year ended December 31, 2023, we repurchased 6,498,901 common shares under the 2017 and 2023 repurchase programs, for an aggregate purchase price of $91.0 million, or an average of approximately $14.01 per share.

The timing, manner, price and amount of any repurchases under the 2023 program will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions. The program does not require us to repurchase any specific number of common shares. The program does not have an expiration date and may be suspended, modified or discontinued at any time.

Preferred Share Repurchase Program

On February 17, 2023, our Board of Trustees approved a repurchase program of up to $100.0 million of our outstanding preferred shares (the “Preferred Share Repurchase Program”). Under the terms of the program, we may repurchase up to an aggregate of $100.0 million of our 6.375% Series E Cumulative Redeemable Preferred Shares, 6.30% Series F Cumulative Redeemable Preferred Shares, 6.375% Series G Cumulative Redeemable Preferred Shares and 5.70% Series H Cumulative Redeemable Preferred Shares from time to time in transactions on the open market or by private agreement. As of December 31, 2023, $84.2 million of preferred shares remained available for repurchase under this program.

During the year ended December 31, 2023, we repurchased 1,000,000 of Series H Preferred Shares under this repurchase program, for an aggregate purchase price of $15.8 million, or an average of approximately $15.79 per share.

The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price, liquidity and economic considerations, and market conditions. The program does not require us to repurchase any specific number of Preferred Shares. The program does not have an expiration date and may be suspended, modified or discontinued at any time.

ATM Program

On April 29, 2021, we filed a prospectus supplement with the SEC to sell up to $200.0 million of common shares under an "at the market" offering program (the "ATM program"). On February 21, 2023, the ATM program expired. No common shares were issued or sold under the ATM program.

Inflation

We rely on the performance of the hotels to increase revenues to keep pace with inflation. Generally, our hotel operators possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than inflation or even at the same rate.

Seasonality

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

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Derivative Instruments

In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are subject to fair value reporting at each reporting date and the increase or decrease in fair value is recorded in net income (loss) or accumulated other comprehensive income (loss), based on the applicable hedge accounting guidance. Derivatives expose the Company to credit risk in the event of non-performance by the counter parties under the terms of the interest rate hedge agreements. We believe we minimize the credit risk by transacting with major credit-worthy financial institutions.

As of December 31, 2023, we have interest rate swap agreements with an aggregate notional amount of $1.2 billion to hedge variable interest rates on our unsecured term loans and a mortgage loan. We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges. For a further discussion of our derivative instruments see Note 5. Debt, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.