10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-34571

PEBBLEBROOK HOTEL TRUST

Maryland	27-1055421
(State of Incorporation or Organization)	(IRS Employer Identification No.)
2 Bethesda Metro Center, Suite 1530 Bethesda, Maryland	20814
(Address of Principal Executive Offices)	(Zip Code)

240-507-1300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, par value $0.01 per share	New York Stock Exchange
7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share	New York Stock Exchange
8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    þ  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    þ  No

Indicate 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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    þ  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ  Yes    ¨  No

Indicate 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, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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	þ	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    þ  No

The 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 based on the closing sale price on the New York Stock Exchange for 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 REFERENCE

Portions of the registrant’s Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission 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, 13 and 14.

Pebblebrook Hotel Trust

TABLE OF CONTENTS

		Page
Forward-Looking Statements			1
PART I
1.	Business		2
1A.	Risk Factors		6
1B.	Unresolved Staff Comments		30
2.	Properties		30
3.	Legal Proceedings		32
4.	Mine Safety Disclosures		32
PART II
5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		33
6.	Selected Financial Data		36
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
7A.	Quantitative and Qualitative Disclosures about Market Risk		47
8.	Financial Statements and Supplementary Data		48
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		48
9A.	Controls and Procedures		48
9B.	Other Information		48
PART III
10.	Trustees, Executive Officers and Corporate Governance		49
11.	Executive Compensation		49
12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		49
13.	Certain Relationships and Related Transactions, and Trustee Independence		49
14.	Principal Accountant Fees and Services		49
PART IV
15.	Exhibits and Financial Statement Schedules		50

FORWARD-LOOKING STATEMENTS

This report, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may”, “will”, “should”, “potential”, “could”, “seek”, “assume”, “forecast”, “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenues and expenses, our ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and our ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

• the timing and availability of potential hotel acquisitions and our ability to identify and complete hotel acquisitions in accordance with our business strategy;

• risks associated with the hotel industry, including competition, increases in employment costs, energy costs and other operating costs, or decreases in demand caused 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, including our inability to implement strategic business decisions directly;

• risks associated with the real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act and similar laws;

• interest rate increases;

• our possible failure to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code 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; and

• the other factors discussed 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 by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The “Company,” “we” or “us” mean Pebblebrook Hotel Trust, a Maryland real estate investment trust, and one or more of its subsidiaries (including Pebblebrook Hotel, L.P., our operating partnership), or, as the context may require, Pebblebrook Hotel Trust only or Pebblebrook Hotel, L.P. only.

1

PART I

Item 1. Business.

General

Pebblebrook Hotel Trust is an internally managed hotel investment company, organized in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major U.S. cities, with an emphasis on urban markets in major gateway cities, which we believe present significant barriers-to-entry for new hotel supply and provide diverse sources of meeting and room night demand generators. As of December 31, 2011, the Company owned interests in 20 hotels, including 14 wholly owned hotels with a total of 3,812 guest rooms and a 49% 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 of our operations are conducted through, Pebblebrook Hotel, L.P. (our “Operating Partnership”). We are the sole general partner of our Operating Partnership. At December 31, 2011, we owned 98.2 percent of the common limited partnership interests issued by the Operating Partnership (“common units”). The remaining 1.8 percent of the common units issued by the Operating Partnership were owned by the other limited partners of the Operating Partnership. We operate as a REIT for federal income tax purposes. For us to qualify as a REIT under the Code, we cannot operate the hotels we own. Therefore, our Operating Partnership and its subsidiaries lease our hotel properties to our taxable REIT subsidiary (“TRS”), Pebblebrook Hotel Lessee, Inc. (“PHL”), and its subsidiary lessees (collectively, “TRS lessees”). Our TRS lessees engage third-party eligible independent contractors to manage our hotels. PHL is treated as a TRS for federal income tax purposes and is subject to taxation like other regular C corporations. PHL and its wholly owned subsidiaries are consolidated into our financial statements.

Business Objectives and Strategies

Acquisitions/Investments

We invest in hotel properties located primarily in major U.S. cities, including Atlanta, Boston, Chicago, Minneapolis, New York, Philadelphia, Santa Monica, San Diego, San Francisco, Seattle, Washington, D.C. and West Hollywood, California, with an emphasis on major gateway metropolitan markets. We believe these markets have significant barriers-to-entry and provide diverse sources of meeting and room night demand generators. In addition, we also target investments in resort properties located near our primary urban target markets, as well as in select destination resort markets such as Hawaii, south Florida and southern California. We focus on both branded and independent full-service hotels in the “upper upscale” segment of the lodging industry. The full-service hotels on which we focus our investment activity generally have one or more restaurants, lounges, meeting facilities and other amenities, as well as high customer service levels. We believe that our target markets, including the major gateway markets, are characterized by significant barriers-to-entry and that room-night demand and average daily rate (“ADR”) growth of these types of hotels will likely continue to outperform the national average, as they have in past cyclical recoveries and growth periods.

We utilize extensive research to evaluate any target market and property, including a detailed review of the long-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 not limited to, the 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 significant discount to replacement cost;

• properties not subject to long-term management contracts with hotel management companies;

2

• potential return on investment initiatives, including redevelopment, rebranding, redesign, expansion and change of management;

• opportunities to implement value-added operational improvements; and

• strong 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 major U.S. urban, convention and drive-to and destination resort markets are likely to generate the most favorable returns on investment in the lodging industry. Hotel developers’ inability to source construction financing over the past several years has created an environment in which minimal new lodging supply is expected to be added through at least 2014. We believe that as transient and group travel increases, existing supply will accommodate incremental room-night demand, allowing hotel owners to grow occupancy and increase rates, thereby improving profitability. We believe that portfolio diversification will allow us to capitalize from growth in various customer segments, 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 hotel management companies for the operation of our hotels that provide us with the ability to replace operators and/or reposition properties, to the extent that we determine to do so and align our operators with our objective of maximizing return on investment. In addition, we believe that flexible management contracts facilitate the sale of hotels, and we may seek to sell hotels opportunistically if we believe sales proceeds may be invested in other hotel 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 partial redevelopment, renovation and repositioning of certain properties, as we seek to maximize the financial performance of our hotels. In addition, we may acquire properties that require significant capital improvement, renovation or refurbishment. Over the long-term, we may acquire hotel and resort properties that we believe would benefit from significant redevelopment or expansion, including, for example, adding rooms, meeting facilities or other amenities.

We may consider acquiring outstanding debt secured by a hotel or resort property from lenders and investors if we believe we can foreclose on or acquire ownership of the property in the near-term. In connection with our acquisitions, we do not intend to originate any debt financing or purchase any debt where we do not expect to gain ownership of the underlying property. Additionally, we have invested, and may in the future, co-invest in hotels with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for a property, partnership, joint venture or other entity.

Asset Management

Although we do not manage the daily operations of our hotels, we are actively involved in the asset management of each of our hotels. We believe we can add significant value to our portfolio through our intensive asset management strategies. Our executive and asset management team have significant experience in hotel operations and creating and implementing innovative asset management initiatives. Our asset management strategies consist of capital investment coupled with revenue and expense management.

We have developed strategic short and long-term capital investment plans to enhance our hotels’ profitability. Our capital investments consist of the strategic use of, among others, expansions, additions, renovations, technology upgrades and modifications, and energy efficiency improvements. We are also focused on revenue and expense management at our properties. We work closely with our hotel operators to evaluate optimal market mix and pricing strategies, ensure quality staffing and appropriate management focus, implement best practices to minimize expenses, and aggressively monitor and evaluate the hotels’ operations and performance.

3

Financing Strategies

Over time, we intend to finance our long-term growth with issuances of common and preferred equity and debt financing having staggered maturities. Our debt includes mortgage debt secured by our hotel properties or leasehold 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 to fund future acquisitions as well as for property redevelopments, return on investment initiatives and working capital requirements. Subject to market conditions, we intend to repay amounts outstanding under the senior unsecured revolving credit facility from time to time with proceeds from periodic common 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 Partnership as full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or participate in the potential appreciation in value of our common shares. To date, we have not issued any limited partnership interests in our Operating Partnership to purchase hotel properties.

Competition

We compete for hotel investment opportunities with institutional investors, private equity investors, other REITs 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 to accept more risk than we can prudently manage. Competition generally may increase the bargaining power of property owners seeking to sell and reduce the number of suitable investment opportunities offered to us or purchased by us.

The hotel industry is highly competitive. Our hotels compete with other hotels for guests in our markets. Competitive factors include, among 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 markets in which our hotels operate includes competition from existing, newly renovated and newly developed hotels in the relevant segments. Competition can adversely affect the occupancy, ADR and room revenue per available room (“RevPAR”) of our hotels, and thus our financial results, and may require us to provide additional amenities, incur additional costs or make capital improvements that we otherwise might not choose to make, which may adversely affect our profitability.

Seasonality

Demand in the lodging industry is affected by recurring seasonal patterns which are greatly influenced by overall economic cycles, the geographic locations of the hotels and the customer mix at the hotels. Generally, our hotels will have lower revenue, operating income and cash flow in the first quarter and higher revenue, operating income and cash flow in the third quarter.

Regulations

Our hotel properties are subject to various 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 clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur these costs even after we sell a property. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow using the property as collateral or to sell the property. Under the environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment.

4

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect the funds available for distribution to our shareholders. Prior to closing a property acquisition, we obtain Phase I environmental site assessments, or ESAs, in order to attempt to identify potential environmental concerns at the properties. These assessments are carried out in accordance with an appropriate level of due diligence and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historic aerial photographs and other information on past uses of the property. We may also conduct limited subsurface investigations and test for substances of concern where the results of the Phase I environmental assessments or other information indicates possible contamination or where our consultants recommend such procedures. However, these ESAs or other investigations may not reveal all environmental costs that might have a material adverse effect on our business, assets, results of operations or liquidity 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 local environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the violation of which could have a material adverse effect on us. We have not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our present properties.

Our properties must comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that 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 damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.

Tax Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a result, we generally are not subject to corporate federal income tax on that portion of our REIT taxable income that we distribute 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 specifying generally that we must distribute at least 90 percent of REIT taxable income each year. We will be subject to federal income tax on our taxable income at regular corporate rates if we fail to qualify as a REIT for federal income tax purposes in any taxable year, or to the extent we distribute less than 100 percent of REIT taxable income. We will also not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Even if we continue to qualify as a REIT for federal income tax purposes, we will be subject to 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, our Operating Partnership and its subsidiaries lease our hotel properties to our TRS lessees who in turn engage third-party eligible independent contractors to manage our hotels. The properties owned by the Manhattan Collection

5

joint 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 other regular C corporations.

Employees

We 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 are subject to collective bargaining agreements.

Available Information

Our Internet website is located at www.pebblebrookhotels.com. Copies of the charters of the committees of our board of trustees, our code of business conduct and ethics and our corporate governance guidelines are available on our website. All reports that we have filed with the Securities and Exchange Commission, or SEC, including this Annual Report on Form 10-K and our current reports on Form 8-K, can be obtained free of charge from the SEC’s website at www.sec.gov or through our website. In addition, all reports filed with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549-1090. Further information regarding the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330.

Item 1A. Risk Factors.

Our business is subject to numerous risks. Our results of operations depend upon many factors, including our ability to implement our business strategy, the availability of opportunities to acquire assets, the level and volatility of interest rates, the cost and availability of short- and long-term credit, financial market conditions and general economic conditions.

The following discussion concerns some of the risks associated with our business. These risks are interrelated and you should treat them as a whole. Additional risks and uncertainties not presently known to us may also materially and adversely affect the value of our common shares and our ability to pay dividends to our shareholders. In connection with the forward-looking statements that appear in this Annual Report on Form 10-K in these risk factors and elsewhere, you should carefully review the section entitled “Cautionary Statement About Forward-Looking Statements.”

Risks Related to Our Business and Properties

We depend on the efforts and expertise of our key executive officers and would be adversely affected by the loss of their services.

We depend on the efforts and expertise of our Chairman, President and Chief Executive Officer, as well as our other executive officers, to execute our business strategy. The loss of their services, and our inability to find suitable replacements, would have an adverse effect on our business.

Our returns could be negatively impacted if the third-party management companies that operate our hotels do 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 operate or manage any of our hotel properties. Instead, we lease all of our hotel properties to subsidiaries that qualify as TRSs, under applicable REIT laws, and our TRS lessees retain third-party managers to operate our hotels pursuant to management contracts. Our cash flow from the hotels may be adversely affected if our managers fail to provide quality services and amenities or if they or their affiliates fail to maintain a quality

6

brand name. In addition, our managers or their affiliates may manage, and in some cases may own, invest in or provide credit support or operating guarantees, to hotels that compete with hotel properties that we own or acquire, which may result in conflicts of interest and decisions regarding the operation of our hotels that are not in our best interests.

We do not have the authority to require any hotel property to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel property (for example, setting room rates). Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, RevPAR and ADR, we may not be able to force the management company to change its method of operating our hotels. We generally will attempt to resolve issues with our managers through discussions and negotiations. However, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to litigate the dispute or submit the matter to third-party dispute resolution. We can only seek redress if a management company violates the terms of the applicable management contract with a TRS lessee, and then only to the extent of the remedies provided for under the terms of the management contract. Additionally, in the event that we need to replace any management company, we may be required by the terms of the management contract 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 TRS lessees to pay rent based in part on revenues from our hotels. Our operating risks include decreases in hotel revenues and increases in hotel operating expenses, which would adversely affect our TRS lessees’ ability to pay rent due under the leases, including but not limited to increases in: wage and benefit costs; repair and maintenance expenses; property taxes; insurance costs; and other operating expenses. Increases in these operating expenses can have a significant adverse impact on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our 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 taxable income (determined before the deduction for dividends paid and excluding any net capital gains) each year to our shareholders and we generally expect to make distributions in excess of such amount. In the event of downturns in our operating results, unanticipated capital improvements to our hotel properties or other factors, we may be unable to declare or pay distributions to our shareholders. The timing and amount of distributions are in the sole discretion of our board of trustees which will consider, among other factors, our financial performance, any debt service obligations, any debt covenants, and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.

We invest in the upper-upscale segment of the lodging market, which is highly competitive and generally subject to greater volatility than most other market segments and could negatively affect our profitability.

The upper-upscale segment of the hotel business is highly competitive. Our hotel properties compete on the basis 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 these competitors may have substantially greater marketing and financial resources than we have. This competition could reduce occupancy levels and RevPAR at our hotels. Over-building in the lodging industry may increase the number of rooms available and may decrease occupancy and ADR. In addition, in periods of weak demand, as may occur during a general economic recession, profitability is adversely affected by the relatively high fixed costs of operating upper-upscale hotels.

7

Restrictive covenants in our management contracts could preclude us from taking actions with respect to the sale or refinancing of a hotel property that would otherwise be in our best interest.

We may enter into management contracts that contain some restrictive covenants or acquire properties subject to existing management contracts that do not allow the flexibility we seek, including management contracts that restrict our ability to terminate the contract or require us to pay significant termination fees. For example, the terms of some management contracts may restrict our ability to sell a property unless the purchaser is not a competitor of the manager and assumes the related management contract and meets specified other conditions which may preclude us from taking actions that would otherwise be in our best interest or could cause us to incur substantial expense.

Due to our concentration in hotel investments, a downturn in the lodging industry would adversely affect our operations and financial condition.

Our primary business is hotel-related. Therefore, a downturn in the lodging industry, in general, and the segments and markets in which we operate, in particular, would have a material adverse effect on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Our joint venture investments and other joint venture investments that we may make could be adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between us and our co-venturers.

In July 2011, we acquired an interest in a joint venture that owns six hotels in Manhattan. We share major decisions with our joint venture partner with respect to the joint venture and its hotels. The debt of the joint venture, while non-recourse to us, is secured by first mortgages on the hotels owned by the joint venture and any default on such debt could adversely affect our equity investment in the joint venture. All of the first mortgage and 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 be able to refinance the debt on attractive terms, or at all. In addition, in order to maintain our ownership interest, we may need to invest additional equity into the joint venture in connection with any such refinancing which would reduce the amount we have available to invest in additional acquisitions or capital improvements to our existing hotels.

We may co-invest in hotels in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for a property, partnership, joint venture or other entity. In this event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments through partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt, fail to fund their share of required capital contributions, make dubious business decisions or block or delay necessary decisions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or trustees from focusing their time and effort on our business. Consequently, action by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, 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 adversely affect 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 properties in geographic areas in which our management may have little or no operating experience and in which potential

8

customers may not be familiar with the brand of that particular hotel. As a result, we may have to incur costs relating to the opening, operation and promotion of such hotel properties that are substantially greater than those incurred in other areas. These hotels may attract fewer customers than other hotel properties we may acquire, while at the same time, we may incur substantial additional costs with such hotel properties. Unanticipated expenses and insufficient demand at a new hotel property, therefore, could adversely affect our financial condition and results of operations.

Our hotels operated under franchise agreements are subject to risks arising from adverse developments with respect 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 hotels we acquire in the future will operate under franchise agreements. We are therefore subject to the risks associated with concentrating hotel investments in several franchise brands, include reductions in business following negative publicity related to one of the brands or the general decline of a brand.

The maintenance of the franchise licenses for branded hotel properties is subject to the franchisors’ operating standards and other terms and conditions. Franchisors periodically inspect hotel properties to ensure that we and our lessees and management companies follow their standards. Failure by us, one of our TRS lessees or one of our third-party management companies to maintain these standards or other terms and conditions could result in a franchise license being cancelled. If a franchise license is cancelled due to our failure to make required improvements or to otherwise comply with its terms, we also may be liable to the franchisor for a termination payment, which varies by franchisor and by hotel property. As a condition of maintaining a franchise license, a franchisor could require us to make capital expenditures, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. We may risk losing a franchise license 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 suitable replacement franchise or to operate the hotel without a franchise license. The loss of a franchise license could materially and adversely affect the operations and the underlying value of the hotel property because of the loss of associated name recognition, marketing support and centralized reservation system provided by the franchisor and adversely affect our revenues. 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 our shareholders.

Debt service obligations could adversely affect our overall operating results, may require us to sell hotel properties, may jeopardize our qualification as a REIT and could adversely affect our ability to make distributions 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 debt could subject us to many risks, including the risks that our cash flow from operations will be insufficient to make required payments of principal and interest, our debt may increase our vulnerability to adverse economic and industry conditions, we may be required to dedicate a substantial portion of our cash flow from 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 terms of any refinancing will not be as favorable as the terms of the debt being refinanced and the use of leverage could adversely 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 debt through additional debt or additional equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancings, increases in interest expense could adversely affect our cash flow, and, consequently, cash available for distribution to our shareholders. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of hotel properties on disadvantageous terms,

9

potentially resulting in losses. We have placed and will continue to place mortgages on certain of our hotel properties to secure debt. To the extent we cannot meet any of our debt service obligations, we will risk losing to foreclosure some or all of our pledged hotel properties. Also, covenants applicable to debt could impair our planned 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 portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. In addition, future indebtedness agreements may require that we meet certain covenant tests in order to make distributions to our shareholders.

Higher interest rates could increase debt service requirements on any of our floating rate debt, including our senior unsecured revolving credit facility, and could reduce the amounts available for distribution to our shareholders, as well as reduce funds available for our operations, future business opportunities, or other purposes. We may obtain one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements that are consistent with our intention to remain qualified as a REIT—to “hedge” against the possible negative effects of interest rate fluctuations. However, such hedging incurs costs and we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases or that counterparties under these agreement will honor their obligations thereunder. Adverse economic conditions could also cause the terms on which we borrow to be unfavorable. We could be required to liquidate one or more of our hotel properties in order to meet our debt service obligations at times, which may not permit us to receive an attractive return on our investments.

Our senior executive officers have broad discretion to make investments, and they may make investments where 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 our board of trustees, to invest our capital and to determine the timing of such investments. In addition, our investment policies may be revised from time to time at the discretion of our board of trustees, without a vote of our shareholders. Such discretion could result in investments that may not yield returns consistent with expectations.

The purchase of properties we put under contract may 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, potential acquisitions require significant expense, including expenses for due diligence, legal fees and related overhead. To the 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 distributions to our shareholders, which would, among other things, reduce our cash available to invest in hotel properties and may 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 distributions to our shareholders out of the net proceeds of these offerings, which would reduce the amount of cash we have available to invest in hotel properties and may reduce the returns on your investment in our common shares. The use of these net proceeds for distributions to shareholders could adversely affect our financial results. In addition, funding distributions from the net proceeds of these offerings may constitute a return of capital to our shareholders, which would have the effect of reducing each shareholder’s tax basis in our common shares.

If we cannot obtain financing, our growth will be limited.

To qualify for taxation as a REIT, we are required to distribute at least 90 percent of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains) each year to our shareholders and we generally expect to make distributions in excess of such amount. As a result, our ability to

10

retain earnings to fund acquisitions, redevelopment and development or other capital expenditures is and will be limited. Although our business strategy contemplates future access to debt financing (in addition to our senior unsecured revolving credit facility) to fund acquisitions, redevelopment, development, return on investment initiatives and working capital requirements, there can be no assurance that we will be able to obtain such financing on favorable terms or at all. Past events in the financial markets have adversely impacted the credit markets and, as a result, recently credit has become significantly more expensive and difficult to obtain, if available at all. Some lenders are imposing more stringent credit terms, there has been and may continue to be a general reduction in the amount of credit available and many banks are either unable or unwilling to provide new asset-based lending. Tightening credit markets may have an adverse effect on our ability to obtain financing on favorable terms, if at all, thereby increasing financing costs and/or requiring us to accept financing with increased restrictions. If adverse conditions in the credit markets—in particular with respect to real estate or lodging industry finance—materially deteriorate, our business could be materially and adversely affected. Our long-term ability 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 cannot assure you that we will be able to obtain 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 in those institutions may not be fully or federally insured.

We maintain cash balances in a limited number of financial institutions. Our cash balances are generally in excess of federally insured limits. The failure or collapse of one or more of these financial institutions may materially adversely affect our ability to recover our cash balances.

Our conflicts of interest policy may not adequately address all of the conflicts of interest that may arise with respect to our activities.

In order to avoid any actual or perceived conflicts of interest with our trustees, officers or employees, we have adopted a conflicts of interest policy to specifically address some of the conflicts relating to our activities. Although under this policy any transaction, agreement or relationship in which any of our trustees, officers or employees has an interest must have the approval of a majority of our disinterested trustees, there is no assurance that this policy will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.

Risks Related to Debt and Financing

Our existing indebtedness contains financial covenants that could limit our operations and our ability to make distributions to our shareholders.

Our existing senior unsecured revolving credit facility contains financial and operating covenants, such as net worth requirements, fixed charge coverage, debt ratios and other limitations that restrict our ability to make distributions or other payments to our stockholders, sell all or substantially all of our assets and engage in mergers, consolidations and certain acquisitions without the consent of the lenders. In addition, our existing property-level debt contains restrictions (including cash management provisions) that may under circumstances specified in the loan agreements prohibit our subsidiaries that own our hotels from making distributions or paying dividends, repaying loans to us or other subsidiaries or transferring any of their assets to us or another subsidiary. Failure to meet our financial covenants could result from, among other things, changes in our results of operations, the incurrence of additional debt or changes in general economic conditions. This could cause one or more of our lenders to accelerate the timing of payments and could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders. The terms of our debt may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our shareholders.

11

Many of our existing mortgage debt agreements contain “cash trap” provisions that could limit our ability to make distributions to our shareholders.

Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of the hotels securing the loans declines below a threshold. When these provisions are triggered, substantially all of the profit generated by the hotel is deposited directly into a lockbox account and then swept into a cash management account for the benefit of the lender. Cash is distributed to us only after certain items are paid, including deposits into leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses and extraordinary capital expenditures and leasing expenses. This could adversely affect our liquidity and our ability to 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 be repaid at the maturity of the loan in a so-called “balloon payment.” At the maturity of these loans, assuming we do not have sufficient funds to repay the debt, we will need to refinance this debt. If the credit environment is constrained at the time of our debt maturities, we would have a very difficult time refinancing debt. If we are unable to refinance our debt on acceptable terms, we may be forced to choose from a number of unfavorable options. These options include agreeing to otherwise unfavorable financing terms on one or more of our unencumbered assets, selling one or more hotels at disadvantageous terms, including unattractive prices, or defaulting on the mortgage and permitting the lender to foreclose. Any one of these options could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders.

If we default on our secured debt in the future, the lenders may foreclose on our hotels.

All of our indebtedness for borrowed money, except our senior unsecured revolving credit facility, is secured by either single property first mortgage liens or leasehold interests under the ground leases on the applicable hotel. If we default on any of the secured loans, the applicable lender will be able to foreclose on the property pledged to secure the loan.

In addition to losing the property, a foreclosure may result in recognition of taxable income. Under the Code, a foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. 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 even though we did not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash for distributions to our shareholders. If this occurs, our financial condition, cash flow and ability to satisfy our other debt 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 and delays in acquiring the underlying property.

We may acquire outstanding debt secured by a hotel or resort property from lenders and investors if we believe we can ultimately foreclose or otherwise acquire ownership of the underlying property in the near-term through foreclosure, deed-in-lieu of foreclosure or other means. However, if we do acquire such debt, borrowers may seek to assert various defenses to our foreclosure or other actions and we may not be successful in acquiring the underlying property on a timely basis, or at all, in which event we could incur significant costs and experience significant delays in acquiring such properties, all of which could adversely affect our financial performance and reduce our expected returns from such investments. In addition, we may not earn a current return on such investments particularly if the loan that we acquire is in default.

12

Risks Related to the Lodging Industry

Current economic conditions may reduce demand for hotel properties and adversely affect hotel profitability.

The performance of the lodging industry has historically been closely linked to the performance of the general economy and, specifically, growth in U.S. GDP. It is also sensitive to business and personal discretionary spending levels. Declines in corporate travel budgets and consumer demand due to adverse general economic conditions, such as declines in U.S. GDP, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions can lower the revenues and profitability of hotel properties and therefore the net operating profits of our TRS lessees to whom we lease our hotel properties. The recent global economic downturn led to a significant decline in demand for products and services provided by the lodging industry, lower occupancy levels and significantly reduced room rates.

We anticipate that recovery of demand for products and services provided by the lodging industry will lag improvement in economic conditions. We cannot predict how slow the global economic recovery will be or how slow the recovery in the lodging industry will be. A new period of economic weakness would likely have an adverse impact on our revenues and negatively affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Our operating results and ability to make distributions to our shareholders may be adversely affected by various operating risks common to the lodging industry.

Our hotel properties have different economic characteristics than many other real estate assets and a hotel REIT is structured differently than many other types of REITs. A typical office property owner, for example, has long-term leases with third-party tenants, which provide a relatively stable long-term stream of revenue. Our TRS lessees, on the other hand, do not enter into a lease with a hotel manager. Instead, our TRS lessees engage the hotel manager pursuant to a management contract and pay the manager a fee for managing the hotel. The TRS lessees receive all the operating profit or losses at the hotel. Moreover, virtually all hotel guests stay at a hotel for only a few nights at a time, so the rate and occupancy at each of our hotels changes every day. As a result, we may have highly volatile earnings.

In addition, our hotel properties are subject to various operating risks common to the lodging industry, many of 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 our hotel properties;

• dependence on business and commercial travelers and tourism;

• increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;

• increases in operating costs due to inflation and other factors that may not be offset by increased room rates;

• 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 related costs of compliance with laws and regulations, fiscal policies and 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 including pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu and SARS, political instability, regional hostilities, imposition of taxes or surcharges by regulatory authorities, travel

13

related accidents and unusual weather patterns, including natural disasters such as hurricanes, tsunamis or earthquakes;

• adverse effects of a downturn in the lodging industry; and

• risks generally associated with the ownership of hotel properties and real estate, as we discuss in more detail below.

These factors could reduce the revenues and net operating profits of our TRS lessees, which in turn could adversely affect our financial condition, results of operations, the market price of our common shares, and our ability 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 and other resources than we have. These entities generally may be able to accept more risk than we can prudently manage. This competition may generally limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire. This competition may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms.

The seasonality of the lodging industry may cause fluctuations in our quarterly revenues that cause us to borrow money to fund distributions to our shareholders.

The lodging industry is seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in our revenues. Our quarterly earnings may be adversely affected by factors outside our control, including weather conditions and poor economic factors. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these fluctuations 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 we expect.

The lodging industry is highly cyclical in nature. Fluctuations in lodging demand and, therefore, hotel operating performance, are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect lodging industry fundamentals, and overbuilding has the potential to further exacerbate the negative impact of poor economic conditions. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. A decline in lodging demand, or a continued growth in lodging supply, could result in continued deterioration in lodging industry fundamentals and returns that are substantially below expectations, or result in losses, which could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Capital expenditure requirements at our properties may be costly and require us to incur debt, postpone improvements, reduce distributions or otherwise adversely affect the results of our operations and the market price of our common shares.

Some of the hotel properties we acquire need renovations and capital improvements at the time of acquisition and all the hotel properties we have acquired and will acquire in the future will have an ongoing need for renovations and other capital improvements, including replacement, from time to time, of furniture, fixtures and equipment. The franchisors of these hotel properties also require periodic capital improvements as a condition to our maintaining the franchise licenses. In addition, our lenders often require that we set aside annual amounts for capital improvements to our hotel properties. These capital improvements may give rise to the following risks:

• possible environmental problems;

14

• construction cost overruns and delays;

• the possibility that revenues will be reduced while rooms or restaurants are out of service due to capital improvement projects;

• a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on attractive terms; and

• uncertainties 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 of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Hotel and resort development and redevelopment is subject to timing, budgeting and other risks that may adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Though not currently intended to be a primary focus of our initial investment strategy, we may engage in hotel development and redevelopment if suitable opportunities arise. Hotel development and redevelopment involves a number of risks, including risks associated with:

• construction delays or cost overruns 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 project;

• the negative impact of construction on operating performance during and soon after the construction period;

• the ability to raise capital; and

• governmental 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 within budget. Our inability to complete a project on time or within budget could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

The increasing use of Internet travel intermediaries by consumers may reduce our revenues.

Some of our hotel rooms are booked through Internet travel intermediaries, such as Travelocity.com, Expedia.com and Priceline.com. As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from the management companies that operate the hotels we own and acquire. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”), at the expense of brand identification or quality of product or service. These intermediaries hope that consumers will eventually develop brand loyalties to their reservations system rather than to lodging brands or properties. If the amount of bookings made through Internet travel intermediaries proves to be more significant than we expect, room revenues may be lower than expected, and our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders may be adversely affected.

15

We may be adversely affected by increased use of business-related technology which may reduce the need for business-related travel.

The increased use of teleconference and video-conference technology by businesses could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location. To the extent that such technologies 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 our common shares and our 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 information technology networks and systems, including the Internet, to process, 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 operating data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as individually identifiable information, including information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. 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 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 and hospitality industries over the past several years, often disproportionately to the effect on the overall economy. The impact that terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be definitively determined, but any such attacks or the threat of such attacks could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties 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 coverage, of the type and amount we believe are customarily obtained for or by hotel owners. There are no assurances that coverage will remain available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods, and losses from terrorist activities may not be insurable in whole or in part or may not be available 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 value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel property, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

16

Our hotels may be subject to unknown or contingent liabilities which could cause us to incur substantial costs.

The hotel properties that we own or may acquire are or may be subject to unknown or contingent liabilities for which we may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the hotel properties may not survive the closing of the transactions. While we will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with these hotels may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our financial condition, results of operations, the market 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 which could adversely affect our operating results.

Our hotel properties are subject to various 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 clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur cleanup 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 owner’s ability to borrow funds using the property as collateral or to sell the property. Under the environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. A person that arranges for the disposal or transports for disposal or treatment of a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Also, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

As a result, we may become subject to material environmental liabilities. We can make no assurances that future laws or regulations will not impose material environmental liabilities or that the current environmental condition of our hotel properties will not be affected by the condition of the properties in the vicinity of our hotel properties (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.

Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. While we believe that our hotels are

17

substantially in compliance with these requirements, a determination to the contrary could require removal of access barriers and non-compliance could result in the U.S. government imposing fines or in private litigants winning damages.

In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA will take effect. The new guidelines could cause some of our hotel properties to incur costly measures to become fully compliant.

If we are required to make substantial modifications to our hotel properties, whether to comply with the ADA or other changes in governmental rules and regulations, our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders could be adversely affected.

General Risks Related to the Real Estate Industry

Illiquidity of real estate investments could significantly impede our ability to sell hotels or otherwise respond to adverse changes in the performance of our hotel properties.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties for reasonable prices in response to changing economic, financial and investment conditions will be limited. The real estate market is affected by many factors beyond our control, including:

• 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 related costs of compliance with laws and regulations, fiscal policies and ordinances;

• the ongoing need for capital improvements, particularly in older structures;

• changes in operating expenses; and

• civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war or terrorism.

During 2010, we acquired the Monaco Washington DC by acquiring a leasehold interest in land underlying the property from the U.S. government and in February 2011, we acquired the Argonaut Hotel in a similar fashion. We may acquire additional hotels in the future through the purchase of hotels subject to ground leases. Sale of property subject to ground leases may require the consent of the lessor. This consent requirement may make 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 whether we will be able to sell any hotel property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property.

We may be required to expend funds to correct defects or to make improvements before a hotel property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of the hotel properties or a need for liquidity could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

18

Increases in property taxes would increase our operating costs, reduce our income and adversely affect our ability to make distributions to our shareholders.

Each of our hotel properties is subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. If property taxes increase, our financial condition, results of operations and our ability to make distributions to our shareholders could be materially 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 our profitability.

Operating expenses at our hotels could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. In addition, an owner of real property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:

• our lack of knowledge of the contamination;

• the timing of the contamination;

• the cause of the contamination; or

• the party responsible for the contamination of the property.

Environmental laws also impose ongoing compliance requirements on owners and operators of real property. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials, storage tanks, storm water and wastewater discharges, lead-based paint, mold/mildew and hazardous wastes. Failure to comply with these laws could result in fines and penalties and/or expose us to third-party liability. Some of our properties may have conditions that are subject to these requirements, 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, or may have contained, asbestos-containing building materials, or ACBMs. Environmental laws require that ACBMs be properly managed and maintained and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, certain properties may be adjacent or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. These operations create a potential for the release of petroleum products or other hazardous or toxic substances. Third parties may be permitted by law to seek recovery from owners or operators for property damage and/or personal injury associated with exposure to contaminants, including, but not limited to, petroleum products, hazardous or toxic substances and asbestos fibers.

We have obtained Phase I environmental site assessments, or ESAs, on our hotel properties and expect to do so for the hotel properties we acquire in the future. ESAs are intended to evaluate information regarding the environmental condition of the surveyed property and surrounding properties based generally on visual observations, interviews and certain publicly available databases. These assessments do not typically take into account all environmental issues including, but not limited to, testing of soil or groundwater or the possible presence of asbestos, lead-based paint, radon, wetlands or mold. As a result, these assessments may fail to reveal all environmental conditions, liabilities or compliance concerns. Material environmental conditions, liabilities or compliance concerns may arise after the ESAs and future laws, ordinances or regulations may impose material additional environmental liability. We cannot assure you that costs of future environmental compliance will not affect our ability to make distributions to our shareholders or that such costs or other remedial measures will not be material to us.

The presence of hazardous substances on a property may limit our ability to sell the property on favorable terms or at all, and we may incur substantial remediation costs. The discovery of material environmental

19

liabilities at our properties could subject us to unanticipated significant costs, which could significantly reduce our profitability and the cash available for distribution to our shareholders.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and 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 molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. Some of our properties may contain microbial matter such as mold and mildew. The presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property. The presence of significant mold could expose us to liability from hotel guests, hotel employees and others if property damage or health concerns arise.

Our mortgage debt obligations expose us to increased risk of property losses to foreclosure, which could adversely affect our financial condition, cash flow and ability to satisfy our other debt obligations and make distributions to our shareholders.

Incurring mortgage debt increases our risk of property losses, because any defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing the loan for which we are in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. 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 may be required to identify and utilize other sources of cash for distributions to our shareholders with respect to that income.

In addition, any default under our mortgage debt obligations may increase the risk of our default on other indebtedness. If this occurs, our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders may be adversely affected.

Risks Related to Our Organization and Structure

Provisions of our declaration of trust may limit the ability of a third party to acquire control of us by authorizing our board of trustees to 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 to 100,000,000 preferred shares. In addition, our board of trustees may, without shareholder approval, amend our declaration of trust to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common shares or preferred shares and to set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of trustees may authorize the issuance of additional shares or establish a series of common or preferred shares that may have the effect of delaying or preventing a change in control of our company, including transactions at a premium over the market price of our shares, even if shareholders believe that a change of control is in their interest.

Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of trustees or shareholders to approve proposals to acquire our company or effect a change of control.

Certain provisions of the Maryland General Corporation Law, or the MGCL, applicable to Maryland real estate investment trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of

20

impeding a change of control under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10 percent or more of the voting power of our shares) or an affiliate of any interested shareholder for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes special appraisal rights and special shareholder voting requirements on these combinations; and

• “control share” provisions that provide that our “control shares” (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

By resolution of our board of trustees, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of trustees (including a majority of trustees who are not affiliates or associates of such persons). Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of trustees may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

Additionally, Title 8, Subtitle 3 of the MGCL permits our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then current market price.

The ownership limitations in our declaration of trust may restrict or prevent shareholders from engaging in certain transfers of our common shares.

In order for us to qualify and remain qualified as a REIT, no more than 50 percent in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. To assist us in qualifying as a REIT, our declaration of trust contains a share ownership limit. Generally, any of our shares owned by affiliated owners will be added together for purposes of the share ownership limit.

If anyone transfers shares in a way that would violate the share ownership limit or prevent us from qualifying as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the share ownership limit or we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Anyone who acquires shares in violation of the share ownership limit or the other restrictions on transfer in our declaration of trust bears the risk of suffering a financial loss when the shares are redeemed or sold if the market price of our shares falls between the date of purchase and the date of redemption or sale.

In addition, these ownership limitations may prevent an acquisition of control of us by a third party without our board of trustees’ approval, even if our shareholders believe the change of control is in their interest.

21

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit shareholders’ recourse in the event of actions not in their best interests.

Under Maryland law, generally, a trustee’s actions will be upheld if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our declaration of trust limits the liability of our trustees and officers to us and our shareholders for money damages, except for liability resulting from:

• actual receipt of an improper benefit or profit in money, property or services; or

• active and deliberate dishonesty by the trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.

Our declaration of trust authorizes us to indemnify our trustees and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each trustee or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our trustees and officers. As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies.

Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.

Our declaration of trust provides that a trustee may be removed only for cause (as defined in our declaration of trust) and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. Our declaration of trust also provides that vacancies on our board of trustees may be filled only by a majority of the remaining trustees in office, even if less than a quorum. These requirements prevent shareholders from removing trustees except for cause and with a substantial affirmative vote and from replacing trustees with their own nominees and may prevent a change in control of our company that is in the best interests of our shareholders.

The ability of our board of trustees to change our major policies without the consent of shareholders may not be in shareholders’ interest.

Our board of trustees determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to shareholders. Our board may amend or revise these and other policies and guidelines from time to time without the vote or consent of our shareholders. Accordingly, our shareholders will have limited control over changes in our policies and those changes could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Further issuances of equity securities may be dilutive to current shareholders.

We expect to issue additional common shares or preferred shares to raise the capital necessary to finance hotel acquisitions or improvements, refinance debt or pay portions of future dividends. In addition, we may issue units in our operating partnership, which are redeemable on a one-for-one basis for our common shares, to acquire hotels. Such issuances could result in dilution of our shareholders’ equity interests.

22

Future offerings of debt securities or preferred shares, which would be senior to our common shares upon liquidation and for the purpose of distributions, may cause the market price of our common shares to decline.

We have issued two series of preferred shares. In the future, we may increase our capital resources by making additional offerings of debt or equity securities, which may include senior or subordinated notes, classes of preferred shares and/or common shares. We will be able to issue additional common shares or preferred shares without shareholder approval, unless shareholder approval is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Upon liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common shares. Additional equity offerings could significantly dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to preemptive rights or other protections against dilution. Preferred shares and debt, if issued, have a preference on liquidating distributions or a preference on dividend or interest payments that could limit our ability to make a distribution to the holders of our common shares. Because our decision to issue securities will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future securities issuances reducing the market price of our common shares and diluting their interest.

Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.

Our board of trustees has the authority to designate and issue preferred shares with liquidation, dividend and other rights that are senior to those of our common shares. As of December 31, 2011, 5,600,000 shares of our 7.875% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) and 3,400,000 shares of our 8.00% Series B Cumulative Redeemable Preferred Shares (the “Series B Preferred Shares”) were issued and outstanding. The aggregate liquidation preference with respect to the outstanding preferred shares is approximately $225.0 million, and annual dividends on our outstanding preferred shares are approximately $17.8 million. Holders of the Series A Preferred Shares and holders of the Series B Preferred Shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares. Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common shares, holders of these preferred shares are entitled to receive a liquidation preference of $25.00 per share plus any accrued and unpaid distributions. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common shares. In addition, holders of these preferred shares have the right to elect two additional trustees to our board of trustees whenever dividends on the preferred shares are in arrears in an aggregate amount equivalent to six or more quarterly dividends, whether or not consecutive.

The change of control conversion and redemption features of the Series A Preferred Shares and of the Series B Preferred Shares may make it more difficult for a party to take over our company or discourage a party from taking over our company.

Upon the occurrence of a change of control (as defined in our declaration of trust) the result of which our common shares and the common securities of the acquiring or surviving entity (or American Depositary Receipts representing such securities) are not listed on the New York Stock Exchange (the “NYSE”), the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ, holders of the Series A Preferred Shares and holders of the Series B Preferred Shares will have the right (unless, as provided in our declaration of trust, we have provided or provide notice of our election to redeem the Series B Preferred Shares) to convert some or all of their Series B Preferred Shares into our common shares (or equivalent value of alternative consideration), and under these circumstances we will also have a special optional redemption right to redeem the Series B Preferred Shares. Upon such a conversion, the holders of Series A Preferred Shares will be limited to a maximum number of our common shares equal to the 2.3234 multiplied by the number of Series A Preferred Shares converted and holders of Series B Preferred Shares

23

will be limited to a maximum number of our common shares equal to the 3.4483 multiplied by the number of Series B Preferred Shares converted. In addition, those features of the Series A Preferred Shares and of the Series B Preferred Shares may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change of control of our company under circumstances that otherwise could provide the holders of our common shares, Series A Preferred Shares and Series B Preferred Shares with the opportunity to realize a premium over the then-current market price or that shareholders may otherwise believe is in their best interests.

We have entered into an agreement with each of our executive officers that requires us to make payments in the event the officer’s employment is terminated by us without cause, by the officer for good reason or under certain circumstances following a change of control of our company.

The agreements that we have entered into with our executive officers provide benefits under certain circumstances that could make it more difficult for us to terminate these officers and may prevent or deter a change of control of our company that would otherwise be in the interest of our shareholders.

If we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial results, which could harm our business and the value of our common shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually issue their own opinion on our internal controls over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of our common shares. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.

Federal Income Tax Risk Factors

Our failure to qualify, or to remain qualified, as a REIT would result in higher taxes and reduced cash available for distribution to our shareholders.

We have elected to be taxed as a REIT for federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which only a limited number of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT qualification. Our qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis.

Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially applicable with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to shareholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our shares. If, for any reason, we failed to qualify as a REIT and we were not entitled to relief under certain Code provisions, we would be unable to elect REIT status for the four taxable years following the year during which we ceased to so qualify which would negatively impact the value of our shares.

24

Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our shareholders.

To qualify and maintain our qualification as a REIT, we must distribute to our shareholders each calendar year at least 90 percent of our REIT taxable income (including certain items of non-cash income), determined before the deduction for dividends paid and excluding any net capital gain. To the extent that we satisfy the 90 percent distribution requirement, but distribute less than 100 percent of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4 percent nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than the sum of:

• 85 percent of our REIT ordinary income for that year;

• 95 percent of our REIT capital gain net income for that year; and

• any undistributed REIT taxable income from prior years.

We have distributed, and we intend to continue to distribute, our REIT taxable income to our shareholders in a manner intended to satisfy the 90 percent distribution requirement and to avoid both corporate income tax and the 4 percent nondeductible excise tax. However, there is no requirement that TRSs distribute their after tax net income to their parent REIT or their shareholders.

Our REIT taxable income may substantially exceed our net income as determined based on U.S. generally accepted accounting principles, or U.S. GAAP, because, for example, realized capital losses will be deducted in determining our U.S. GAAP net income, but may not be deductible in computing our REIT taxable income. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell properties at prices or at times that we regard as unfavorable in order to pay out enough of our REIT taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4 percent nondeductible excise tax in a particular year.

We may pay taxable dividends partly in shares and partly in cash, in which case shareholders may sell our shares to pay tax on such dividends, placing downward pressure on the market price of our shares.

The Internal Revenue Service, or IRS, has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in shares as dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by the taxpayers to whom they were issued, but we could request a similar ruling from the IRS. In addition, the IRS previously issued a revenue procedure authorizing publicly traded REITs to make elective cash/share dividends, but that revenue procedure does not apply to our 2012 and future taxable years. Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in cash and shares. Although we have no current intention of paying dividends in the form of our own shares, if in the future we choose to pay dividends in our own shares, our shareholders may be required to pay tax in excess of the cash that they receive. If a U.S. shareholder sells the shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in shares. If we pay dividends in our own shares and a significant number of our shareholders determine to sell our shares in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our shares.

Our TRS lessees increase our overall tax liability.

Our TRS lessees are subject to federal and state income tax on their taxable income, which consists of the revenues from the hotel properties leased by our TRS lessees, net of the operating expenses (including management fees) for such hotel properties and rent payments to us. Accordingly, although our ownership of our

25

TRS lessees allows us to participate in the operating income from our hotel properties in addition to receiving rent, that operating income is fully subject to income tax. The after-tax net income of our TRS lessees is available for distribution to us.

Our ownership of our TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100 percent penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.

A REIT may own up to 100 percent of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotel operations pursuant to hotel management contracts. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35 percent of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25 percent of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100 percent excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

Our TRSs are subject to applicable federal, foreign, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is and will continue to be less than 25 percent of the value of our total assets (including our TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100 percent excise tax described above. There can be no assurance, however, that we will be able to comply with the 25 percent limitation discussed above or to avoid application of the 100 percent excise tax discussed above.

If the leases of our hotel properties to our TRS lessees are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders.

To qualify as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to our operating partnership by our TRS lessees pursuant to the lease of our hotel properties constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.

If our Operating Partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders and suffer other adverse consequences.

We believe that our Operating Partnership qualifies to be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us, is required to pay tax on its allocable share of the operating partnership’s income. No assurance can be provided, however, that the IRS will not challenge its status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership as a corporation for tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of

26

our operating partnership to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders.

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease all of our hotels to our TRS lessees. So long as any TRS lessee qualifies as a TRS, it will not be treated as a “related party tenant” with respect to our properties that are managed by an independent hotel management company that qualifies as an “eligible independent contractor.” We believe that our TRSs qualify to be treated as TRSs for federal income tax purposes, but there can be no assurance that the IRS will not challenge the status of a TRS for federal income tax purposes or that a court would not sustain such a challenge. If the IRS were successful in disqualifying any of our TRSs lessees from treatment as a TRS, it is possible that we would fail to meet the asset tests applicable to REITs and substantially all of our income would fail to qualify for the gross income tests. If we failed to meet either the asset or gross income tests, we would likely lose our REIT qualification for federal income tax purposes.

Additionally, if our hotel managers do not qualify as “eligible independent contractors,” we will fail to qualify as a REIT. Each of the hotel management companies that enter into a management contract with our TRS lessees must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS lessees to be qualifying income for purposes of the REIT gross income tests. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own, directly or through its shareholders, more than 35 percent of our outstanding shares, taking into account certain ownership attribution rules. The ownership attribution rules that apply for purposes of these 35 percent thresholds are complex. Although we intend to monitor ownership of our shares by our hotel managers and their owners, there can be no assurance that these ownership levels will not be exceeded.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and estates has been reduced by legislation to 15 percent (through the end of 2012). Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75 percent or 95 percent gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRSs.

27

Complying with REIT requirements may cause us to forego otherwise attractive business opportunities or liquidate otherwise attractive investments.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and the ownership of our shares. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75 percent of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10 percent of the outstanding voting securities of any one issuer or more than 10 percent of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5 percent of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25 percent of the value of our total assets can be represented by the securities of one or more TRSs. The Code provides that temporary investments of new capital in stock or debt instruments for the period of one year beginning on the date on which we receive the new capital will be considered qualified real estate assets for purposes of the above requirements. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

If our subsidiary REIT failed to qualify as a REIT, we could be subject to higher taxes and could fail to remain qualified as a REIT.

Our Operating Partnership owns 100% of the common shares of a subsidiary REIT that has elected to be taxed as a REIT under the federal income tax laws. Our subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If our subsidiary REIT were to fail to qualify as a REIT, then (i) the subsidiary REIT would become subject to federal income tax and (ii) our ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If our subsidiary REIT were to fail to qualify as a REIT, it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions. We have made a “protective” TRS election with respect to our subsidiary REIT and may implement other protective arrangements intended to avoid such an outcome if our subsidiary REIT were not to qualify as a REIT, but there can be no assurance that such “protective” election and other arrangements will be effective to avoid the resulting adverse consequences to us. Moreover, even if the “protective” TRS election with respect to our subsidiary REIT were to be effective in the event of the failure of the subsidiary REIT to qualify as a REIT, the subsidiary REIT would be subject to federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 25% of the value of our total assets may be represented by the securities of one or more TRSs. In this event, we would fail to qualify as a REIT unless we or our subsidiary REIT could avail itself of certain relief provisions.

The ability of our board of trustees to revoke our REIT qualification without shareholder approval may subject us to federal and state income tax and reduce distributions to our shareholders.

Our declaration of trust provides that our board of trustees may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our shareholders, which may have adverse consequences on our total return to our shareholders and on the market price of our common shares.

28

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our shares.

At any time, the federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative and judicial interpretation, or any amendment to any existing federal income tax law, regulation or administrative or judicial interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative and judicial interpretation.

The share ownership restrictions of the Code for REITs and the 9.8 percent share ownership limit in our declaration of trust may inhibit market activity in our shares and restrict our business combination opportunities.

In order to qualify as a REIT for each taxable year, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50 percent in value of our issued and outstanding shares at any time during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares under this requirement. Additionally, at least 100 persons must beneficially own our shares during at least 335 days of a taxable year for each taxable year. To help insure that we meet these tests, our declaration of trust restricts the acquisition and ownership of our shares.

Our declaration of trust, with certain exceptions, authorizes our trustees to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of trustees, our declaration of trust prohibits any person from beneficially or constructively owning more than 9.8 percent (measured by value or number of shares, whichever is more restrictive) of any class or series of our shares. Our board of trustees may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8 percent of the value of our outstanding shares would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of trustees determines that it is no longer in our best interest to continue to qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interest of the shareholders.

If states and localities in which we own material amounts of property or conduct material amounts of business raise their income and property tax rates or amend their tax regimes in a manner that increases our state and local tax liabilities, we would have less cash available for distribution to our shareholders and the market price of our shares could be adversely affected.

We and our subsidiaries may be subject to income tax by states and localities in which we conduct business. Additionally, we are and will continue to be subject to property taxes in states and localities in which we own property, and our TRS lessees are and will continue to be subject to state and local corporate income tax. Many states and localities are currently financially distressed as a result of the recent recession. As these states and localities seek additional sources of revenue to reduce budget deficits and otherwise improve their financial condition, they may, among other steps, raise income and property tax rates and/or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for federal income tax purposes. We cannot predict when or if any states or localities would make any such changes, or what form those changes would take. If states and localities in which we own material amounts of property or conduct material amounts of business make changes to their tax rates or tax regimes that increase our state and local tax liabilities, such increases would reduce the amount of cash available for distribution to our shareholders and could adversely affect the market price of our shares.

29

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We lease our headquarters located at 2 Bethesda Metro Center, Suite 1530, Bethesda, Maryland 20814.

At December 31, 2011, we have 14 wholly owned hotels with a total of 3,812 guest rooms and a 49% equity interest in six hotels with a total of 1,733 guest rooms.

The following table sets forth certain information about the hotels we wholly owned as of December 31, 2011, all of which are consolidated in our financial statements.

Property	Date Acquired	Location	Number of Guest Rooms
1. DoubleTree by Hilton Bethesda-Washington DC(1)	June 4, 2010	Bethesda, MD		270
2. Sir Francis Drake	June 22, 2010	San Francisco, CA		416
3. InterContinental Buckhead(1)	July 1, 2010	Buckhead, GA		422
4. Monaco Washington DC(1)(2)	September 9, 2010	Washington, D.C.		183
5. The Grand Hotel Minneapolis	September 29, 2010	Minneapolis, MN		140
6. Skamania Lodge(1)	November 3, 2010	Stevenson, WA		254
7. Sheraton Delfina	November 19, 2010	Santa Monica, CA		310
8. Sofitel Philadelphia(1)	December 3, 2010	Philadelphia, PA		306
9. Argonaut Hotel(1)(2)	February 16, 2011	San Francisco, CA		252
10. Westin Gaslamp Quarter	April 6, 2011	San Diego, CA		450
11. Hotel Monaco Seattle	April 7, 2011	Seattle, WA		189
12. Mondrian Los Angeles	May 3, 2011	West Hollywood, CA		237
13. Viceroy Miami	May 26, 2011	Miami, FL		148
14. W Boston	June 8, 2011	Boston, MA		235
Total number of guest rooms				3,812

⁽¹⁾ This property is subject to mortgage/debt at December 31, 2011.

⁽²⁾ This property is subject to a long-term ground lease.

The following table sets forth certain information about the six hotels we owned through a 49% equity interest in the Manhattan Collection joint venture as of December 31, 2011. None of these hotels is consolidated in our financial statements.

Property	Date Acquired	Location	Number of Guest Rooms
1. Affinia Manhattan(1)	July 29, 2011	New York, NY		618
2. Affinia Shelburne(1)	July 29, 2011	New York, NY		325
3. Affinia Dumont(1)	July 29, 2011	New York, NY		242
4. Affinia 50(1)	July 29, 2011	New York, NY		210
5. Affinia Gardens(1)	July 29, 2011	New York, NY		129
6. The Benjamin(1)	July 29, 2011	New York, NY		209
Total number of guest rooms				1,733

⁽¹⁾ This property is subject to mortgage/debt at December 31, 2011.

30

Hotel Managers and Hotel Management Agreements

We are a party to hotel management agreements with Denihan Hospitality Group, Destination Hotels and Resorts, Kimpton Hotels and Restaurants (“Kimpton”), InterContinental Hotels Group, Morgans Hotel Group, Sofitel (Accor SA), Starwood Hotels and Resorts, Thayer Lodging Group and Viceroy Hotel Group.

Our management agreements have the terms described below:

• Base Management Fees. Our management agreements generally provide for the payment of base management fees between 2.0% and 4.0% of the applicable hotel’s revenues, as determined in the agreements.

• Incentive Management and Other Fees. Some of our management agreements provide for the payment of incentive management fees. Generally, incentive management fees are 10.0% to 20.0% of net operating income above a specified return on project costs or as a percentage of net operating income above various net operating income thresholds. One of our management agreements provides for an incentive fee of the lesser of 1% of revenues or the amount by which net operating income exceeds a threshold. Two of our management agreements have a maximum incentive fee of 2.5% of revenue.

• Terms. The initial terms of our management agreements range from 5 years to 20 years not including renewals, and 5 years to 40 years including renewals.

• Ability to Terminate. Many of our management agreements are terminable at will by us upon payment of a termination fee and some are terminable upon sale of the property. Most of the agreements also provide us the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to six times the annual base management and incentive management fees, depending on the agreement and the reason for termination.

• Operational Services. Each manager has exclusive authority to supervise, direct and control the day-to-day hotel operation and management including establishing all room rates, processing reservations, procuring inventories, supplies and services, hiring and firing employees and independent contractors and preparing public relations, publicity and marketing plans for the hotel.

• Executive Supervision and Management Services. Each manager supervises all managerial and other hotel employees, reviews hotel operation and maintenance, prepares reports, budgets and projections, and provides other administrative and accounting support services for the hotel. Under certain management agreements, we have approval rights over certain key management personnel at the hotel.

• Chain Services. Our management agreements with major hotel franchisors require the managers to furnish chain services that are generally made available to other hotels managed by such operators. Such services may, for example, include: the development and operation of computer systems and reservation services; management and administrative services; marketing and sales services; human resources training services; and additional services as may from time to time be more efficiently performed on a national, regional or group level.

• Working Capital. Our management agreements typically require us to maintain working capital for a hotel and to fund the cost of supplies such as linens and other similar items. We are also responsible for providing funds to meet the cash needs for the hotel operations if at any time the funds available from the hotel operations are insufficient to meet the financial requirements of the hotel.

• Furniture, Fixtures and Equipment Replacements. We are required to invest in the hotels and to provide all the necessary furniture, fixtures and equipment for the operation of the hotels (including funding any required furniture, fixture and equipment replacements). Our management agreements generally provide that once a year the managers will prepare a list of furniture, fixtures and equipment to be acquired and certain routine capital repairs to be performed in the following year and an estimate of funds that are necessary for our review and approval. To fund the furniture, fixtures and equipment replacements, a specified percentage of the gross revenues of each hotel is either deposited by the manager in an escrow account (typically 3.0% to 4.0%) or held by us, as owner.

31

• Building Alterations, Improvements and Renewals. Our management agreements generally require the managers to prepare an annual estimate of the expenditures necessary for major capital repairs, alterations, improvements, renewals and replacements to the structural, mechanical, electrical, heating, ventilating, air conditioning, plumbing and vertical transportation elements of the hotels. In addition to the foregoing, the management agreements generally provide that the managers may propose such changes, alterations and improvements to the hotels as are required by reason of laws or regulations or, in each manager’s reasonable judgment, to keep the hotels in a safe, competitive and efficient operating condition.

• Sale of a Hotel. Certain of our management agreements limit our ability to sell, lease or otherwise transfer a hotel, unless the transferee assumes the related management agreement and meets other specified conditions.

Franchise Agreements

We have franchise agreements for two of our hotels, the DoubleTree by Hilton Bethesda-Washington DC and the Sheraton Delfina. Pursuant to these franchise agreements, we pay franchise fees based on a percentage of gross room revenues, as well as certain other fees for marketing and reservations services. Franchise fees for room revenues are approximately four to five percent of gross room revenues. The franchise agreements for the DoubleTree by Hilton Bethesda-Washington DC and the Sheraton Delfina hotels expire in June 2020 and November 2013, respectively.

Ground Lease Agreements

The Monaco Washington DC and Argonaut Hotel are subject to long-term ground lease agreements that cover all of the land underlying these hotels. These ground leases require us to make rental payments, based on the greater of a base rent or a percentage of gross hotel revenues and gross food and beverage revenues in excess of certain thresholds, as defined in the agreements. The agreements also contain certain restrictions on modifications that can be made to the structures due to its status as national historic landmarks. Both of these lease agreements expire in 2059.

Item 3. Legal Proceedings.

We are not involved in any material litigation nor, to our knowledge, is any material litigation threatened against us.

Item 4. Mine Safety Disclosures.

Not applicable.

32

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common shares began trading on the NYSE on December 9, 2009 under the symbol “PEB”. The following table sets forth, for the period indicated, the high and low closing prices per share and the cash dividends declared per share:

	Calendar Year 2011						Calendar Year 2010
	High		Low		Dividend		High		Low		Dividend
First Quarter	$	22.22	$	20.04	$	0.12	$	21.75	$	20.01		—
Second Quarter	$	21.90	$	19.24	$	0.12	$	21.09	$	17.93		—
Third Quarter	$	20.61	$	14.12	$	0.12	$	19.25	$	17.09		—
Fourth Quarter	$	19.63	$	14.41	$	0.12	$	20.96	$	18.01	$	0.12

The closing price per share of our common shares, as reported by the NYSE on December 31, 2011, was $19.18.

Shareholder Information

On February 15, 2012, there were 24 holders of record of our common shares. However, because many of our common shares are held by brokers and other institutions on behalf of shareholders, we believe that there are considerably more beneficial holders of our common shares than record holders.

33

The following graph provides a comparison of the cumulative total return on our common shares from December 9, 2009, the date on which our shares began trading on the NYSE, to the NYSE closing price per share on December 31, 2011 with the cumulative total return on the Russell 2000 Index (the “Russell 2000 Index”) and the FTSE National Association of Real Estate Investment Trusts Equity REITs Index (the “FTSE NAREIT Equity Index”). Total return values were calculated assuming a $100 investment on December 9, 2009 with reinvestment of all dividends in (i) our common shares, (ii) the Russell 2000 Index and (iii) the FTSE NAREIT Equity Index. The total return values do not include any dividends declared, but not paid, during the period.

The actual returns shown on the graph above are as follows:

Name	Initial Investment  at December 9, 2009		Value of  Initial Investment at December  31, 2009		Value of Investment at December  31, 2010		Value of Investment at December  31, 2011
Pebblebrook Hotel Trust	$	100.00	$	107.63	$	99.94	$	96.80
Russell 2000 Index	$	100.00	$	104.72	$	132.85	$	127.30
FTSE NAREIT Equity Index	$	100.00	$	105.07	$	134.41	$	145.57

Dividends

We declared dividends of $0.48 per common share for the year ended December 31, 2011. For income tax purposes, $0.411 per common share is characterized as ordinary income for 2011, which includes the $0.051 dividend declared on December 15, 2010 and paid on January 14, 2011. Our $0.12 per common share dividend declared on December 15, 2011 and paid on January 16, 2012 will be recognized as a 2012 dividend. Dividends were paid on a quarterly basis to our common shareholders.

We declared dividends of $1.663 to Series A Preferred Shareholders for the year ended December 31, 2011. For income tax purposes, $1.377 per Series A Preferred Share is characterized as ordinary income for 2011, and the remaining $0.286 per Series A Preferred Share will be recognized as a 2012 dividend.

We declared dividends of $0.633 to Series B Preferred Shareholders for the year ended December 31, 2011. For income tax purposes, $0.343 per Series B Preferred Share is characterized as ordinary income for 2011, and the remaining $0.290 per Series B Preferred Share will be recognized as a 2012 dividend.

34

On January 14, 2011, we paid a dividend to our common shareholders of record as of December 31, 2010 in the amount of $0.12 per share. Of the $0.12 dividend paid on January 14, 2011, $0.069 is characterized for income tax purposes as ordinary income for 2010 and the remaining $0.051 is characterized for income tax purposes as ordinary income for 2011.

Dividends to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary income. Dividends in excess of current and accumulated earnings and profits will generally be treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as taxable capital gain. Dividends that are treated as a reduction of the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares.

The declaration of dividends by our company is in the sole discretion of our board of trustees, and depends on our actual cash flow, financial condition, capital expenditure requirements for our hotels, the annual dividend requirements under the REIT provisions of the Code and such other factors as the board of trustees deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plan

The following table sets forth information regarding securities authorized for issuance under our equity compensation plan, the 2009 Equity Incentive Plan, as of December 31, 2011. See Note 8 to the accompanying consolidated financial statements for additional information regarding our 2009 Equity Incentive Plan.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders(1)		—		—		224,317
Equity compensation plans not approved by security holders		—		—		—
Total		—		—		224,317

⁽¹⁾  Our 2009 Equity Incentive Plan was approved by our sole trustee and our sole shareholder prior to completion of the Company’s IPO.

During the year ended December 31, 2011, certain of our employees surrendered 6,521 common shares to the Company in connection with the vesting of restricted common shares as payment for taxes.

35

Item 6. Selected Financial Data

The following table includes selected historical financial information which has been derived from the audited consolidated financial statements. The following information should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Consolidated Financial Statements and Supplementary Data” and all of the financial statements and notes included elsewhere in this Annual Report on Form 10-K.

	Year Ended December 31, 2011			Year Ended December 31, 2010			From October 2,  2009 (inception) to December 31, 2009
	(In thousands, except share and per-share data)
Revenues:
Room	$	177,479		$	32,804		$	—
Food and beverage		92,898			21,984			—
Other operating department		17,610			2,973			—
Total revenues		287,987			57,761			—
Expenses:
Hotel operating expenses:
Room		47,570			9,718			—
Food and beverage		65,783			15,113			—
Other direct		8,353			1,288			—
Other indirect		79,648			16,724			—
Total hotel operating expenses		201,354			42,843			—
Depreciation and amortization		30,945			5,776			—
Real estate taxes, personal property taxes and property insurance		12,895			2,220			—
Ground rent		1,814			124			—
General and administrative		11,460			8,319			262
Hotel acquisition costs		3,392			6,581			—
Total operating expenses		261,860			65,863			262
Operating income (loss)		26,127			(8,102	)		(262	)
Interest income		868			3,020			115
Interest expense		(13,653	)		(1,640	)		—
Other		85			—			—
Equity in earnings of unconsolidated joint ventures		2,336			—			—
Income (loss) before income taxes		15,763			(6,722	)		(147	)
Income tax (expense) benefit		(564	)		80			—
Net income (loss)		15,199			(6,642	)		(147	)
Net income (loss) attributable to non-controlling interests		343			—			—
Net income (loss) attributable to the Company		14,856			(6,642	)		(147	)
Distributions to preferred shareholders		(10,413	)		—			—
Net income (loss) attributable to common shareholders	$	4,443		$	(6,642	)	$	(147	)
Net income (loss) per share available to common shareholders, basic and diluted	$	0.08		$	(0.23	)	$	(0.04	)
Weighted-average number of common shares, basic		47,921,200			28,669,851			4,011,198
Weighted-average number of common shares, diluted		47,966,307			28,669,851			4,011,198

36

	As of December 31,
	2011		2010		2009
	(In thousands)
Balance Sheet Data:
Investment in hotel properties, net	$	1,127,484	$	599,714	$	—
Investment in unconsolidated joint ventures		171,765		—		—
Cash and cash equivalents		65,684		220,722		319,119
Investments		—		—		70,000
Total assets		1,416,632		855,515		389,403
Senior unsecured revolving credit facility		—		—		—
Mortgage debt		251,539		143,570		—
Total shareholders’ equity		1,113,251		686,912		379,426

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

Overview

The U.S. lodging industry continued to exhibit positive fundamentals in 2011 that had begun strengthening in 2010. Despite a slower-moving national economy in the second half of 2011, global financial markets volatility and risk related to the European debt crisis, corporate profits and employment have continued to improve in the United States. The strength in corporate transient, group and leisure travel, specifically in the major urban markets, has continued to drive increases in occupancy and ADR, resulting in overall RevPAR growth of 8.2% for the U.S. hotel industry.

Hotel transaction volume was robust during the first half of 2011 driven by the positive industry fundamentals coupled with low interest rates. However, hotel transaction volume fell precipitously in the second half of 2011 due to the uncertain sustainability of the U.S. economic recovery and volatility of the global markets. Over-leveraged hotel properties and owners with insufficient capital resources have provided opportunities for well capitalized companies to acquire high-quality properties located in urban markets. We believe acquisition opportunities from distressed owners will likely ramp up again in the second half of 2012, as the aggregate loan balances in special servicing are expected to increase significantly. Hotel transaction volume as a whole is expected to increase over the next 12 to 18 months assuming a sustainable economic recovery. Along with expected increasing transaction volume, we expect sellers to have higher pricing expectations. We continue to believe that we will see a long and healthy recovery in the hotel industry and believe our properties have significant opportunities to achieve growth in their long-term economic values.

We anticipate that our properties will exceed industry RevPAR and margin growth in 2012 because of our asset management initiatives and capital reinvestment programs. Although we do not manage the hotels we own, our asset management experience and ownership of hotels with different management companies allow us to work with our hotel operators to implement revenue enhancement and expense control initiatives that we believe will have a positive impact on the profitability of the properties we own and acquire.

Significant highlights of our activities for the year ended December 31, 2011 are as follows:

• Acquisitions—We acquired six properties for purchase prices aggregating $508.2 million. The properties we acquired are: the Argonaut Hotel (February 16, 2011), the Westin Gaslamp Quarter (April 6, 2011), the Hotel Monaco Seattle (April 7, 2011), Mondrian Los Angeles (May 3, 2011), the Viceroy Miami (May 26, 2011), and W Boston (June 8, 2011).

• Investment in unconsolidated joint ventures—On July 29, 2011, we invested $152.6 million for a 49% equity interest in the Manhattan Collection joint venture, which owns six properties in New York.

• Senior unsecured revolving credit facility—We amended our credit facility to allow more flexibility by converting the facility from secured to unsecured, increasing its borrowing capacity to $200 million and extending the maturity date to June 2014 while also reducing overall borrowing costs.

37

• Mortgage loans—We received proceeds of $67.0 million by placing mortgages on the Skamania Lodge and DoubleTree by Hilton Bethesda-Washington DC. We also assumed a $42.0 million mortgage in conjunction with the purchase of the Argonaut Hotel.

• Equity offerings—We issued 10.9 million common shares for net proceeds of approximately $226.5 million. We also issued Series A Preferred Shares for net proceeds of approximately $136.0 million and Series B Preferred Shares for net proceeds of approximately $82.3 million.

• Renovations—We invested approximately $44.1 million to reposition our properties in 2011. Renovations began or were completed at the DoubleTree by Hilton Bethesda-Washington DC, The Grand Hotel Minneapolis, the Sir Francis Drake, InterContinental Buckhead, Westin Gaslamp, and Hotel Monaco Seattle.

Recent Developments

In January 2012, we obtained a $46.0 million loan secured by our leasehold interest under the ground lease on the Monaco Washington DC. The proceeds from this loan were used to pay down the existing $35.0 million mortgage on this property and the remaining proceeds will be used for general corporate purposes. This loan has a fixed interest rate of 4.36 percent per annum and requires monthly principal and interest payments of $0.2 million through February 2017, the maturity date.

In January 2012, we repaid the $42.0 million loan on the Argonaut Hotel with $31.0 million from cash on hand and $15.0 million of borrowings from our senior unsecured revolving credit facility. In February 2012, we obtained a new $47.0 million loan secured by this property. The proceeds from this loan were used to pay down the balance on the senior unsecured revolving credit facility. This loan has a fixed interest rate of 4.25 percent per annum and requires monthly principal and interest payments of $0.3 million through March 2017, the maturity date.

In February 2012, we repaid the $56.1 million loan on the Sofitel Philadelphia hotel with borrowings from our senior unsecured revolving credit facility.

Results of Operations

Results of operations for the year ended December 31, 2011 include the operating results of the eight hotels we acquired in 2010 and the six hotels acquired in 2011 since their respective acquisition dates. The operating results of our investment in unconsolidated joint ventures is from the date of our investment, July 29, 2011, through December 31, 2011. Results of operations for the year ended December 31, 2010, include the operating activities of the eight hotels acquired in 2010 since their respective acquisition dates. We owned no hotel properties in 2009. As a result of our acquisition activities in 2010 and 2011, the results of operations during these periods are not comparable on a year-over-year basis.

Comparison of the Year ended December 31, 2011 to the Year Ended December 31, 2010

Revenues—Total revenues increased by $230.2 million from 2010. The six hotels we acquired in 2011 contributed to approximately $102.3 million of this increase, and the balance was generated from the eight properties acquired in 2010.

Expense—Total expenses increased by $158.5 million from 2010. The six hotels we acquired in 2011 contributed to approximately $69.1 million of this increase, and the balance was incurred by the eight properties acquired in 2010.

Depreciation and amortization—Depreciation and amortization expense increased by $25.2 million primarily as a result of the additional six hotels we acquired in 2011.

38

Real estate taxes, personal property taxes and property insurance—Real estate taxes, personal property taxes and property insurance increased by $10.7 million primarily as a result of the additional six hotels we acquired in 2011.

Ground rent—Ground rent expense increased by $1.7 million resulting from the acquisition of the Argonaut Hotel in 2011. The Argonaut Hotel and Monaco Washington DC are subject to long-term ground leases.

Corporate general and administrative—Total corporate general and administrative expenses increased by $3.1 million primarily as a result of increased staffing and other costs related to growth in our portfolio since 2010. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Hotel acquisition costs—Hotel acquisition costs decreased by $3.2 million primarily because we acquired fewer hotel properties in 2011 compared to 2010. Hotel property acquisition costs consist of legal fees, other professional fees, transfer taxes, and other direct costs associated with our acquisition of hotel investments. As a result, these costs are generally higher when properties are acquired or when we have significant ongoing acquisition activity.

Interest income—Interest income decreased by approximately $2.2 million as a result of cash being used to acquire hotel properties resulting in a lower average cash balance as well as a decrease in interest rates on the remaining cash deposits.

Interest expense—Interest expense increased by approximately $12.0 million as we had six mortgage loans for all or part of 2011 as compared with three mortgage loans in place for all or part of 2010.

Equity in earnings of unconsolidated joint ventures—In July 2011, we purchased an equity interest in the Manhattan Collection joint venture and recognized $2.3 million of income for our portion of the joint venture’s income for the period from July 29, 2011 (the date of our investment) to December 31, 2011.

Income tax expense—Income tax expense increased from the prior year by approximately $0.6 million as a result of an increase in net income of our TRS.

Non-controlling interests—Non-controlling interests represent the allocation of income or loss of the Operating Partnership to the common units held by the LTIP unit holders. There was no allocation of income or loss to these unit holders in 2010 as these units did not reach parity with the common shares until April 2011.

Distributions to preferred shareholders—Distributions to preferred shareholders for the year ended December 31, 2011 were $10.4 million. We had no preferred shares outstanding in 2010.

Comparison of the Year ended December 31, 2010 to October 2, 2009 (inception) through December 31, 2009

We acquired eight properties in 2010 and the results of operations for the year ended December 31, 2010 include the operating activities of the eight properties since their respective dates of acquisition. We owned no hotel properties at December 31, 2009 and earned interest income and incurred general and administrative expenses during this period.

39

Hotel Operating Statistics

The following table represents the pro-forma key hotel operating statistics for our hotels for the years ended December 31, 2011 and 2010. This is for informational purposes only and includes the operating statistics of our hotels for periods prior to our ownership and includes the 49% of the Manhattan Collection properties held by our joint ventures.

	Year ended December 31,
	2011		2010
Total Portfolio
Pro forma Occupancy		78.1%		76.2%
Pro forma ADR	$	203.31	$	188.83
Pro forma RevPAR	$	158.75	$	143.96

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 and EBITDA which are non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance.

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income (calculated in accordance with U.S. GAAP), excluding depreciation and amortization of real estate assets, gains (losses) from sales of real estate, impairments of real estate assets, the cumulative effect of changes in accounting principles and adjusted 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 depreciation and amortization and gains (losses) from sales of real estate, both 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) attributable to common shareholders to FFO for the periods ended December 31, 2011, 2010 and 2009 (in thousands):

	Year Ended December 31, 2011		Year Ended December 31, 2010			From October 2, 2009  (inception) to December 31, 2009
Net income (loss) attributable to common shareholders	$	4,443	$	(6,642	)	$	(147	)
Adjustments:
Depreciation and amortization		30,807		5,698			—
Depreciation and amortization from unconsolidated joint ventures		3,931		—			—
Non-controlling interests		343
FFO	$	39,524	$	(944	)	$	(147	)

EBITDA—EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. We believe that EBITDA provides investors a useful financial measure to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

40

The following table reconciles net loss to EBITDA for the periods ended December 31, 2011, 2010 and 2009 (in thousands):

	Year Ended December 31, 2011		Year Ended December 31, 2010			From October 2, 2009  (inception) to December 31, 2009
Net income (loss) attributable to common shareholders	$	4,443	$	(6,642	)	$	(147	)
Adjustments:
Interest expense		13,653		1,640			—
Interest expense from unconsolidated joint ventures		5,680		—			—
Income tax (benefit) expense		564		(80	)		—
Depreciation and amortization		30,945		5,776			—
Depreciation and amortization from unconsolidated joint ventures		3,931		—			—
Non-controlling interests		343		—			—
Distributions to preferred shareholders		10,413		—			—
EBITDA	$	69,972	$	694		$	(147	)

Neither FFO nor EBITDA represent cash generated from operating activities as determined by U.S. GAAP and neither should be considered as an alternative to U.S. GAAP net income (loss), as an indication of our financial performance, or to U.S. GAAP cash flow from operating activities, as a measure of liquidity. In addition, FFO and EBITDA are not indicative of funds available to fund cash needs, including the ability to make cash distributions.

Critical Accounting Policies

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

Hotel Properties

Investment in Hotel Properties

Estimation and judgment is required to allocate the purchase price to elements of our acquired hotel properties. Upon acquisition, we allocate the purchase price based on 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 arrangement 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 methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. 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. Acquisition costs are expensed as incurred.

41

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

Held for Sale

We will classify a hotel as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist, and the sale is expected to close within one year. If these criteria are met and if the fair value less costs to sell is lower than the carrying amount of the hotel, we will record an impairment loss and will cease recording depreciation expense. We will classify the loss, together with the related operating results, as discontinued operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.

Depreciation and Amortization

Hotel properties are carried at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and one to 10 years for furniture, fixtures and equipment. Intangible assets arising from contractual arrangements are typically amortized over the life of the contract.

We are required to make subjective assessments as to the useful lives and classification of our properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets. These assessments may impact our results of operations.

Impairment

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying 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 its hotel properties, the Company makes 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 changes, 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.

Investment in Unconsolidated Joint Ventures

Judgment is required with respect to the consolidation of partnership and joint venture entities in terms of the evaluation of control, including assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests that are not controllable through voting interests. Investments in joint ventures we do not control but which we have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method of accounting. We employ the equity accounting

42

method because we do not control the joint venture and are not the primary beneficiary of the joint venture pursuant to the applicable authoritative accounting guidance. We review the investment in our joint ventures for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. The investment is impaired when its estimated fair value is less than the carrying amount of our investment.

Revenue Recognition

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage and other ancillary amenities. Revenue is recognized when rooms are occupied and services have been rendered. These revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotels and businesses in similar markets.

Share-Based Compensation

We have adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. The determination of fair value of these awards is subjective and involves significant estimates. The long-term incentive partnership (“LTIP”) units were valued using a Monte Carlo simulation method model, which requires a number of assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units. We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the time of grant.

Income Taxes

To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, we generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. We may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, our wholly owned taxable REIT subsidiary, which leases our hotels from the Operating Partnership, is subject to federal and state income taxes. We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. We do not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive

43

income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, we have no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our senior unsecured revolving credit facility. Our existing cash balances will fund our operating costs in the near term. We believe that our net cash provided by operations will be adequate to fund operating requirements, pay interest on any borrowings and fund dividends in accordance with the REIT requirements of the federal income tax laws.

We expect to meet our long-term liquidity requirements, such as hotel property acquisitions and property redevelopment, investments in existing or new joint ventures and debt service through the net proceeds from additional issuances of common shares, issuances of preferred shares, issuances of units of limited partnership interest in our operating partnership, secured and unsecured borrowings, and cash provided by operations. The success of our business strategy may depend in part on our ability to access additional capital through issuances of debt and equity securities, which is dependent on favorable market conditions.

We strive to maintain prudent debt leverage and intend to opportunistically enhance our capital position and extend our debt maturities in the current low interest rate environment.

Senior Unsecured Revolving Credit Facility

We have a $200 million senior unsecured revolving credit facility to fund acquisitions, property redevelopments, return on investment initiatives and general business needs. As of December 31, 2011, we had no outstanding borrowings under this credit facility. We intend to repay indebtedness incurred, if any, under our senior unsecured revolving credit facility from time to time out of cash flows from operations and from the net proceeds of issuances of additional equity and debt securities, as market conditions permit. During 2011, we borrowed $42.0 million under this credit facility and we repaid this amount in September 2011. The weighted-average interest rate on our credit facility borrowings was 3.2%.

Interest is paid on the periodic advances, if any, under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount. The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement.

Mortgage Debt

As of December 31, 2011, we had six hotels that were secured by mortgage debt. Substantially all of our mortgage debt is recourse solely to specific assets, except in instances of fraud, misapplication of funds and other customary recourse provisions. Our mortgage debt contains certain property specific covenants and restrictions, including minimum debt service coverage ratios that may trigger “cash trap” provisions as well as restrictions on incurring additional property specific debt without lender consent. If triggered, these provisions will reduce our liquidity. As of December 31, 2011, our aggregate mortgage debt had a weighted-average interest rate of 4.5% and a weighted-average maturity of 1.9 years.

In January 2012, we obtained a $46.0 million loan secured by our leasehold interest under the ground lease on the Monaco Washington DC hotel. The proceeds from this loan were used to pay down the existing $35.0 million mortgage on this property and the remaining will be used for general corporate purpose. This loan has a fixed interest rate of 4.36 percent per annum and requires monthly principal and interest payments of $0.2 million through February 2017, the maturity date.

44

In January 2012, we repaid the $42.0 million loan on the Argonaut Hotel with $31.0 million from cash on hand and $11.0 million from our senior unsecured revolving credit facility. In February 2012, we obtained a new $47.0 million loan secured by this property. The proceeds from this loan were used to partially pay down the balance on the senior unsecured revolving credit facility. This loan has a fixed interest rate of 4.25 percent per annum and requires monthly principal and interest payments of $0.3 million through March 2017, the maturity date.

In February 2012, we repaid the $56.1 million loan on the Sofitel Philadelphia hotel with borrowings from our senior unsecured revolving credit facility.

For a discussion of our unconsolidated joint ventures indebtedness, see “Off Balance Sheet Arrangements – Joint Venture Indebtedness”.

Sources and Uses of Cash

Our principal sources of cash are cash from operations, borrowings under mortgage financings, draws on our senior unsecured revolving credit facility and the proceeds from offerings of our common and preferred shares. Our principal uses of cash are property acquisitions, debt service, capital investments, operating costs, corporate expenses and dividends.

Cash From Operations. Our cash provided by operating activities was $48.1 million for the year ended December 31, 2011. Our cash from operations includes the operating activities of the 14 wholly owned hotels. Our cash provided by operating activities was $3.5 million for the year ended December 31, 2010. Our cash from operations for 2010 includes the operating activities of the eight hotels we acquired during 2010. Our operating activities for the period ended December 31, 2009 were insignificant as we did not own any hotel properties during 2009.

Cash Used in Investing Activities. Our cash used in investing activities was $681.8 million for the year ended December 31, 2011. We used $467.1 million to acquire six hotels, incurred capital investments of $40.5 million at our hotels, invested $169.4 million for an equity interest in an unconsolidated joint venture and had an increase in restricted cash of $4.6 million. Our cash used in investing activities was $460.1 million and $70.0 million for the years ended December 31, 2010 and 2009, respectively. During the year ended December 31, 2010, we used $518.7 million to acquire eight hotels, incurred capital expenditures of $3.3 million at our hotels, placed a deposit of $5.0 million on one property which we acquired during the first quarter of 2011, had an increase in restricted cash of $2.6 million and used $0.5 million to purchase corporate fixed assets. In 2009, we invested $70 million in certificates of deposits.

Cash From Financing Activities. $478.6 million of cash was provided by financing activities for the year ended December 31, 2011, which consisted of $236.0 million of proceeds received from our public offering of approximately 10.9 million common shares and $225.2 million of proceeds received from our offerings of preferred shares, both of which were offset by an aggregate of approximately $17.2 million in underwriting discounts and offering-related costs. We borrowed $42.0 million from our senior unsecured revolving credit facility and repaid that amount in September 2011. We also received $67.0 million of proceeds from the mortgage debt placed on the Skamania Lodge and DoubleTree by Hilton Bethesda-Washington DC hotels and paid $28.8 million in distributions during the period. Approximately $358.3 million of cash was provided by financing activities for the year ended December 31, 2010, which consisted of $332.4 million of gross proceeds received from our follow-on public offering of common shares which were offset by $23.4 million in underwriting discounts and offering-related costs, and $52.5 million of proceeds from the mortgage debt placed on the InterContinental Buckhead, which were offset by the payment of $3.1 million of fees associated with our debt financings. For the year ended December 31, 2009, we received net proceeds of $389.1 million from the initial public offering and concurrent private placement of our common shares.

45

Capital Investments

We intend to maintain all of our hotels, including those we acquire in the future, in good repair and condition and in conformity with applicable laws and regulations and in accordance with the franchisor’s standards and the 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.

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 guestrooms, meeting space and or restaurants, in order to better compete with other hotels in our markets. In addition, after we acquire a hotel property, we may be required by the franchisor 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 the renovation with available cash or borrowings under our senior unsecured revolving credit facility.

In 2011, we invested approximately $44.1 million on capital investments and capital maintenance to reposition our properties. We expect to invest approximately between $45.0 million and $55.0 million on capital investments in 2012.

Contractual Obligations

The table below summarizes our contractual obligations as of December 31, 2011, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

	Payments Due by Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Mortgage debt(1)	$	276,886	$	141,659	$	15,657	$	119,570	$	—
Ground leases(2)		66,123		1,380		2,760		2,760		59,223
Purchase commitments(3)		14,133		14,133		—		—		—
Corporate office lease		799		270		529				—
Total	$	357,941	$	157,442	$	18,946	$	122,330	$	59,223

⁽¹⁾ Amounts include interest expense.

⁽²⁾ The long-term ground leases for the Monaco Washington DC and Argonaut Hotel provide for the greater of base or percentage rent, adjusted for CPI increases. The table shows base rent for all periods presented and does not include assumptions for percentage rent or CPI adjustments.

⁽³⁾  These represent purchase orders and contracts that have been executed for renovation projects at our hotel properties. We are committed to these purchase orders and contracts and anticipate making similar arrangements in the future with our existing properties or any properties that we may acquire in the future.

Off Balance Sheet Arrangements – Unconsolidated Joint Ventures Indebtedness

We have a 49% equity interest in the Manhattan Collection joint ventures, which owns six properties in New York City that have mortgage debt secured by these properties. We exercise significant influence over, but do not control, these entities and therefore they are accounted for using the equity method of accounting. As of December 31, 2011, the aggregate debt of the joint venture was $581.0 million. We are not guarantors of the joint venture debt except for limited customary carve-outs related to fraud or misapplication of funds. The joint venture mortgage debt matures in February 2013. We and our joint venture partner intend to refinance this debt at or prior to maturity, however, there can be no assurance we will be able to re-finance the debt on attractive terms, if at all. In addition, in order to maintain our existing ownership interests, we may need to invest additional equity into the joint venture in connection with such refinancing.

46

Inflation

We rely on the performance of the hotels to increase revenues to keep pace with inflation. 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.

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, based on the applicable hedge accounting guidance. As of December 31, 2011, we have an interest rate cap in connection with the mortgage debt assumed with the acquisition of the Sofitel Philadelphia hotel. This interest rate cap was not designated as a hedging instrument and, as such, changes in the fair value of the instrument have been recorded in our statement of operations. For the years ended December 31, 2011 and 2010, the interest rate cap had an immaterial effect on our statement of operations. We did not utilize any derivative instruments during the year ended December 31, 2009.

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

Interest Rate Sensitivity

The table below provides information about financial instruments that are sensitive to changes in interest rates, including mortgage obligations, bonds and lines of credit. For debt obligations, the table presents scheduled maturities and related weighted-average interest rates by expected maturity dates (dollars in thousands).

	2012			2013			2014			2015			2016			Total
Fixed Rate Debt	$	78,668		$	1,775		$	1,870		$	1,969		$	111,187		$	195,469
Weighted-Average Interest Rate		5.66	%		5.13	%		5.14	%		5.14	%		5.15	%		5.36	%
Variable Rate Debt	$	56,070		$	—		$	—		$	—		$	—		$	56,070
Weighted-Average Interest Rate		1.57	%		0.00	%		0.0	%		0.0	%		0.0	%		1.57	%
Total	$	134,738		$	1,775		$	1,870		$	1,969		$	111,187		$	251,539

The table above presents the principal amount of debt maturing each year, including annual amortization of principal, through December 31, 2016 and thereafter and weighted-average interest rates for the debt maturing in each specified period. This table reflects indebtedness outstanding as of December 31, 2011 and does not reflect indebtedness, if any, incurred after that date. Our ultimate exposure to interest rate fluctuations depends on the amount of indebtedness that bears interest at variable rates, the time at which the interest rate is adjusted, the amount of adjustment, the ability to prepay or refinance variable rate indebtedness and hedging strategies used to reduce the impact of any increases in rates. As of December 31, 2011, the estimated fair value of our fixed rate mortgage debt was $195.1 million. We are exposed to market risk from changes in interest rates. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. As of December 31, 2011, the $56.1 million mortgage debt on the Sofitel Philadelphia was subject to variable interest rates. We repaid the entire balance of this mortgage loan in February 2012.

If market rates of interest on our variable rate long-term debt at December 31, 2011 fluctuate by 0.25%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by approximately $0.1 million annually. This assumes that the amount outstanding under our variable rate debt remains at $56.1 million, the balance as of December 31, 2011.

47

Item 8. Consolidated Financial Statements and Supplementary Data.

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

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

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

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

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011.

We acquired the Viceroy Miami hotel on May 26, 2011 and the W Boston hotel on June 8, 2011 and have excluded from our assessment of effectiveness of internal control over financial reporting as of December 31, 2011 the internal controls over financial reporting of these hotels, which had an aggregate of $129.5 million in total assets and $28.0 million in total revenues as of and for the year ended December 31, 2011.

KPMG LLP, a registered independent accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein on page F-3, on the effectiveness of our internal control over financial reporting.

There was no change to our internal control over financial reporting during the fourth quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

48

PART III

Item 10. Trustees, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

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

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

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

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

49

PART IV

Item 15. Exhibits and Financial Statement Schedules.

1. Financial Statements

Included herein at pages F-1 through F-25

2. Financial Statement Schedules

The following financial statement schedule is included herein at pages F-26 through F-27.

Schedule III—Real Estate and Accumulated Depreciation

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

3. Exhibits

The following exhibits are filed as part of this Annual Report on Form 10-K:

Exhibit Number	Description of Exhibit
3.1†	Declaration of Trust, as amended and supplemented, of the Registrant.
3.2	Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11 filed on July 13, 2010 (File No. 333-168078)).
3.3†	First Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., as amended.
10.1*	Pebblebrook Hotel Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11 filed on July 13, 2010 (File No. 333-168078)).
10.2*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.3*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.4*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.5*	Form of Indemnification Agreement between Pebblebrook Hotel Trust and its officers and trustees (incorporated by reference to Exhibit 10.4 of Amendment No. 1 to the Registrant’s Registration Statement on Form S-11/A, filed by the Registrant on November 10, 2009 (File No. 333-162412)).
10.6*	Form of Share Award Agreement for officers and employees (incorporated by reference to Exhibit 10.5 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-11/A filed on November 25, 2009 (File No. 333-162412)).
10.7*	Share Award Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).

50

Exhibit Number	Description of Exhibit
10.8*	Share Award Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).
10.9*	Share Award Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).
10.10*	Form of Share Award Agreement for trustees (incorporated by reference to Exhibit 10.6 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-11/A filed on November 25, 2009 (File No. 333-162412)).
10.11*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.12*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.13*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.14	Lease, dated December 1, 1999, by and between the United States of America, acting through the Administrator of General Services, and Tariff Building Associates, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.15	Assignment and Assumption of GSA Lease, by and among the United States of America, acting by and through the Administrator of General Services and Authorized Representatives, Tariff Building Associates, L.P., and Jayhawk Owner LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.16	Promissory Note by Tariff Building Associates, L.P. in favor of Wachovia Bank, National Association (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.17	Assumption Agreement, by and among Bank of America, N.A., as successor to Wells Fargo Bank, N.A., as trustee for the registered holders of COBALT CMBS Commercial Mortgage Trust 2007-C2, Commercial Mortgage Pass-Through Certificates, Series 2007-C2, Tariff Building Associates, L.P., Kimpton Development Opportunity Fund, L.P., Jayhawk Owner LLC, and Pebblebrook Hotel, L.P. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.18	Deed of Trust, Security Agreement, Assignment of Rents and Fixtures Filing dated as of February 23, 2007 by and among Tariff Building Associates, L.P., as borrower, First American Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as lender (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.19	Promissory Note by South 17th Street OwnerCo, LLC in favor of Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).

51

Exhibit Number	Description of Exhibit
10.20	Loan Agreement dated as of January 5, 2007, between South 17th Street OwnerCo, LLC, as borrower, and Greenwich Capital Financial Products, Inc., as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.21	Credit Agreement, dated as of July 8, 2010, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., as borrower, the other guarantors party thereto, the lenders party thereto, Bank of America, N.A., as administrative agent, Banc of America Securities LLC and Wells Fargo Securities, LLC, as joint lead arrangers and joint book runners, Wells Fargo Bank, National Association, as syndication agent, and U.S. Bank National Association, as co-documentation agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 9, 2010 (File No. 001-34571)) (This agreement was amended and restated in June 2011; See Exhibit 10.41 below).
10.22	Membership Interest Purchase Agreement by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, and South 17th Street IntermezzCo, LLC, as the Seller Parties, and Spartans Owner, LLC and Spartans Lessee, LLC, as the Purchaser Parties, dated as of October 13, 2010, for the Sofitel Philadelphia (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.23	Second Amendment to Membership Interest Purchase Agreement, dated November 15, 2010, by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, South 17th Street IntermezzCo, LLC, Spartans Owner, LLC and Spartans Lessee, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.24	Third Amendment to Membership Interest Purchase Agreement, dated November 30, 2010, by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, South 17th Street IntermezzCo, LLC, Spartans Owner, LLC and Spartans Lessee, LLC (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.25	Loan Agreement, between Orangemen Owner LLC, as Borrower, and Goldman Sachs Commercial Mortgage Capital, L.P., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 15, 2010 (File No. 001-34571)).
10.26	Purchase and Sale Agreement of the Sheraton Delfina Santa Monica Hotel (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.27	First Amendment to Purchase and Sale Agreement by and between 615 2nd Avenue South—Minneapolis LLC and Gator Owner LLC (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.28	Purchase and Sale Agreement between Maritime Hotel Associates, L.P. and Wildcats Owner LLC (incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.29	Loan Agreement, between Terrapins Owner LLC, as Borrower, and UBS Real Estate Securities Inc., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 7, 2011 (File No. 001-34571)).
10.30	Loan Agreement, dated as of January 21, 2011, between Tar Heel Borrower LLC, as Borrower, Tar Heel Owner LLC, as Maryland Guarantor, and Goldman Sachs Commercial Mortgage Capital, L.P., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 26, 2011 (File No. 001-34571)).

52

Exhibit Number	Description of Exhibit
10.31	Historical Lease, dated October 16, 2000, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.32	Seventh Amendment to Historic Lease, dated February 6, 2001, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.33	Tenth Amendment to Historic Lease, dated December 9, 2008, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.34	Eleventh Amendment to Historic Lease, dated February 16, 2011, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.35	Assignment and Assumption of Historical Lease, by and among the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an Agency of the United States of America, Maritime Hotel Associates, L.P., and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.36	Promissory Note by Maritime Hotel Associates, L.P. in favor of Wachovia Bank, National Association. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.37	Assumption Agreement, by and among Bank of America, N.A., as successor to Wells Fargo Bank, N.A., as Trustee for the registered holders of COBALT CMBS Commercial Mortgage Trust 2007-C2, Commercial Mortgage Pass-Through Certificates, Series 2007-C2, Maritime Hotel Associates, L.P., Kimpton Development Opportunity Fund, L.P., Wildcats Owner LLC, and Pebblebrook Hotel, L.P. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.38	Deed of Trust, Security Agreement, Assignment of Rents and Fixtures Filing dated as of February 23, 2007 by and among Maritime Hotel Associates, L.P., as borrower, to First American Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as lender (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.39	Purchase and Sale Agreement by and between Starwood CMBS I, LLC, as seller, and Bruins Owner LLC, as purchaser, dated as of March 22, 2011, for The Westin Gaslamp, San Diego (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on March 31, 2011 (File No. 001-34571)).
10.40	Purchase and Sale Agreement between Mondrian Holdings LLC, as seller, and Wolverines Owner LLC, as purchaser (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).

53

Exhibit Number	Description of Exhibit
10.41	Amended and Restated Credit Agreement, dated as of June 3, 2011, among Pebblebrook Hotel, L.P., as borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party hereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
10.42	Contribution Agreement by and among Denihan Ownership Company, LLC, Denihan Mezz Holding Company, LLC and Cardinals Owner LLC, dated as of June 20, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 24, 2011 (File No. 001-34571)).
10.43	Form of Operating Agreement of DP Holding Company, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 24, 2011 (File No. 001-34571)).
10.44	Second Amended and Restated Operating Agreement of DP Fee Holding Co., LLC, dated July 29, 2011 (supersedes Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 4, 2011) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on September 28, 2011 (File No. 001-34571)).
10.45	Operating Agreement of DP Lease Holding, LLC, dated July 29, 2011 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 4, 2011 (File No. 001-34571)).
10.46	Purchase and Sale Agreement between Mondrian Holdings LLC, as seller, and Wolverines Owner LLC, as purchaser (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
10.47	Amended and Restated Credit Agreement, dated as of June 3, 2011, among Pebblebrook Hotel, L.P., as borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
12.1†	Statement of Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends.
21.1†	List of Subsidiaries of the Registrant.
23.1†	Consent of KPMG LLP.
23.2†	Consent of PKF O’Connor Davies, A Division of O’Connor Davies, LLP.
31.1†	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1†	Audited combined financial statements of DP Fee Holding Co., LLC and DP Lease Holding, LLC.

54

Exhibit Number	Description of Exhibit
101.INS XBRL	Instance Document(1)
101.SCH XBRL	Taxonomy Extension Schema Document(1)
101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document(1)
101.LAB XBRL	Taxonomy Extension Label Linkbase Document(1)
101.DEF XBRL	Taxonomy Extension Definition Linkbase Document(1)
101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document(1)

* Management agreement or compensatory plan or arrangement.

† Filed electronically herewith.

⁽¹⁾ Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

55

SIGNATURES

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

PEBBLEBROOK HOTEL TRUST
By:	/s/    JON E. BORTZ
	Jon E. Bortz
	Chairman, President and and Chief Executive Officer

Date: February 21, 2012

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

Signatures	Title	Date
/s/    JON E. BORTZ         Jon E. Bortz	Chairman of the Board, President and Chief Executive Officer (principal executive officer)	February 21, 2012
/s/    RAYMOND D. MARTZ         Raymond D. Martz	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)	February 21, 2012
/s/    CYDNEY C. DONNELL         Cydney C. Donnell	Trustee	February 21, 2012
/s/    RON E. JACKSON         Ron E. Jackson	Trustee	February 21, 2012
/s/    PHILLIP M. MILLER         Phillip M. Miller	Trustee	February 21, 2012
/s/    MICHAEL J. SCHALL         Michael J. Schall	Trustee	February 21, 2012
/s/    EARL E. WEBB         Earl E. Webb	Trustee	February 21, 2012
/s/    LAURA H. WRIGHT         Laura H. Wright	Trustee	February 21, 2012

56

PEBBLEBROOK HOTEL TRUST

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-5
Consolidated Statements of Operations		F-6
Consolidated Statements of Shareholders’ Equity		F-7
Consolidated Statements of Cash Flows		F-8
Notes to Consolidated Financial Statements		F-9
Schedule III—Real Estate and Accumulated Depreciation		F-26

F-1

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees

Pebblebrook Hotel Trust:

We have audited the accompanying consolidated balance sheets of Pebblebrook Hotel Trust and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years ended December 31, 2011 and 2010, and the period from October 2, 2009 (inception) to December 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pebblebrook Hotel Trust as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years ended December 31, 2011 and 2010, and the period from October 2, 2009 (inception) to December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Pebblebrook Hotel Trusts’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2012, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

McLean, Virginia

February 21, 2012

F-2

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees

Pebblebrook Hotel Trust:

We have audited Pebblebrook Hotel Trust’s (Pebblebrook) internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Pebblebrook’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control of Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Pebblebrook Hotel Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

During 2011, Pebblebrook acquired six hotel assets in separate transactions. Management has excluded from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2011, the internal control over financial reporting for the operations of two of their hotels (acquisition dates May 26, 2011 and June 8, 2011) comprising hotel level assets and liabilities of $129.5 million and $6.9 million, respectively, and hotel revenues and expenses of $28.0 million and $22.0 million, respectively, included in the consolidated balance sheet and statement of operations as of and for the year ended December 31, 2011. Our audit of internal control over financial reporting of Pebblebrook also excluded an evaluation of the internal control over financial reporting for the hotel level assets, liabilities, revenues, and expenses.

F-3

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pebblebrook Hotel Trust and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years ended December 31, 2011 and 2010, and the period from October 2, 2009 to December 31, 2009, and our report dated February 21, 2012 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

McLean, Virginia

February 21, 2012

F-4

Pebblebrook Hotel Trust

Consolidated Balance Sheets

(In thousands, except share and per-share data)

	December 31, 2011			December 31, 2010
ASSETS
Investment in hotel properties, net	$	1,127,484		$	599,714
Investment in unconsolidated joint ventures		171,765			—
Ground lease asset, net		10,502			10,721
Cash and cash equivalents		65,684			220,722
Restricted cash		9,469			4,485
Hotel receivables (net of allowance for doubtful accounts of $71 and $13 respectively)		11,312			3,924
Deferred financing costs, net		3,487			2,718
Prepaid expenses and other assets		16,929			13,231
Total assets	$	1,416,632		$	855,515
LIABILITIES AND SHAREHOLDERS’ EQUITY
Senior unsecured revolving credit facility	$	—		$	—
Mortgage debt		251,539			143,570
Accounts payable and accrued expenses		33,333			15,799
Advance deposits		4,380			2,482
Accrued interest		1,000			304
Distribution payable		10,032			4,908
Total liabilities		300,284			167,063
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred shares of beneficial interest, $.01 par value (liquidation preference of $225,000 at December 31, 2011), 100,000,000 shares authorized; 9,000,000 and 0 shares issued and outstanding at December 31, 2011 and at December 31, 2010, respectively		90			—
Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 50,769,024 issued and outstanding at December 31, 2011 and 39,814,760 issued and outstanding at December 31, 2010, respectively		508			398
Additional paid-in capital		1,142,905			698,100
Accumulated deficit and distributions		(30,252	)		(11,586	)
Total shareholders’ equity		1,113,251			686,912
Non-controlling interests		3,097			1,540
Total equity		1,116,348			688,452
Total liabilities and equity	$	1,416,632		$	855,515

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

F-5

Pebblebrook Hotel Trust

Consolidated Statements of Operations

(In thousands, except share and per-share data)

	Year Ended December 31, 2011			Year Ended December 31, 2010			From October  2, 2009 (inception) to December 31, 2009
Revenues:
Room	$	177,479		$	32,804		$	—
Food and beverage		92,898			21,984			—
Other operating department		17,610			2,973			—
Total revenues		287,987			57,761			—
Expenses:
Hotel operating expenses:
Room		47,570			9,718			—
Food and beverage		65,783			15,113			—
Other direct		8,353			1,288			—
Other indirect		79,648			16,724			—
Total hotel operating expenses		201,354			42,843			—
Depreciation and amortization		30,945			5,776			—
Real estate taxes, personal property taxes and property insurance		12,895			2,220			—
Ground rent		1,814			124			—
General and administrative		11,460			8,319			262
Hotel acquisition costs		3,392			6,581			—
Total operating expenses		261,860			65,863			262
Operating income (loss)		26,127			(8,102	)		(262	)
Interest income		868			3,020			115
Interest expense		(13,653	)		(1,640	)		—
Other		85			—			—
Equity in earnings of unconsolidated joint ventures		2,336			—			—
Income (loss) before income taxes		15,763			(6,722	)		(147	)
Income tax (expense) benefit		(564	)		80			—
Net income (loss)		15,199			(6,642	)		(147	)
Net income (loss) attributable to non-controlling interests		343			—			—
Net income (loss) attributable to the Company		14,856			(6,642	)		(147	)
Distributions to preferred shareholders		(10,413	)		—			—
Net income (loss) attributable to common shareholders	$	4,443		$	(6,642	)	$	(147	)
Net income (loss) per share available to common shareholders, basic and diluted	$	0.08		$	(0.23	)	$	(0.04	)
Weighted-average number of common shares, basic		47,921,200			28,669,851			4,011,198
Weighted-average number of common shares, diluted		47,966,307			28,669,851			4,011,198

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

F-6

Pebblebrook Hotel Trust

Consolidated Statements of Shareholders’ Equity

(Dollars in thousands, except share and per-share data)

	Preferred Shares				Common Shares					Additional Paid-In Capital			Accumulated Deficit and Distributions			Total Shareholders’ Equity			Non-Controlling Interest			Total Equity
	Shares		Amount		Shares			Amount
Balance at October 2, 2009 (inception)		—	$	—		1,000		$	—	$	1		$	—		$	1		$	—		$	1
Repurchase of outstanding shares		—		—		(1,000	)		—		(1	)		—			(1	)		—			(1	)
Issuance of common shares, net of offering costs in connection with the initial public offering and concurrent private placement		—		—		20,260,000			203		379,365			—			379,568			—			379,568
Share-based compensation, net		—		—		—			—		5			—			5			74			79
Net loss		—		—		—			—		—			(147	)		(147	)		—			(147	)
Balance at December 31, 2009		—	$	—		20,260,000		$	203	$	379,370		$	(147	)	$	379,426		$	74		$	379,500
Issuance of common shares, net of offering costs in connection with the follow-on offering		—	$	—		19,550,000		$	195	$	318,253		$	—		$	318,448		$	—		$	318,448
Issuance of common shares for Board of Trustee compensation		—		—		590			—		12			—			12			—			12
Share-based compensation		—		—		4,170			—		465			—			465			1,577			2,042
Distributions on common shares/units		—		—		—			—		—			(4,797	)		(4,797	)		(111	)		(4,908	)
Net loss		—		—		—			—		—			(6,642	)		(6,642	)		—			(6,642	)
Balance at December 31, 2010		—	$	—		39,814,760		$	398	$	698,100		$	(11,586	)	$	686,912		$	1,540		$	688,452
Issuance of shares, net of offering costs		9,000,000		90		10,925,000			110		443,688			—			443,888			—			443,888
Issuance of common shares for Board of Trustee compensation		—		—		8,886			—		182			—			182			—			182
Repurchase of common shares		—		—		(6,496	)		—		(140	)		—			(140	)		—			(140	)
Share-based compensation		—		—		26,874			—		1,075			—			1,075			1,579			2,654
Distributions on common shares/units		—		—		—			—		—			(23,109	)		(23,109	)		(446	)		(23,555	)
Distributions on preferred shares		—		—		—			—		—			(10,413	)		(10,413	)		(14	)		(10,427	)
Net contribution from non-controlling interests		—		—		—			—		—			—			—			95			95
Net income		—		—		—			—		—			14,856			14,856			343			15,199
Balance at December 31, 2011		9,000,000	$	90		50,769,024		$	508	$	1,142,905		$	(30,252	)	$	1,113,251		$	3,097		$	1,116,348

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

F-7

Pebblebrook Hotel Trust

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended December 31, 2011			Year Ended December 31, 2010			From October 2, 2009 (inception) to December 31, 2009
Operating activities:
Net income (loss)	$	15,199		$	(6,642	)	$	(147	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		30,945			5,776			—
Share-based compensation		2,654			2,042			79
Amortization of deferred financing costs		1,555			415			—
Amortization of ground lease		219			69			—
Equity in earnings of unconsolidated joint ventures		(2,336	)		—			—
Other		225			80			—
Changes in assets and liabilities:
Restricted cash, net		(408	)		(1,886	)		—
Hotel receivables		(6,426	)		(2,712	)		—
Prepaid expenses and other assets		(4,481	)		(4,192	)		(284	)
Accounts payable and accrued expenses		10,715			10,491			371
Advance deposits		215			13			—
Net cash provided by operating activities		48,076			3,454			19
Investing activities:
Acquisition of hotel properties		(467,135	)		(518,730	)		—
Improvements and additions to hotel properties		(40,468	)		(3,307	)		—
Contributions to joint ventures		(169,430	)		—			—
Deposit on hotel property		—			(5,000	)		—
Redemption (purchase) of certificates of deposits		—			70,000			(70,000	)
Purchase of corporate office equipment, computer software, and furniture		(148	)		(497	)		—
Restricted cash, net		(4,576	)		(2,600	)		—
Net cash used in investing activities		(681,757	)		(460,134	)		(70,000	)
Financing activities:
Gross proceeds from issuance of common shares		235,980			332,350			405,200
Gross proceeds from issuance of preferred shares		225,150			—			—
Payment of offering costs – common and preferred shares		(17,243	)		(23,434	)		(16,100	)
Payment of deferred financing costs		(2,324	)		(3,133	)		—
Contributions from non-controlling interests		95			—			—
Borrowings under senior unsecured revolving credit facility		42,000			—			—
Repayments under senior unsecured revolving credit facility		(42,000	)		—			—
Proceeds from mortgage debt		67,000			52,500			—
Repayments of mortgage debt		(1,031	)		—			—
Repurchase of common shares		(140	)		—			—
Distributions – common shares/units		(22,244	)		—			—
Distributions – preferred shares		(6,600	)		—			—
Net cash provided by financing activities		478,643			358,283			389,100
Net change in cash and cash equivalents		(155,038	)		(98,397	)		319,119
Cash and cash equivalents, beginning of year		220,722			319,119			—
Cash and cash equivalents, end of year	$	65,684		$	220,722		$	319,119

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

F-8

PEBBLEBROOK HOTEL TRUST

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Pebblebrook Hotel Trust (the “Company”) was formed as a Maryland real estate investment trust on October 2, 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major coastal markets. On December 14, 2009, the Company raised $379.6 million, net of underwriting discounts and offering costs, in an initial public offering and concurrent private placement of common shares of beneficial interest (“common shares”). The Company had no business activity prior to the initial public offering.

As of December 31, 2011, the Company owned interests in 20 hotels, including 14 wholly owned hotels, with a total of 3,812 guest rooms and a 49% joint venture interest in six hotels with 1,733 guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Bethesda, Maryland; Boston, Massachusetts; Miami, Florida; Minneapolis, Minnesota; New York, New York; Philadelphia, Pennsylvania; San Diego, California; San Francisco, California; Santa Monica, California; Seattle, Washington; Stevenson, Washington; Washington, D.C. and West Hollywood California.

Substantially all of the Company’s assets are held by, and all of the operations are conducted through, Pebblebrook Hotel, L.P., (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. At December 31, 2011 and 2010, the Company owned 98.2 percent and 100 percent, respectively, of the common limited partnership interests issued by the Operating Partnership (“common units”). The remaining 1.8 percent and zero percent of the common units issued by the Operating Partnership were owned by the other limited partners of the Operating Partnership at December 31, 2011 and 2010, respectively. For the Company to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code, it cannot operate the hotels it owns. Therefore, its Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively, “PHL”), the Company’s taxable REIT subsidiary (“TRS”), which in turn engages third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company’s financial statements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Certain reclassifications have been made to the prior period’s financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

The Company’s comprehensive income (loss) equals its net income (loss) available to common shareholders and the Company had no items classified in accumulated other comprehensive loss for the periods ended December 31, 2011 and 2010.

F-9

Use of Estimates

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

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company’s financial position. Should any of the hotels experience a significant decline in operational performance, it may affect the Company’s ability to make distributions to our shareholders and service debt or meet other financial obligations.

Fair Value Measurements

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses, and mortgage debt. Due to their short maturities, the carrying amounts of cash and cash equivalents, restricted cash, and accounts payable and accrued expenses approximate fair value.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. As of December 31, 2011, the carrying value and estimated fair value of the Company’s debt was $251.5 million and $251.2 million, respectively. As of December 31, 2010, the carrying value and estimated fair value of the Company’s debt was $143.6 million and $143.9 million, respectively.

The Company performs the fair value measurement on its interest rate cap using level 2 inputs on a recurring basis. The fair value of the derivative is inconsequential. Because there was no impairment indicated for any non-financial assets during the periods presented, no non-financial assets were subject to measurement on a non-recurring basis.

Investment in Hotel Properties

Upon acquisition of hotel properties, the Company allocates the purchase price based on 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 arrangement terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.

Acquisition costs are expensed as incurred.

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

F-10

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

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying 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 its hotel properties, the Company makes 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. The Company will adjust 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.

The Company will classify a hotel as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist, and the sale is expected to close within one year. If these criteria are met and if the fair value less costs to sell is lower than the carrying amount of the hotel, the Company will record an impairment loss and will cease recording depreciation expense. The Company will classify the loss, together with the related operating results, as discontinued operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property insurance.

Prepaid Expenses and Other Assets

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

F-11

Deferred Financing Costs

Financing costs are recorded at cost and consist of loan fees and other costs incurred in connection with obtaining debt. Amortization of deferred financing costs is computed using a method, which approximates the effective interest method over the remaining life of the debt, and is included in interest expense in the accompanying consolidated statements of operations.

Derivative Instruments

In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are 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, based on the applicable hedge accounting guidance. As of December 31, 2011 and 2010, the Company has an interest rate cap in connection with the mortgage debt assumed with its acquisition of the Sofitel Philadelphia hotel. This interest rate cap was not designated as a hedging instrument and as such, changes in the fair value of the instrument have been recorded in the Company’s statement of operations. At December 31, 2011 and 2010, the estimated fair value of the interest rate cap was immaterial and the change in fair value was inconsequential to the periods presented.

Revenue Recognition

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary amenities. Revenue is recognized when rooms are occupied and services have been rendered. The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the statement of operations.

Income Taxes

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, PHL, which leases the Company’s hotels from the Operating Partnership, is subject to federal and state income taxes.

The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2011 and 2010, the Company did not have any uncertain tax positions and had not incurred any interest or penalties on such positions during the periods presented. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating expenses.

F-12

Share-based Compensation

The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight line basis over the vesting period. The determination of fair value of these awards is subjective and involves significant estimates. The long-term incentive partnership (“LTIP”) units were valued using a Monte Carlo simulation method model, which required a number of assumptions including expected volatility of the Company’s stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units.

Non-controlling Interests of Common Units of Operating Partnership

Limited partner interests in the Operating Partnership other than those held by the Company, if any, are considered non-controlling interests. Generally, non-controlling interests are presented on the balance sheet as either shareholders equity or outside of shareholders equity depending upon specific provisions of the governing documents related to such an interest. The Operating Partnership may issue limited partnership interests as full or partial consideration to hotel sellers or to employees or other individuals for services performed. These limited partners will have redemption rights which will permit them to redeem their interests in exchange for cash or common shares, on a one-for-one basis, at the option of the Company. Because the Operating Partnership agreement permits the settlement of the redemption feature for unregistered common shares and because the Company will control the actions and events necessary to issue the number of shares that are required to be delivered at the redemption date, the non-controlling limited partner interests in the Operating Partnership are presented as a separate component of shareholder’s equity on the balance sheet. The approximate redemption value of the non-controlling interests is equivalent to the units outstanding valued at the closing common share price at the end of the period, which we assume would be equal to the value provided to the limited partners upon liquidation of the Operating Partnership. The Company’s revenues, expenses and net income or loss will include amounts attributable to both the controlling and non-controlling interests. Amounts attributable to non-controlling interests will be deducted from net income or loss to arrive at net income or loss attributable to common shareholders on the statement of operations.

Earnings Per Share

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

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single

F-13

statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

NOTE 3. ACQUISITION OF HOTEL PROPERTIES

On February 16, 2011, the Company acquired the 252-room Argonaut Hotel located in San Francisco, California for $84.0 million. The acquisition was funded with $42.0 million of available cash and the assumption of a $42.0 million first mortgage loan. The hotel is subject to a long-term ground lease agreement with the United States Department of the Interior that expires in 2059. The hotel is required to pay the greater of a base rent of $1.2 million, as adjusted for consumer price index “CPI” increases, or a percentage of rooms revenues, food and beverage revenues, and other department revenues in excess of certain thresholds, as defined in the agreement. The fee, as a percentage of rooms revenues, ranges from 8% to 12% in the initial years and 12% to 14% in the later years. The fee as a percentage of food and beverage and other department revenues is 4% over the term of the lease. The terms of the ground lease were evaluated and they were determined to approximate current market terms. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

On April 6, 2011, the Company acquired the 450-room Westin Gaslamp Quarter located in San Diego, California for $110.0 million. Prior to the acquisition, the hotel was undergoing a $25.0 million renovation project and, in addition to the purchase price, the Company reimbursed the seller approximately $8.6 million for the renovation costs incurred and paid by the seller through the date of closing. The remaining renovation costs were paid by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.

On April 7, 2011, the Company acquired the 189-room Hotel Monaco Seattle located in Seattle, Washington for $51.2 million. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

On May 3, 2011, the Company acquired the 237-room Mondrian Los Angeles located in West Hollywood, California for $137.0 million. The Company retained the Morgans Hotel Group to manage the hotel.

On May 26, 2011, the Company acquired the 148-room Viceroy Miami located in Miami, Florida for $36.5 million. The Company retained the Viceroy Hotel Group to manage the hotel and PHL received $3.0 million in key money from Viceroy Hotel Group to enter into the management agreement with Viceroy Hotel Group. The key money liability is amortized as a reduction of management fee expense over the ten-year term of the management agreement.

On June 8, 2011, the Company acquired the 235-room W Boston located in Boston, Massachusetts for $89.5 million. The Company retained Starwood Hotels and Resorts to manage the hotel.

F-14

The allocation of purchase price to the fair value of the acquired assets and liabilities is as follows (in thousands):

	Argonaut Hotel		Westin Gaslamp Quarter			Hotel Monaco Seattle			Mondrian Los Angeles		Viceroy Miami			W Boston			Total
Land	$	—	$	25,537		$	10,105		$	20,306	$	8,368		$	19,453		$	83,769
Buildings and improvements		79,492		86,113			38,888			110,283		24,246			63,893			402,915
Furniture, fixtures and equipment		4,247		6,826			2,073			6,091		3,723			5,887			28,847
In place lease assets		190		—			—			—		—			—			190
Inventory		71		78			84			75		163			267			738
Net working capital		193		(931	)		(251	)		74		(146	)		(1,263	)		(2,324	)
Net assets acquired	$	84,193	$	117,623		$	50,899		$	136,829	$	36,354		$	88,237		$	514,135

The results of operations of the Argonaut Hotel, Westin Gaslamp Quarter, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami, W Boston and the Manhattan Collection joint venture (defined in Note 5 below) are included in the consolidated statements of operations beginning on their acquisition dates. The following unaudited pro forma financial information presents the results of operations of the Company for the years ended December 31, 2011 and 2010 as if the hotels and joint venture interests acquired in 2011 and 2010 were acquired on January 1, 2010. The pro forma results below excluded acquisition costs of $3.4 million and $6.6 million for the years ended December 31, 2011 and 2010, respectively. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of either the results of operations that would have actually occurred had these transactions occurred on January 1, 2010 or the future results of operations (in thousands, except per-share data).

	For the Year Ended December 31,
	2011		2010
	(Unaudited)		(Unaudited)
Total revenues	$	330,215	$	306,354
Operating income		30,873		21,441
Net income attributable to common shareholders		6,230		16,074
Net income per share available to common shareholders—basic and diluted	$	0.12	$	0.34

NOTE 4. INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consisted of the following (in thousands):

	December 31,
	2011			2010
Land	$	190,197		$	106,428
Buildings and improvements		887,217			460,988
Furniture, fixtures and equipment		86,138			37,966
Investment in hotel properties	$	1,163,552		$	605,382
Less: Accumulated depreciation		(36,068	)		(5,668	)
Investment in hotel properties, net	$	1,127,484		$	599,714

F-15

NOTE 5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

On July 29, 2011, the Company acquired a 49% interest in a joint venture (the “Manhattan Collection joint venture”), which owns six properties in New York, New York, for $152.6 million plus working capital. The transaction values the six hotels at approximately $908.0 million (subject to working capital and similar adjustments). The Company accounts for this investment using the equity method. The joint venture has approximately $549.0 million in total assets. The joint venture’s total liabilities and members’ deficit include approximately $581.0 million in existing first mortgage and mezzanine debt which matures in February 2013 and approximately $76.6 million of preferred capital which may be distributed after the later of 27 months from July 29, 2011 or the date on which the joint venture refinances, modifies, or extends its debt. The Company is not a guarantor of any existing debt of the joint venture except for limited customary carve-outs related to fraud or misapplication of funds.

At the time of the Company’s investment, the estimated fair value of the hotel properties owned by the Manhattan Collection joint venture exceeded the carrying value. This basis difference between the Company’s investment in the joint ventures and the Company’s proportionate 49% interest in these depreciable assets held by the joint venture is amortized over the estimated life of the underlying assets and recognized as a component of equity in earnings of unconsolidated joint ventures (referred to as the basis adjustment in the table below).

The summarized results of operations of our investment in the Manhattan Collection joint venture from the acquisition date to December 31, 2011 are presented below (in thousands):

	For the Period from July 29, 2011 (date of investment) through December 31, 2011
Revenues	$	82,124
Total expenses		75,992
Net income		6,132
Company’s 49% interest of net income		3,005
Basis adjustment		(669	)
Equity in earnings in unconsolidated joint ventures	$	2,336

NOTE 6. DEBT

Senior Unsecured Revolving Credit Facility

On June 3, 2011, the Company amended and restated in its entirety the credit facility agreement that it had entered into in July 2010. The Company’s credit facility is now unsecured and the borrowing capacity has been increased by $50.0 million to $200.0 million. The senior unsecured revolving credit facility matures on June 3, 2014, and the Company has a one-year extension option. The Company has the ability to increase the senior unsecured revolving credit facility borrowing capacity up to a maximum capacity of $400.0 million with lender approval. Borrowings on the senior unsecured revolving credit facility bear interest at LIBOR plus 2.5% to 3.5%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.35% or 0.50% of the unused portion of the senior unsecured revolving credit facility, depending on the amount of borrowings outstanding. The senior unsecured revolving credit facility contains certain financial covenants, including a maximum leverage ratio, a maximum debt service coverage ratio, a minimum fixed charge coverage ratio and minimum net worth. The Company incurred approximately $1.3 million in fees in connection with this amendment which are amortized over the term of the credit facility. As of December 31, 2011 and 2010, the Company had no outstanding borrowings under the senior unsecured revolving credit facility. As of December 31, 2011, the Company was in compliance with the senior unsecured revolving credit facility debt covenants. For the years ended December 31, 2011 and 2010, the Company incurred unused commitment fees of $0.9 million and $0.4 million, respectively.

F-16

Mortgage Debt

As of December 31, 2011, each of the Company’s mortgage loans was secured by a first-mortgage lien or by leasehold interests under the ground lease on the underlying property. The mortgages are non-recourse to the Company except for fraud or misapplication of funds. The mortgage loans contain certain property specific covenants and restrictions, including minimum debt service coverage ratios that may trigger “cash trap” provisions as well as restrictions on incurring additional property specific debt without lender consent. The Company is in compliance with all debt covenants as of December 31, 2011.

On January 6, 2011, the Company entered into a first-mortgage loan on the Skamania Lodge. The debt has a principal balance of $31.0 million, a term of five years, bears interest at 5.44% and requires monthly principal and interest payments of $174,898.

On January 21, 2011, the Company entered into a first-mortgage loan on the DoubleTree by Hilton Bethesda-Washington DC. The debt has a principal balance of $36.0 million, a term of five years, bears interest at 5.28% and requires interest-only payments for the first 12 months and, beginning in March 2012, will require monthly principal and interest payments of $199,407 through February 2016, the maturity date.

In conjunction with the Company’s acquisition of the Argonaut Hotel, the Company assumed a $42.0 million interest-only first-mortgage loan. The debt matures in March 2012 and has a fixed annual interest rate of 5.67%.

Mortgage debt consisted of the following (in thousands):

				Balance Outstanding as of
	Interest Rate		Maturity Date	December 31, 2011		December 31, 2010
Sofitel Philadelphia		Floating(1)	February 2012	$	56,070	$	56,070
Monaco Washington DC		5.68%	March 2012		35,000		35,000
Argonaut Hotel		5.67%	March 2012		42,000		—
InterContinental Buckhead		4.88%	January 2016		51,805		52,500
Skamania Lodge		5.44%	February 2016		30,664		—
DoubleTree by Hilton Bethesda-Washington DC		5.28%	February 2016		36,000		—
				$	251,539	$	143,570

⁽¹⁾ Mortgage debt bears interest at LIBOR plus 1.3%. The interest rates as of December 31, 2011 and December 31, 2010 were both 1.57%.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity. The estimated fair value of the Company’s debt as of December 31, 2011 and 2010 was $251.2 million and $143.9 million, respectively.

Future scheduled debt principal payments as of December 31, 2011 are as follows (in thousands):

2012	$	134,738
2013		1,775
2014		1,869
2015		1,969
2016		111,188
Thereafter		—
Total debt	$	251,539

F-17

NOTE 7. EQUITY

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest (“common shares”), $.01 par value per share. Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by our board of trustees.

On December 14, 2009, the Company issued 20,260,000 common shares and raised $379.6 million, net of underwriting discounts and offering costs, in an initial public offering and concurrent private placement of common shares.

On July 28, 2010, the Company issued 19,550,000 common shares and raised $318.3 million, net of underwriting discounts and offering-related costs, in a follow-on offering of common shares.

On April 6, 2011, the Company issued 10,925,000 common shares and raised $226.5 million, net of underwriting discounts and offering costs, in a follow-on offering of common shares.

On April 13, 2011, the Company filed a shelf registration statement on Form S-3 with the SEC. Under this shelf registration statement, the Company may issue common shares, preferred shares, debt securities, warrants and units from time to time.

Common Dividends

The Company paid or will pay the following dividends on common shares/units for the year ended December 31, 2011:

Dividend per Share/Unit	For the quarter ended	Record Date	Payable Date
$0.12	March 31, 2011	March 31, 2011	April 15, 2011
$0.12	June 30, 2011	June 30, 2011	July 15, 2011
$0.12	September 30, 2011	September 30, 2011	October 17, 2011
$0.12	December 31, 2011	December 31, 2011	January 16, 2012

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share.

The Company had no preferred shares outstanding as of December 31, 2010. On March 11, 2011, the Company issued 5,000,000 shares of its 7.875% Series A Cumulative Redeemable Preferred Shares (“Series A Preferred Shares”) at a public offering price of $25.00 per share, for a total of approximately $120.9 million of net proceeds, after deducting the underwriting discount and other offering-related costs.

On July 14, 2011, the Company issued 600,000 Series A Preferred Shares at a price of $25.25 per share for a total of approximately $15.1 million in net proceeds.

On September 14, 2011, the Company issued 3,400,000 shares of its 8.00% Series B Cumulative Redeemable Preferred Shares (“Series B Preferred Shares”) at a public offering price of $25.00 per share, for a total of approximately $82.3 million of net proceeds, after deducting the underwriting discount and other offering-related costs.

F-18

The Series A Preferred Shares and the Series B Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares of beneficial interest and on parity with each other with respect to payment of distributions. The Preferred Shares are cumulative redeemable preferred shares. The outstanding Preferred Shares do not have any maturity date and are not subject to mandatory redemption. The Company may not optionally redeem the Series A Preferred Shares or Series B Preferred Shares prior to March 11, 2016 and September 21, 2016, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below. After those dates, the Company may, at its option, redeem the Preferred Shares, in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company’s declaration of trust, the result of which the Company’s common shares of beneficial interest and the common securities of the acquiring or surviving entity are not listed on the NYSE, NYSE Amex or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days after the change of control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares of beneficial interest based on a defined formula subject to a share cap. The share cap on each Series A Preferred Share is 2.3234 common shares and the share cap on each Series B Preferred Share is 3.4483 common shares.

Preferred Dividends

The Company paid or will pay the following dividends on preferred shares for the year ended December 31, 2011:

Security Type	Dividend per Share/Unit	For the quarter ended	Record Date	Payable Date
7.875% Series A	$0.19(1)	March 31, 2011	March 31, 2011	April 15, 2011
7.875% Series A	$0.49	June 30, 2011	June 30, 2011	July 15, 2011
7.875% Series A	$0.49	September 30, 2011	September 30, 2011	October 17, 2011
7.875% Series A	$0.49	December 31, 2011	December 31, 2011	January 16, 2012
8.00% Series B	$0.13(1)	September 30, 2011	September 30, 2011	October 17, 2011
8.00% Series B	$0.50	December 31, 2011	December 31, 2011	January 16, 2012

⁽¹⁾  Pro-rata payment for the partial quarter from the date of issuance.

Non-controlling Interest of Common Units of Operating Partnership

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

As of December 31, 2011 and 2010, the Operating Partnership had 929,099 long-term incentive partnership units (“LTIP units”) outstanding, all of which are now equivalent to or have reached parity with common units in April 2011. As of December 31, 2011 and 2010, 362,170 and 185,820, respectively, of these LTIP units were vested. Only vested LTIP units may be converted to common units of the Operating Partnership which in turn can be redeemed for an equal number of common shares in the Company. No LTIP units were converted to common units during 2010 or 2011.

F-19

NOTE 8. SHARE-BASED COMPENSATION PLAN

The Company maintains the 2009 Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity based awards. As of December 31, 2011, there were 224,317 common shares available for issuance under the 2009 Equity Incentive Plan. Restricted share awards under this plan generally vest over three to five years. The Company pays dividends on unvested shares. Certain share awards may provide for accelerated vesting if there is a change in control. As of December 31, 2011, the Company has granted restricted share awards and LTIP units under the plan.

The following table provides a summary of restricted share activity:

	Shares			Weighted-Average Grant Date Fair Value
Unvested at October 2, 2009 (inception)		—		$	—
Granted		15,000		$	20.00
Unvested at December 31, 2009		15,000		$	20.00
Granted		70,110		$	20.98
Vested		(4,170	)	$	20.00
Forfeited		(2,500	)	$	20.00
Unvested at December 31, 2010		78,440		$	20.88
Granted		79,330		$	22.03
Vested		(26,874	)	$	20.83
Forfeited		(2,232	)	$	21.58
Unvested at December 31, 2011		128,664		$	21.59

The fair value of each restricted share award is determined based on the closing price of the Company’s common shares on the grant date. As of December 31, 2011, there was $1.9 million of total unrecognized compensation expense related to unvested restricted shares and unrecognized compensation expense are expected to be recognized over a weighted-average of 1.8 years. For the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $1.1 million, $0.5 million and $5 thousand, respectively, in expense related to these restricted shares in the consolidated statement of operations.

Long-Term Incentive Partnership Units

LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Company’s Operating Partnership and will receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. Prior to reaching parity with common units, LTIP units have a capital account balance of zero, do not receive an allocation of net income (loss) and do not have full parity with the common units with respect to liquidating distributions. If such parity is reached, vested LTIP units may be converted, at any time, into an equal number of common units and thereafter will possess all of the rights and interests of a common unit, including the right to redeem the common unit for a common share in the Company or cash, at the option of the Operating Partnership.

As of December 31, 2011, the Company had 929,099 LTIP units outstanding. Upon completion of the Company’s equity offering of common shares on April 6, 2011, the Company determined that a revaluation event occurred, as defined in the Code, and the LTIP units achieved full parity with the common units with respect to liquidating distributions and all other purposes. These LTIP units are allocated their pro-rata share of the Operating Partnership’s net income (loss).

F-20

All of the outstanding LTIP units were held by officers of the Company as of December 31, 2011. These LTIP units vest ratably on each of the first five anniversaries of their date of grant. The grant date fair value of the LTIP units was determined using a Monte Carlo simulation method model. The LTIP unit grants were valued at $8.50 per LTIP unit. As of December 31, 2011, 362,170 LTIP units have vested.

For the years ended December 31, 2011, 2010, and 2009, the Company recognized $1.6 million, $1.6 million and $0.1 million in share-based compensation expense related to the LTIP units, respectively. As of December 31, 2011 and 2010, there was $4.7 million and $6.2 million, respectively, of total unrecognized share-based compensation expense related to LTIP units. This unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of three years. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s consolidated balance sheets.

NOTE 9. INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its shareholders. It is the Company’s current intention to adhere to these requirements and maintain the Company’s qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable-REIT subsidiaries is subject to federal, state and local income taxes. PHL is a TRS of the Company and as such is required to pay federal and state income taxes as a regular C Corporation.

The Company’s provision (benefit) for income taxes for PHL, the Company’s TRS, consists of the following (in thousands):

	For the Year Ended December 31,
	2011		2010			2009
Federal	$	—	$	—		$	—
Current		374		—			—
Deferred		70		(70	)		—
State and local							—
Current		110		—			—
Deferred		10		(10	)		—
Income tax expense (benefit)	$	564	$	(80	)	$	—

A reconciliation of the statutory federal tax expense (benefit) to the Company’s income tax expense (benefit) for our TRS is as follows:

	For the Year Ended December 31,
	2011		2010			2009
Statutory federal tax expense (benefit) at 34%	$	444	$	(70	)	$	—
State income tax expense (benefit)		120		(10	)		—
	$	564	$	(80	)	$	—

For the year ended December 31, 2010, the Company had a deferred tax asset of $0.1 million associated with its net operating loss. This net operating loss was used to offset 2011 taxable income.

F-21

NOTE 10. EARNINGS PER SHARE

Earnings per share is computed by applying the provisions of the two-class method as the unvested restricted shares and LTIP units (unvested share-based compensation) are considered participating securities. The holders of these awards receive non-forfeitable dividends on their unvested shares and units. Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders adjusted for dividends on unvested share-based compensation by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders adjusted for dividends on unvested share-based compensation by the weighted-average number of common shares outstanding and potential common shares that are dilutive. The LTIP units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income (loss) would also be added or subtracted to derive at net income (loss) available to common shareholders.

The following is a reconciliation of the calculation of basic and diluted earnings (loss) per share (in thousands, except share and per-share data):

	For the Year Ended December 31,
	2011			2010			2009
Numerator:
Net income (loss) attributable to common shareholders	$	4,443		$	(6,642	)	$	(147	)
Less: Dividends paid on unvested share-based compensation		(398	)		(9	)		—
Net income (loss) available to common shareholders	$	4,045		$	(6,651	)	$	(147	)
Denominator:
Weighted-average number of common shares—basic		47,921,200			28,669,851			4,011,198
Effect of dilutive share-based compensation		45,107			—			—
Weighted-average number of common shares—diluted		47,966,307			28,669,851			4,011,198
Net income (loss) per share available to common shareholders—basic	$	0.08		$	(0.23	)	$	(0.04	)
Net income (loss) per share available to common shareholders—diluted	$	0.08		$	(0.23	)	$	(0.04	)

For the years ended December 31, 2010 and 2009, 78,440 and 15,000 of unvested restricted shares were excluded from diluted weighted-average common shares as their effect would have been anti-dilutive.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Management Agreements

The Company’s hotel properties operate pursuant to management agreements with various management companies. The initial term of these management agreements ranges from five years to 20 years not including renewals, and five years to 40 years including renewals. Many of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds.

F-22

Termination fees range from zero to up to six times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company’s management agreements are non-terminable except upon the manager’s breach of a material representation or the manager’s failure to meet performance thresholds as defined in the management agreement.

The management agreements require the payment of a base management fee generally between 2% and 4% of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceeds certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. For the years ended December 31, 2011, 2010 and 2009, base and incentive management fees were $8.1 million, $1.7 million and $0, respectively.

Reserve Funds

Certain of the Company’s agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, typically 4.0% of hotel revenues, sufficient to cover the cost of (a) certain non- routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures, and equipment.

Restricted Cash

At December 31, 2011 and 2010, the Company had $9.5 million and $4.5 million, respectively, in restricted cash, which consists of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or lender requirements.

Ground Lease

The Monaco Washington DC is subject to a long-term ground lease agreement on the land underlying the hotel. The ground lease expires in 2059. The hotel is required to pay the greater of an annual base rent of $0.2 million or a percentage of gross hotel revenues and gross food and beverage revenues in excess of certain thresholds, as defined in the agreement. The lease contains certain restrictions on modifications that can be made to the structure due to its status as a national historic landmark.

The Company assumed a long-term ground lease agreement in connection with its acquisition of the Argonaut Hotel. The ground lease expires in 2059. The hotel is required to pay the greater of an annual base rent of $1.2 million or a percentage of rooms revenues, food and beverage revenues and other department revenues in excess of certain thresholds, as defined in the agreement. The lease contains certain restrictions on modifications that can be made to the structure due to its status as a national historic landmark.

Future minimum annual rental payments under these leases, which assumes base rent for all periods and no assumptions for CPI adjustments, as of December 31, 2011 is as follows (in thousands):

2012	$	1,380
2013		1,380
2014		1,380
2015		1,380
2016		1,380
Thereafter		59,223
	$	66,123

F-23

Litigation

The nature of the operations of the hotels exposes the hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company may obtain insurance to cover potential material losses. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.

NOTE 12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

	Year Ended December 31, 2011		Year Ended December 31, 2010		From October  2, 2009 (inception) to December 31, 2009
	(In thousands)
Interest paid	$	11,366	$	956	$	—
Income taxes paid	$	586	$	—	$	—
Non-Cash Investing and Financing Activities:
Distributions payable to common shares/units	$	6,219	$	4,908	$	—
Distributions payable to preferred shares	$	3,813	$	—	$	—
Accrual of offering costs, including $8.1 million of underwriting discount	$	—	$	—	$	9,532
Mortgage loan assumed in connection with acquisition	$	42,000	$	91,070	$	—
Deposit applied to purchase price of acquisition	$	5,000	$	—	$	—
Issuance of common shares for board of trustees compensation	$	182	$	12	$	—
Accrued additions and improvements to hotel properties	$	2,171	$	—	$	—

NOTE 13. SUBSEQUENT EVENTS

In January 2012, the Company obtained a $46.0 million loan secured by the Company’s leasehold interest under the ground lease on the Monaco Washington DC hotel. The proceeds from this loan were used to pay down the existing $35.0 million mortgage on this property and the remaining will be used for general corporate purpose. This loan has a fixed interest rate of 4.36 percent per annum and requires monthly principal and interest payments of $0.2 million through February 2017, the maturity date.

In January 2012, the Company repaid the $42.0 million loan on the Argonaut Hotel with $31.0 million from cash on hand and $15.0 million of borrowings from our senior unsecured credit facility. In February 2012, the Company obtained a new $47.0 million loan secured by this property. The proceeds from this loan were used to partially pay down the balance on the credit facility. This loan has a fixed interest rate of 4.25 percent per annum and requires monthly principal and interest payments of $0.3 million through March 2017, the maturity date.

In February 2012, the Company repaid the $56.1 million loan on the Sofitel Philadelphia hotel with borrowings from its senior unsecured revolving credit facility.

F-24

In February 2012, the Board of Trustees granted an aggregate of 52,509 restricted shares to executive officers and employees of the Company. These restricted shares will vest over approximately 3 or 5 years based on the terms of the award.

In February 2012, the Board of Trustees granted 72,056 performance-based share awards to executive officers and employees of the Company. The actual number of common shares issuable under the performance-based share awards will be based on certain performance goals stipulated in the agreements over the period from January 1, 2012 through December 31, 2014 and will be determined in early 2015. The actual shares issued may be less than or greater than the target number of share awards based upon performance level attained. The actual shares issued for executive officers can range from 0% to 200% of the target amount. There is no maximum number of actual shares issued to employees. None of the common shares issuable under the performance awards will be outstanding until issued in accordance with the award agreements. After the actual number of shares under the performance awards are determined, the shares will become issued and outstanding. In addition, once the number of performance shares is determined, the executive officers and employees will receive cash payments equal to the total amount of dividends paid on an equivalent number of common shares from February 8, 2012 until the determination date.

NOTE 14. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company’s unaudited consolidated quarterly operating data for the years ended December 31, 2011 and 2010 (in thousands, except per-share data) follows. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management’s opinion, however, that quarterly operating data for hotel properties are not indicative of results to be achieved in succeeding quarters or years.

	Year Ended December 31, 2011
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	42,665		$	73,110	$	87,803	$	84,409
Net income (loss)		(3,044	)		4,299		5,838		8,106
Net income (loss) attributable to the Company		(3,044	)		4,214		5,724		7,962
Net income (loss) attributable to common shareholders		(3,591	)		1,753		2,825		3,456
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.09	)	$	0.03	$	0.05	$	0.07

	Year Ended December 31, 2010
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenues	$	—		$	2,216		$	21,637		$	33,908
Net income (loss) attributable to the Company		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) attributable to common shareholders		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.03	)	$	(0.19	)	$	(0.01	)	$	(0.05	)

F-25

Pebblebrook Hotel Trust

Schedule III—Real Estate and Accumulated Depreciation

As of December 31, 2011

(In thousands)

			Initial Costs								Gross Amount at End of Year
Description	Encumb- rances		Land		Building and Improve- ments		Furniture, Fixtures and Equipment		Cost Capitalized Subsequent to Acquisition		Land		Building and Improve- ments		Furniture, Fixtures and Equipment		Total		Accumulated Depreciation		Net Book Value		Year of Original Construction		Date of Acquisition		Depreciation Life
DoubleTree by Hilton Bethesda-Washington DC	$	36,000	$	10,065	$	53,000	$	4,035	$	5,739	$	10,065	$	56,822	$	5,952	$	72,839	$	3,408	$	69,431		1971		06/04/10		3-40 years
Sir Francis Drake Hotel		—		22,500		60,547		6,953		9,827		22,500		66,046		11,281		99,827		4,453		95,374		1928		06/22/10		1-40 years
InterContinental Buckhead Hotel		51,805		25,000		68,844		11,000		6,054		25,000		71,043		14,855		110,898		5,201		105,697		2004		07/01/10		3-40 years
Monaco Washington DC		35,000		—		60,630		2,441		1,476		—		61,838		2,709		64,547		2,470		62,077		1839		09/09/10		3-40 years
The Grand Hotel Minneapolis		—		4,950		26,616		300		5,908		4,950		29,339		3,485		37,774		1,805		35,969		1912		09/29/10		1-40 years
Skamania Lodge		30,664		7,129		44,987		3,523		1,500		7,129		46,052		3,958		57,139		1,994		55,145		1993		11/03/10		3-40 years
Sheraton Delfina Santa Monica Hotel		—		18,784		81,580		2,295		2,337		18,784		81,231		4,981		104,996		2,704		102,292		1972		11/19/10		3-40 years
Sofitel Philadelphia Hotel		56,070		18,000		64,256		4,639		479		18,000		64,628		4,746		87,374		2,460		84,914		2000		12/03/10		3-40 years
Argonaut Hotel		42,000		—		79,492		4,247		2,510		—		80,568		5,681		86,249		2,289		83,960		1907		02/16/11		3-40 years
Westin Gaslamp Quarter		—		25,537		86,089		6,850		6,636		25,537		91,426		8,149		125,112		3,338		121,774		1987		04/06/11		1-40 years
Monaco Seattle		—		10,105		38,888		2,073		1,722		10,105		39,321		3,362		52,788		986		51,802		1969		04/07/11		3-40 years
Mondrian Los Angeles		—		20,306		110,283		6,091		1,444		20,306		110,660		7,158		138,124		2,401		135,723		1959		05/03/11		3-40 years
Viceroy Miami		—		8,368		24,246		3,723		146		8,368		24,308		3,807		36,483		913		35,570		2009		05/26/11		1-40 years
W Boston		—		19,453		63,893		5,887		169		19,453		63,935		6,014		89,402		1,646		87,756		2009		06/08/11		2-40 years
	$	251,539	$	190,197	$	863,351	$	64,057	$	45,947	$	190,197	$	887,217	$	86,138	$	1,163,552	$	36,068	$	1,127,484

F-26

Pebblebrook Hotel Trust

Schedule III—Real Estate and Accumulated Depreciation—Continued

As of December 31, 2011

(In thousands)

Reconciliation of Real Estate and Accumulated Depreciation:
Reconciliation of Real Estate:
Balance at December 31, 2009	$	—
Acquisitions		602,075
Capital expenditures		3,307
Balance at December 31, 2010	$	605,382
Acquisitions		515,531
Capital expenditures		42,639
Balance at December 31, 2011	$	1,163,552
Reconciliation of Accumulated Depreciation:
Balance at December 31, 2009	$	—
Depreciation		5,668
Balance at December 31, 2010	$	5,668
Depreciation		30,400
Balance at December 31, 2011	$	36,068

F-27

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1†	Declaration of Trust, as amended and supplemented, of the Registrant.
3.2	Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11 filed on July 13, 2010 (File No. 333-168078)).
3.3†	First Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P., as amended.
10.1*	Pebblebrook Hotel Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11 filed on July 13, 2010 (File No. 333-168078)).
10.2*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.3*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.4*	Change in Control Severance Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.5*	Form of Indemnification Agreement between Pebblebrook Hotel Trust and its officers and trustees (incorporated by reference to Exhibit 10.4 of Amendment No. 1 to the Registrant’s Registration Statement on Form S-11/A, filed by the Registrant on November 10, 2009 (File No. 333-162412)).
10.6*	Form of Share Award Agreement for officers and employees (incorporated by reference to Exhibit 10.5 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-11/A filed on November 25, 2009 (File No. 333-162412)).
10.7*	Share Award Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).
10.8*	Share Award Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).
10.9*	Share Award Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)).
10.10*	Form of Share Award Agreement for trustees (incorporated by reference to Exhibit 10.6 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-11/A filed on November 25, 2009 (File No. 333-162412)).
10.11*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Jon E. Bortz (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.12*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Raymond D. Martz (incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).

Exhibit Number	Description of Exhibit
10.13*	LTIP Unit Vesting Agreement between Pebblebrook Hotel Trust and Thomas C. Fisher (incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)).
10.14	Lease, dated December 1, 1999, by and between the United States of America, acting through the Administrator of General Services, and Tariff Building Associates, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.15	Assignment and Assumption of GSA Lease, by and among the United States of America, acting by and through the Administrator of General Services and Authorized Representatives, Tariff Building Associates, L.P., and Jayhawk Owner LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.16	Promissory Note by Tariff Building Associates, L.P. in favor of Wachovia Bank, National Association (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.17	Assumption Agreement, by and among Bank of America, N.A., as successor to Wells Fargo Bank, N.A., as trustee for the registered holders of COBALT CMBS Commercial Mortgage Trust 2007-C2, Commercial Mortgage Pass-Through Certificates, Series 2007-C2, Tariff Building Associates, L.P., Kimpton Development Opportunity Fund, L.P., Jayhawk Owner LLC, and Pebblebrook Hotel, L.P. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.18	Deed of Trust, Security Agreement, Assignment of Rents and Fixtures Filing dated as of February 23, 2007 by and among Tariff Building Associates, L.P., as borrower, First American Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as lender (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 13, 2010 (File No. 001-34571)).
10.19	Promissory Note by South 17th Street OwnerCo, LLC in favor of Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.20	Loan Agreement dated as of January 5, 2007, between South 17th Street OwnerCo, LLC, as borrower, and Greenwich Capital Financial Products, Inc., as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.21	Credit Agreement, dated as of July 8, 2010, among Pebblebrook Hotel Trust, Pebblebrook Hotel, L.P., as borrower, the other guarantors party thereto, the lenders party thereto, Bank of America, N.A., as administrative agent, Banc of America Securities LLC and Wells Fargo Securities, LLC, as joint lead arrangers and joint book runners, Wells Fargo Bank, National Association, as syndication agent, and U.S. Bank National Association, as co-documentation agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 9, 2010 (File No. 001-34571)) (This agreement was amended and restated in June 2011; See Exhibit 10.41 below).
10.22	Membership Interest Purchase Agreement by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, and South 17th Street IntermezzCo, LLC, as the Seller Parties, and Spartans Owner, LLC and Spartans Lessee, LLC, as the Purchaser Parties, dated as of October 13, 2010, for the Sofitel Philadelphia (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).

Exhibit Number	Description of Exhibit
10.23	Second Amendment to Membership Interest Purchase Agreement, dated November 15, 2010, by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, South 17th Street IntermezzCo, LLC, Spartans Owner, LLC and Spartans Lessee, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.24	Third Amendment to Membership Interest Purchase Agreement, dated November 30, 2010, by and among Platinum OwnerCo, LLC, Platinum LeaseCo, LLC, South 17th Street IntermezzCo, LLC, Spartans Owner, LLC and Spartans Lessee, LLC (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on December 6, 2010 (File No. 001-34571)).
10.25	Loan Agreement, between Orangemen Owner LLC, as Borrower, and Goldman Sachs Commercial Mortgage Capital, L.P., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 15, 2010 (File No. 001-34571)).
10.26	Purchase and Sale Agreement of the Sheraton Delfina Santa Monica Hotel (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.27	First Amendment to Purchase and Sale Agreement by and between 615 2nd Avenue South—Minneapolis LLC and Gator Owner LLC (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.28	Purchase and Sale Agreement between Maritime Hotel Associates, L.P. and Wildcats Owner LLC (incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K filed on February 23, 2011 (File No. 001-34571)).
10.29	Loan Agreement, between Terrapins Owner LLC, as Borrower, and UBS Real Estate Securities Inc., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 7, 2011 (File No. 001-34571)).
10.30	Loan Agreement, dated as of January 21, 2011, between Tar Heel Borrower LLC, as Borrower, Tar Heel Owner LLC, as Maryland Guarantor, and Goldman Sachs Commercial Mortgage Capital, L.P., as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 26, 2011 (File No. 001-34571)).
10.31	Historical Lease, dated October 16, 2000, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.32	Seventh Amendment to Historic Lease, dated February 6, 2001, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.33	Tenth Amendment to Historic Lease, dated December 9, 2008, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Maritime Hotel Associates, L.P. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).

Exhibit Number	Description of Exhibit
10.34	Eleventh Amendment to Historic Lease, dated February 16, 2011, by and between the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an agency of the United States of America, and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.35	Assignment and Assumption of Historical Lease, by and among the United States Department of the Interior, National Park Service acting through the Regional Director, Pacific West Region, an Agency of the United States of America, Maritime Hotel Associates, L.P., and Wildcats Owner LLC. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.36	Promissory Note by Maritime Hotel Associates, L.P. in favor of Wachovia Bank, National Association. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.37	Assumption Agreement, by and among Bank of America, N.A., as successor to Wells Fargo Bank, N.A., as Trustee for the registered holders of COBALT CMBS Commercial Mortgage Trust 2007-C2, Commercial Mortgage Pass-Through Certificates, Series 2007-C2, Maritime Hotel Associates, L.P., Kimpton Development Opportunity Fund, L.P., Wildcats Owner LLC, and Pebblebrook Hotel, L.P. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.38	Deed of Trust, Security Agreement, Assignment of Rents and Fixtures Filing dated as of February 23, 2007 by and among Maritime Hotel Associates, L.P., as borrower, to First American Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as lender (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on February 22, 2011 (File No. 001-34571)).
10.39	Purchase and Sale Agreement by and between Starwood CMBS I, LLC, as seller, and Bruins Owner LLC, as purchaser, dated as of March 22, 2011, for The Westin Gaslamp, San Diego (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on March 31, 2011 (File No. 001-34571)).
10.40	Purchase and Sale Agreement between Mondrian Holdings LLC, as seller, and Wolverines Owner LLC, as purchaser (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
10.41	Amended and Restated Credit Agreement, dated as of June 3, 2011, among Pebblebrook Hotel, L.P., as borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party hereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
10.42	Contribution Agreement by and among Denihan Ownership Company, LLC, Denihan Mezz Holding Company, LLC and Cardinals Owner LLC, dated as of June 20, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 24, 2011 (File No. 001-34571)).
10.43	Form of Operating Agreement of DP Holding Company, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 24, 2011 (File No. 001-34571)).
10.44	Second Amended and Restated Operating Agreement of DP Fee Holding Co., LLC, dated July 29, 2011 (supersedes Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 4, 2011) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on September 28, 2011 (File No. 001-34571)).

Exhibit Number	Description of Exhibit
10.45	Operating Agreement of DP Lease Holding, LLC, dated July 29, 2011 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 4, 2011 (File No. 001-34571)).
10.46	Purchase and Sale Agreement between Mondrian Holdings LLC, as seller, and Wolverines Owner LLC, as purchaser (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
10.47	Amended and Restated Credit Agreement, dated as of June 3, 2011, among Pebblebrook Hotel, L.P., as borrower, Pebblebrook Hotel Trust, as the parent REIT and a guarantor, certain subsidiaries of the borrower, as guarantors, Bank of America, N.A., as administrative agent, and the other lenders party hereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, 2011 (File No. 001-34571)).
12.1†	Statement of Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends.
21.1†	List of Subsidiaries of the Registrant.
23.1†	Consent of KPMG LLP.
23.2†	Consent of PKF O’Connor Davies, A Division of O’Connor Davies, LLP.
31.1†	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1†	Audited combined financial statements of DP Fee Holding Co., LLC and DP Lease Holding, LLC.
101.INS XBRL	Instance Document(1)
101.SCH XBRL	Taxonomy Extension Schema Document(1)
101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document(1)
101.LAB XBRL	Taxonomy Extension Label Linkbase Document(1)
101.DEF XBRL	Taxonomy Extension Definition Linkbase Document(1)
101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document(1)

* Management agreement or compensatory plan or arrangement.

† Filed electronically herewith.

⁽¹⁾ Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

EX-3.1

Exhibit 3.1

PEBBLEBROOK HOTEL TRUST

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST: Pebblebrook Hotel Trust, a Maryland real estate investment trust (the “Trust”) formed under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland (“Title 8”), desires to amend and restate its Declaration of Trust as currently in effect and as hereinafter amended (the “Declaration of Trust”).

SECOND: The following provisions are all the provisions of the Declaration of Trust currently in effect and as hereinafter amended:

ARTICLE I

FORMATION

The Trust is a real estate investment trust within the meaning of Title 8. The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE II

NAME

The name of the Trust is:

Pebblebrook Hotel Trust

Under circumstances in which the Board of Trustees of the Trust (the “Board of Trustees” or “Board”) determines that the use of the name of the Trust is not practicable, the Trust may use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

Section 3.1 Purposes. The purposes for which the Trust is formed are to engage in any businesses and activities that a trust formed under Title 8 may legally engage in, including, without limitation or obligation, engaging in business as a real estate investment trust (“REIT”) within the meaning of Section 856 of the Code.

Section 3.2 Powers. The Trust shall have all of the powers granted to real estate investment trusts by Title 8 and all other powers set forth in the Declaration of Trust of the Trust, as it may be amended and supplemented, which are not inconsistent with law and are appropriate to promote and attain the purposes set forth in the Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

The name and address of the resident agent of the Trust in the State of Maryland are The Corporation Trust Incorporated, 351 West Camden Street, Baltimore, MD 21201. The resident agent of the Trust is a Maryland corporation. The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 5.1 Powers. Subject to any express limitations contained in the Declaration of Trust or in the Bylaws of the Trust, as amended from time to time (the “Bylaws”), (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust. The Board may take any action as in its sole judgment and discretion is necessary or appropriate to conduct the business and affairs of the Trust. The Declaration of Trust shall be construed with the presumption in favor of the grant of power and authority to the Board. Any construction of the Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Trustees included in the Declaration of Trust or in the Bylaws shall in no way be limited or restricted by reference to or inference from the terms of this or any other provision of the Declaration of Trust or the Bylaws or construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland or any other applicable laws.

The Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to cause the Trust to terminate its status as a REIT under the Code pursuant to Section 5.5; to determine that compliance with any restriction or limitation on ownership and transfers of shares of beneficial interest in the Trust set forth in Article VII of the Declaration of Trust is no longer required in order for the Trust to qualify as a REIT pursuant to Section 5.5; to adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest in the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

Section 5.2 Number. The number of Trustees (hereinafter the “Trustees”) shall be one, which number may be increased or decreased pursuant to the Bylaws, but shall never be more than 15. The Trustees shall be elected at each annual meeting of shareholders in the manner provided in the Bylaws or, in order to fill any vacancy on the Board of Trustees, in the manner provided in the Bylaws, to serve until the next annual meeting of shareholders and until their successors are duly elected and qualify.

2

The name of the Trustee who shall serve until his successors are duly elected and qualify is:

Jon E. Bortz

The Board of Trustees may increase or decrease the number of Trustees in the manner provided in the Bylaws. Vacancies on the Board of Trustees, whether resulting from an increase in the number of Trustees or otherwise, may be filled only by the Board of Trustees in the manner provided in the Bylaws. It shall not be necessary to list in the Declaration of Trust the names and addresses of any Trustees hereinafter elected.

The Trust elects, at such time as it becomes eligible to make the election provided for under Section 3-804(c) of the Maryland General Corporation Law that, except as may be provided by the Board of Trustees in setting the terms of any class or series of Shares (as hereinafter defined), any and all vacancies on the Board of Trustees may be filled only by the affirmative vote of a majority of the remaining Trustees in office, even if the remaining Trustees do not constitute a quorum, and any Trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred.

Section 5.3 Resignation or Removal. Any Trustee may resign by written notice to the Board, effective upon execution and delivery to the Trust of such written notice or upon any future date specified in the notice. Subject to the rights of holders of one or more classes or series of Preferred Shares (as hereinafter defined) to elect or remove one or more Trustees, a Trustee may be removed at any time, but only for cause and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of Trustees. For the purpose of this paragraph, “cause” shall mean, with respect to any particular trustee, conviction of a felony or a final judgment of a court of competent jurisdiction holding that such trustee caused demonstrable, material harm to the Trust through bad faith or active and deliberate dishonesty.

Section 5.4 Determinations by Board. The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Trustees consistent with the Declaration of Trust, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares: the amount of the net income of the Trust for any period and the amount of assets at any time legally available for the payment of dividends, redemption of Shares or the payment of other distributions on Shares; the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of any class or series of Shares; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Trust or of any Shares; the number of Shares of any class of the Trust; any matter relating to the acquisition, holding and disposition of any assets by the Trust; or any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, the Declaration of Trust or Bylaws or otherwise to be determined by the Board of Trustees.

3

Section 5.5 REIT Qualification. If the Board of Trustees determines that it is no longer in the best interests of the Trust to continue to be qualified as a REIT, the Board of Trustees may revoke or otherwise terminate the Trust’s REIT election pursuant to Section 856(g) of the Code. The Board of Trustees also may determine that compliance with any restriction or limitation on share ownership and transfers set forth in Article VII is no longer required for REIT qualification.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 6.1 Authorized Shares. The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”). The Trust has authority to issue 500,000,000 common shares of beneficial interest, $0.01 par value per share (“Common Shares”), and 100,000,000 preferred shares of beneficial interest, $0.01 par value per share (“Preferred Shares”). If shares of one class are classified or reclassified into shares of another class of shares pursuant to this Article VI, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of beneficial interest of all classes that the Trust has authority to issue shall not be more than the total number of shares of beneficial interest set forth in the second sentence of this paragraph. The Board of Trustees, with the approval of a majority of the entire Board and without any action by the shareholders of the Trust, may amend the Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.

Section 6.2 Common Shares. Subject to the provisions of Article VII and except as may otherwise be specified in the terms of any class or series of Common Shares, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote. The Board of Trustees may reclassify any unissued Common Shares from time to time in one or more classes or series of Shares.

Section 6.3 Preferred Shares. The Board of Trustees may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any series from time to time, in one or more series of Shares.

Section 6.4 Classified or Reclassified Shares. Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series to distinguish it from all other classes and series of Shares; (b) specify the number of Shares to be included in the class or series; (c) set or change, subject to the provisions of Article VII and subject to the express terms of any class or series of Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Trust to file articles supplementary with the State Department of

4

Assessments and Taxation of Maryland (the “SDAT”). Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 6.4 may be made dependent upon facts ascertainable outside the Declaration of Trust (including the occurrence of any event, including a determination or action by the Trust or any other person or body or any other facts or events within the control of the Trust) and may vary among holders thereof, provided that the manner in which such facts or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 6.5 Authorization by Board of Share Issuance. The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into or exchangeable or exercisable for Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a Share split or Share dividend), subject to such restrictions or limitations, if any, as may be set forth in the Declaration of Trust or the Bylaws.

Section 6.6 Dividends and Distributions. The Board of Trustees may from time to time authorize and the Trust may declare to shareholders such dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine. The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.6 shall be subject to the provisions of any class or series of Shares at the time outstanding.

Section 6.7 General Nature of Shares. All Shares shall be personal property entitling the shareholders only to those rights provided in the Declaration of Trust. The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust. The death of a shareholder shall not terminate the Trust. The Trust is entitled to treat as shareholders only those persons in whose names Shares are registered as holders of Shares on the share ledger of the Trust.

Section 6.8 Fractional Shares. The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it, or pay cash for the fair value of a fraction of a Share.

Section 6.9 Declaration and Bylaws. The rights of all shareholders and the terms of all Shares are subject to the provisions of the Declaration of Trust and the Bylaws.

Section 6.10 Divisions and Combinations of Shares. Subject to an express provision to the contrary in the terms of any class or series of beneficial interest hereafter authorized, the Board of Trustees shall have the power to divide or combine the outstanding shares of any class or series of beneficial interest, without a vote of shareholders, and amend the Declaration of Trust as necessary to effect the same, so long as the number of shares combined into one share in any such combination or series of combinations within any period of twelve months is not greater than ten.

5

ARTICLE VII

RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1 Definitions. For the purpose of this Article VII, the following terms shall have the following meanings:

Beneficial Ownership. The term “Beneficial Ownership” shall mean ownership of Equity Shares by a Person, whether the interest in Equity Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3)(A) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

Business Day. The term “Business Day” shall mean any day, other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.

Charitable Beneficiary. The term “Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 7.3.6 hereof, provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under one of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Charitable Trust. The term “Charitable Trust” shall mean any trust provided for in Section 7.3.1 hereof.

Charitable Trustee. The term “Charitable Trustee” shall mean the Person unaffiliated with the Trust and a Prohibited Owner that is appointed by the Trust to serve as trustee of the Charitable Trust.

Constructive Ownership. The term “Constructive Ownership” shall mean ownership of Equity Shares by a Person, whether the interest in Equity Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

Equity Shares. The term “Equity Shares” shall mean Shares of all classes or series, including, without limitation, Common Shares and Preferred Shares.

Excepted Holder. The term “Excepted Holder” shall mean a Person for whom an Excepted Holder Limit is created by this Article VII or by the Board of Trustees pursuant to Section 7.2.7 hereof.

Excepted Holder Limit. The term “Excepted Holder Limit” shall mean, provided that the affected Excepted Holder agrees to comply with the requirements established by the Declaration of Trust or the Board of Trustees pursuant to Section 7.2.7 hereof and subject to adjustment pursuant to Section 7.2.8 hereof, the percentage limit established for an Excepted Holder by the Declaration of Trust or the Board of Trustees pursuant to Section 7.2.7 hereof.

6

Initial Date. The term “Initial Date” shall mean the date of the issuance of Common Shares pursuant to the initial underwritten public offering of Common Shares or such other date as determined by the Board of Trustees in its sole and absolute discretion.

Market Price. The term “Market Price” on any date shall mean, with respect to any class or series of outstanding Equity Shares, the Closing Price for such Equity Shares on such date. The “Closing Price” on any date shall mean the last reported sale price for such Equity Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Equity Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such Equity Shares are not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Equity Shares are listed or admitted to trading or, if such Equity Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if such Equity Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Equity Shares selected by the Board of Trustees or, in the event that no trading price is available for such Equity Shares, the fair market value of Equity Shares, as determined in good faith by the Board of Trustees.

NYSE. The term “NYSE” shall mean the New York Stock Exchange, Inc.

Person. The term “Person” shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company, government, government subdivision, agency or instrumentality or other entity and also includes a “group” as that term is used for purposes of Rule 13d-5(b) or Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit applies.

Prohibited Owner. The term “Prohibited Owner” shall mean, with respect to any purported Transfer (or other event), any Person who, but for the provisions of Section 7.2.1 hereof, would Beneficially Own or Constructively Own Equity Shares in violation of the provisions of Section 7.2.1(a) hereof, and if appropriate in the context, shall also mean any Person who would have been the record owner of Equity Shares that the Prohibited Owner would have so owned.

Restriction Termination Date. The term “Restriction Termination Date” shall mean the first day after the Initial Date on which the Board of Trustees determines pursuant to Section 5.5 hereof that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of Equity Shares set forth herein is no longer required in order for the Trust to qualify as a REIT.

7

Share Ownership Limit. The term “Share Ownership Limit” shall mean nine and eight-tenths percent (9.8%) in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of Equity Shares of the Trust excluding any outstanding Equity Shares not treated as outstanding for federal income tax purposes, or such other percentage determined from time to time by the Board of Trustees in accordance with Section 7.2.8 hereof.

TRS. The term “TRS” shall mean a taxable REIT subsidiary (as defined in Section 856(l) of the Code) of the Trust.

Transfer. The term “Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Equity Shares or the right to vote or receive dividends on Equity Shares, including (a) the granting or exercise of any option (or any disposition of any option), pledge, security interest or similar right to acquire Equity Shares, (b) any disposition of any securities or rights convertible into or exchangeable for Equity Shares or any interest in Equity Shares or any exercise of any such conversion or exchange right and (c) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Equity Shares; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

Section 7.2 Equity Shares.

Section 7.2.1 Ownership Limitations. During the period commencing on the Initial Date and prior to the Restriction Termination Date or as otherwise set forth below, and subject to Section 7.4 hereof:

(a) Basic Restrictions.

(i) Except as provided in Section 7.2.7 hereof, no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Equity Shares in excess of the Share Ownership Limit. No Excepted Holder shall Beneficially Own or Constructively Own Equity Shares in excess of the Excepted Holder Limit for such Excepted Holder.

(ii) Except as provided in Section 7.2.7 hereof, no Person shall Beneficially Own Equity Shares to the extent that such Beneficial Ownership of Equity Shares would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year).

(iii) Except as provided in Section 7.2.7 hereof, any Transfer of Equity Shares that, if effective, would result in Equity Shares being Beneficially Owned by less than one hundred (100) Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Equity Shares.

8

(iv) Except as provided in Section 7.2.7 hereof, no Person shall Beneficially Own or Constructively Own Equity Shares to the extent such Beneficial Ownership or Constructive Ownership would cause the Trust to Constructively Own ten percent (10%) or more of the ownership interests in a tenant (other than a TRS) of the Trust’s real property within the meaning of Section 856(d)(2)(B) of the Code.

(v) No Person shall Beneficially Own or Constructively Own Equity Shares to the extent that such Beneficial Ownership or Constructive Ownership would otherwise cause the Trust to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any “eligible independent contractor” (as defined in Section 856(d)(9)(A) of the Code) that operates a “qualified lodging facility” (as defined in Section 856(d)(9)(D) of the Code) on behalf of a TRS failing to qualify as such.

(b) Transfer in Trust; Transfer Void Ab Initio. If any Transfer of Equity Shares (or other event) occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Equity Shares in violation of Sections 7.2.1(a)(i), (ii), (iv) or (v) hereof,

(i) then that number of Equity Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Sections 7.2.1(a)(i), (ii), (iv) or (v) hereof (rounded up to the nearest whole share) shall be automatically transferred without further action by the Trust or any other party, to a Charitable Trust for the benefit of a Charitable Beneficiary, as described in Section 7.3 hereof, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such Equity Shares; or

(ii) if the transfer to the Charitable Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Sections 7.2.1(a)(i), (ii), (iv) or (v) hereof, then the Transfer of that number of Equity Shares that otherwise would cause any Person to violate Sections 7.2.1(a)(i), (ii), (iv) or (v) hereof shall be void ab initio, and the intended transferee shall acquire no rights in such Equity Shares.

Section 7.2.2 Remedies for Breach. If the Board of Trustees or any duly authorized committee thereof shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 7.2.1 hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Equity Shares in violation of Section 7.2.1 hereof (whether or not such violation is intended), the Board of Trustees or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Equity Shares, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfers or attempted Transfers or other events in violation of Section 7.2.1 hereof shall be regarded as having been transferred to the Charitable Trust described above, and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Trustees or a committee thereof.

9

Section 7.2.3 Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Equity Shares that will or may violate Section 7.2.1(a) hereof, or any Person who would have owned Equity Shares that resulted in a transfer to the Charitable Trust pursuant to the provisions of Section 7.2.1(b) hereof, shall immediately give written notice to the Trust of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer on the Trust’s status as a REIT.

Section 7.2.4 Owners Required To Provide Information. From the Initial Date and prior to the Restriction Termination Date:

(a) every owner of more than five percent (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding Equity Shares, within 30 days after the end of each taxable year, shall give written notice to the Trust stating the name and address of such owner, the number of Equity Shares of each class and/or series Beneficially Owned and a description of the manner in which such shares are held. Each such owner shall provide to the Trust such additional information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership on the Trust’s status as a REIT and to ensure compliance with Section 7.2.1(a) hereof; and

(b) each Person who is a Beneficial Owner or Constructive Owner of Equity Shares and each Person (including the shareholder of record) who is holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust’s status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance and to ensure compliance with the Share Ownership Limit.

Section 7.2.5 Remedies Not Limited. Subject to Section 5.5 hereof, nothing contained in this Section 7.2 hereof shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders in preserving the Trust’s status as a REIT.

Section 7.2.6 Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Article VII, the Board of Trustees shall have the power to determine the application of the provisions of this Article VII with respect to any situation based on the facts known to it. In the event Sections 7.2 or 7.3 hereof requires an action by the Board of Trustees and the Declaration of Trust fails to provide specific guidance with respect to such action, the Board of Trustees shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Sections 7.2 or 7.3 hereof. Absent a decision to the contrary by the Board of Trustees (which the Board of Trustees may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Section 7.2.1 hereof) acquired Beneficial or Constructive Ownership of Equity Shares in violation of Section 7.2.1 hereof, such remedies (as applicable) shall apply first to the Equity Shares which, but for such

10

remedies, would have been actually owned by such Person, and second to Equity Shares which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such Equity Shares based upon the relative number of Equity Shares held by each such Person.

Section 7.2.7 Exceptions.

(a) The Board of Trustees, in its sole discretion, may exempt (prospectively or retroactively) a Person from the restrictions contained in Sections 7.2.1(a)(i), (ii), (iii) or (iv) hereof, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if the Board of Trustees obtains such representations, covenants and undertakings as the Board of Trustees may deem appropriate in order to conclude that granting the exemption and/or establishing or increasing the Excepted Holder Limit, as the case may be, will not cause the Trust to lose its status as a REIT.

(b) Prior to granting any exception pursuant to Section 7.2.7(a) hereof, the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Trustees may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.

(c) Subject to Section 7.2.1(a)(ii) hereof, an underwriter, placement agent or initial purchaser that participates in a public offering, private placement or other private offering of Equity Shares (or securities convertible into or exchangeable for Equity Shares) may Beneficially Own or Constructively Own Equity Shares (or securities convertible into or exchangeable for Equity Shares) in excess of the Share Ownership Limit, but only to the extent necessary to facilitate such public offering, private placement or immediate resale of such Equity Shares and provided that the restrictions contained in Section 7.2.1(a) hereof will not be violated following the distribution by such underwriter, placement agent or initial purchaser of such Equity Shares.

Section 7.2.8 Change in Share Ownership Limit and Excepted Holder Limits.

(a) The Board of Trustees may from time to time increase or decrease the Share Ownership Limit; provided, however, that a decreased Share Ownership Limit will not be effective for any Person whose percentage ownership of Equity Shares is in excess of such decreased Share Ownership Limit until such time as such Person’s percentage of Equity Shares equals or falls below the decreased Share Ownership Limit, but until such time as such Person’s percentage of Equity Shares falls below such decreased Share Ownership Limit, any further acquisition of Equity Shares in excess of such decreased Share Ownership Limit will be in violation of the Share Ownership Limit and, provided further, that the new Share Ownership Limit would not allow five or fewer individuals (taking into account all Excepted Holders) to Beneficially Own more than 49.9% in value of the outstanding Equity Shares.

11

(b) The Board of Trustees may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written consent of such Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the then current Share Ownership Limit.

(c) prior to any modification of the Share Ownership Limit and/or any Excepted Holder Limit pursuant to this Section 7.2.8 hereof, the Board of Trustees may, in its sole discretion, require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine and ensure the Trust’s status as a REIT.

Section 7.2.9 Legend. Each certificate, if any, for Equity Shares shall bear a legend summarizing the restrictions on transfer and ownership contained herein. Instead of a legend, the certificate, if any, may state that the Trust will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge.

Section 7.3 Transfer of Equity Shares in Trust.

Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other event described in Section 7.2.1(b) hereof that would result in a transfer of Equity Shares to a Charitable Trust, such Equity Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Charitable Trust pursuant to Section 7.2.1(b) hereof. The Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3.6 hereof.

Section 7.3.2 Status of Shares Held by the Charitable Trustee. Equity Shares held by the Charitable Trustee shall be issued and outstanding Equity Shares of the Trust. The Prohibited Owner shall have no rights in the shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the Charitable Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the shares held in the Charitable Trust.

Section 7.3.3 Dividend and Voting Rights. The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Equity Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Trust that Equity Shares have been transferred to the Charitable Trustee shall be paid with respect to such Equity Shares to the Charitable Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividends or distributions so paid over to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the Charitable Trust and, subject to Maryland law, effective as of the date that Equity Shares have

12

been transferred to the Charitable Trust, the Charitable Trustee shall have the authority (at the Charitable Trustee’s sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Trust that Equity Shares have been transferred to the Charitable Trust and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible trust action, then the Charitable Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article VII, until the Trust has received notification that Equity Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of shareholders.

Section 7.3.4 Sale of Shares by Charitable Trustee. Within 20 days of receiving notice from the Trust that Equity Shares have been transferred to the Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the Equity Shares held in the Charitable Trust to a Person, designated by the Charitable Trustee, whose ownership of the Equity Shares will not violate the ownership limitations set forth in Section 7.2.1(a) hereof. Upon such sale, the interest of the Charitable Beneficiary in the Equity Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3.4 hereof. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the Equity Shares in the transaction that resulted in such transfer to the Charitable Trust (or, if the event which resulted in the Transfer to the Charitable Trust did not involve a purchase of such Equity Shares at Market Price, the Market Price of such Equity Shares on the trading day immediately preceding the day of the event which resulted in the Transfer of such Equity Shares to the Charitable Trust) and (2) the price per share received by the Charitable Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the Equity Shares held in the Charitable Trust. The Charitable Trustee may reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 7.3.3 hereof. Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Trust that Equity Shares have been transferred to the Charitable Trust, such Equity Shares are sold by a Prohibited Owner, then (i) such Equity Shares shall be deemed to have been sold on behalf of, or in respect of, the Charitable Trust and (ii) to the extent that the Prohibited Owner received an amount for such Equity Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3.4 hereof, such excess shall be paid to the Charitable Trustee upon demand.

Section 7.3.5 Purchase Right in Shares Transferred to the Charitable Trustee. Equity Shares transferred to the Charitable Trust shall be deemed to have been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Charitable Trust (or, if the event which resulted in the Transfer to the Charitable Trust did not involve a purchase of such Equity Shares at Market Price, the Market Price of such Equity Shares on the trading day immediately preceding the day of the event which resulted in the Transfer of such Equity Shares to the Charitable Trust) and (ii) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust may reduce

13

the amount payable to the Prohibited Owner by the amount of dividends and distributions paid to the Prohibited Owner and owed by the Prohibited Owner to the Trustee pursuant to Section 7.3.3 hereof. The Trust may pay the amount of such reduction to the Trustee for the benefit of the Charitable Beneficiary. The Trust shall have the right to accept such offer until the Charitable Trustee has sold the Equity Shares held in the Charitable Trust pursuant to Section 7.3.4 hereof. Upon such a sale to the Trust, the interest of the Charitable Beneficiary in the Equity Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary in accordance with Section 7.3.4 hereof and any dividends or other distributions held by the Charitable Trustee shall be paid to the Charitable Beneficiary.

Section 7.3.6 Designation of Charitable Beneficiaries. By written notice to the Charitable Trustee, the Trust shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that (i) Equity Shares held in the Charitable Trust would not violate the restrictions set forth in Section 7.2.1(a) hereof in the hands of such Charitable Beneficiary and (ii) each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under one of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Section 7.4 NYSE Transactions. Nothing in this Article VII shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.

Section 7.5 Enforcement. The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VII.

Section 7.6 Non-Waiver. No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 7.7 Severability. If any provision of this Article VII or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provisions shall be affected only to the extent necessary to comply with the determination of such court.

ARTICLE VIII

SHAREHOLDERS

Section 8.1 Meetings. There shall be an annual meeting of the shareholders, to be held on proper notice at such time and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust. Except as otherwise provided in the

14

Declaration of Trust, special meetings of shareholders may be called only in the manner provided in the Bylaws. If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees. Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 8.2 Voting Rights. Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.2 hereof and the removal of Trustees as provided in Section 5.3 hereof; (b) amendment of the Declaration of Trust as provided in Article X hereof; (c) termination of the Trust as provided in Section 12.2 hereof; (d) merger or consolidation of the Trust, or the sale or disposition of substantially all of the assets of the Trust, as provided in Article XI hereof; (e) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification; and (f) such other matters as may be properly brought before a meeting of shareholders pursuant to the Bylaws. Except with respect to the matters described in clauses (a) through (e) above, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 8.3 Preemptive and Appraisal Rights. Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Section 6.4 hereof, or as may otherwise be provided by contract approved by the Board of Trustees, no holder of Shares shall, as such holder, have any preemptive right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust which it may issue or sell. Holders of shares of beneficial interest shall not be entitled to exercise any rights of an objecting shareholder provided for under Title 8 or Title 3, Subtitle 2 of the Maryland General Corporation Law or any successor statute unless the Board of Trustees, upon the affirmative vote of a majority of the Board of Trustees, shall determine that such rights apply, with respect to all or any classes or series of shares of beneficial interest, to one or more transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled to exercise such rights.

Section 8.4 Extraordinary Actions. Except as specifically provided in Section 5.3 hereof (relating to removal of Trustees) and in Section 10.3 hereof (relating to certain amendments to the Declaration of Trust), notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of a greater number of votes, any such action shall be effective and valid if advised by the Board of Trustees and taken or approved by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter.

Section 8.5 Board Approval. The submission of any action of the Trust to the shareholders for their consideration shall first be approved by the Board of Trustees.

15

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION

AND TRANSACTIONS WITH THE TRUST

Section 9.1 Limitation of Shareholder Liability. No shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his or her being a shareholder, nor shall any shareholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the property or the affairs of the Trust by reason of his or her being a shareholder.

Section 9.2 Limitation of Trustee and Officer Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no present or former Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages. Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of the Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

Section 9.3 Indemnification. The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former Trustee or officer of the Trust or (b) any individual who, while a Trustee or officer of the Trust and at the request of the Trust, serves or has served as a trustee, director, officer, partner, member, manager, employee or agent of another real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity or capacities. The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any employee or agent of the Trust or a predecessor of the Trust.

Section 9.4 Transactions Between the Trust and its Trustees, Officers, Employees and Agents. Subject to any express restrictions in the Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction.

ARTICLE X

AMENDMENTS

Section 10.1 General. The Trust reserves the right from time to time to make any amendment to the Declaration of Trust, now or hereafter authorized by law, including any

16

amendment altering the terms or contract rights, as expressly set forth in the Declaration of Trust, of any Shares. All rights and powers conferred by the Declaration of Trust on shareholders, Trustees and officers are granted subject to this reservation. An amendment to the Declaration of Trust shall be signed, acknowledged and filed as required by Maryland law. All references to the Declaration of Trust shall include all amendments thereto.

Section 10.2 By Trustees. The Trustees may amend the Declaration of Trust from time to time, in the manner provided by Title 8, without any action by the shareholders, (i) to qualify as a REIT under the Code or under Title 8, (ii) in any respect in which the charter of a corporation may be amended in accordance with Section 2-605 of the Corporations and Associations Article of the Annotated Code of Maryland and (iii) as otherwise provided in the Declaration of Trust.

Section 10.3 By Shareholders. Except as otherwise provided in the Declaration of Trust, any amendment to the Declaration of Trust shall be valid only if advised by the Board of Trustees and approved by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter. Any amendment to Section 5.3 hereof or to this sentence of the Declaration of Trust shall be valid only if advised by the Board of Trustees and approved by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge the Trust into another entity, (b) consolidate the Trust with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the Trust Property. Any such action must be advised by the Board of Trustees and, after notice to all shareholders entitled to vote on the matter, approved by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter.

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1 Duration. The Trust shall continue perpetually unless terminated pursuant to Section 12.2 hereof or pursuant to any applicable provision of Title 8.

Section 12.2 Termination.

(a) Subject to the provisions of any class or series of Shares at the time outstanding, after approval by a majority of the entire Board of Trustees, the Trust may be terminated upon approval at any meeting of shareholders by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter. Upon the termination of the Trust:

(i) The Trust shall carry on no business except for the purpose of winding up its affairs.

17

(ii) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under the Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining property of the Trust to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business. The Trustees may appoint any officer of the Trust or any other person to supervise the winding up of the affairs of the Trust and delegate to such officer or such person any or all powers of the Trustees in this regard.

(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as the Trustees deem necessary for their protection, the Trust may distribute the remaining property of the Trust among the shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining property of the Trust shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

(b) After termination of the Trust, the liquidation of its business and the distribution to the shareholders as herein provided, a majority of the Trustees or an authorized officer shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated, and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders shall cease.

ARTICLE XIII

MISCELLANEOUS

Section 13.1 Governing Law. The rights of all parties and the validity, construction and effect of every provision of the Declaration of Trust shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof.

Section 13.2 Reliance by Third Parties. Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of the Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment to the Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust. No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.

Section 13.3 Severability.

18

(a) The provisions of the Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of the Declaration of Trust, even without any amendment of the Declaration of Trust pursuant to Article X and without affecting or impairing any of the remaining provisions of the Declaration of Trust or rendering invalid or improper any action taken or omitted prior to such determination. No Trustee shall be liable for making or failing to make such a determination. In the event of any such determination by the Board of Trustees, the Board shall amend the Declaration of Trust in the manner provided in Section 10.2 hereof.

(b) If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction.

Section 13.4 Construction. In the Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of the Declaration of Trust. In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference shall be made, to the extent appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

Section 13.5 Recordation. The Declaration of Trust and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record the Declaration of Trust or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of the Declaration of Trust or any amendment hereto. A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments thereto.

THIRD: The amendment to and restatement of the Declaration of Trust of the Trust as hereinabove set forth have been duly advised by the Board of Trustees and approved by the shareholders of the Trust as required by law.

FOURTH: The total number of shares of beneficial interest which the Trust had authority to issue immediately prior to this amendment and restatement was 1,000, consisting of 1,000 Common Shares, $0.01 par value per share. The aggregate par value of all shares of beneficial interest having par value was $10.

19

FIFTH: The total number of shares of beneficial interest which the Trust has authority to issue pursuant to the foregoing amendment and restatement of the Declaration of Trust is 600,000,000 consisting of 500,000,000 Common Shares, $0.01 par value per share, and 100,000,000 Preferred Shares, $0.01 par value per share. The aggregate par value of all authorized shares of beneficial interest having par value is $6,000,000.

The undersigned President acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature page follows]

20

IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary on this 3rd day of December, 2009.

ATTEST:	PEBBLEBROOK HOTEL TRUST
/S/ Raymond D. Martz	/S/ Jon E. Bortz
Secretary	President

21

PEBBLEBROOK HOTEL TRUST

ARTICLES SUPPLEMENTARY

ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF

7.875% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES,

$0.01 PAR VALUE PER SHARE

PEBBLEBROOK HOTEL TRUST, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Trust (the “Board”) by Article VI, Section 6.3 of the Declaration of Trust of the Trust (which, as amended and supplemented from time to time, together with these Articles Supplementary, is referred to herein as the “Declaration of Trust”), the Board has duly classified and designated 5,000,000 authorized but unissued preferred shares of beneficial interest, $0.01 par value per share, of the Trust as 7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, of the Trust (“Series A Preferred Shares”).

SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series A Preferred Shares are as follows, which, upon any restatement of the Declaration of Trust, shall become a part of Article VI of the Declaration of Trust, with any appropriate renumbering or relettering of the sections or subsections thereof:

7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share

1. Designation and Number. A series of Preferred Shares, designated the “7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share”, is hereby established. The number of authorized Series A Preferred Shares shall be 5,000,000.

2. Relative Seniority. The Series A Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series A Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series A Preferred Shares and which were issued in accordance with the terms of Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities.

3. Distributions.

(a) Holders of Series A Preferred Shares shall be entitled to receive, when and as authorized by the Board and declared by the Trust, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of seven and

seven-eighths percent (7.875%) per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series A Preferred Shares (equivalent to a fixed annual amount of $1.96875 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on April 15, 2011 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series A Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Board for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”).

(b) No distribution on the Series A Preferred Shares shall be authorized by the Board or declared by the Trust or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding anything to the contrary contained herein, distributions on the Series A Preferred Shares shall accumulate whether or not the restrictions referred to in Section 3(b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized or declared. Accumulated but unpaid distributions on the Series A Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest.

(d) If any Series A Preferred Shares are outstanding, no distributions will be authorized by the Board or declared by the Trust or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series A Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized by the Board and declared by the Trust and paid or authorized and declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Shares and all other equity

2

securities ranking on a parity, as to distributions, with the Series A Preferred Shares, all distributions authorized and declared, paid or set apart for payment upon the Series A Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series A Preferred Shares shall be authorized and declared and paid pro rata or authorized and declared and set apart for payment pro rata so that the amount of distributions authorized and declared per Series A Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series A Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series A Preferred Shares which may be in arrears.

(e) Except as provided in Section 3(d), unless full cumulative distributions on the Series A Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation) shall be authorized and declared or paid or set apart for payment nor shall any other distribution be authorized and declared or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust’s status as a real estate investment trust (“REIT”)) for federal income tax purposes.

(f) If, for any taxable year, the Trust elects to designate as “capital gain dividends” (as defined in Section 857 of the Internal Revenue Code of 1986, as amended) any portion (the “Capital Gains Amount”) of the dividends (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of shares (the “Total Dividends”), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series A Preferred Shares shall be the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series A Preferred Shares for the year bears to the Total Dividends. The Trust may elect to retain and pay income tax on its net long-term capital gains. In such a case, the holders of Series A Preferred Shares would include in income their appropriate share of the Trust’s undistributed long-term capital gains, as designated by the Trust.

(g) Holders of Series A Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series A Preferred Shares as described above. Any distribution payment made on the Series A Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable.

3

(h) In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of the Trust’s equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution.

(i) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.

4. Liquidation Rights.

(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series A Preferred Shares then outstanding shall be entitled to be paid, or have the Trust declare and set apart for payment, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series A Preferred Share, plus an amount equal to all accumulated and unpaid distributions to, but not including, the date of payment (the “Liquidation Preference”), before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series A Preferred Shares as to liquidation rights.

(b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to pay the full amount of the Liquidation Preference to holders of Series A Preferred Shares and the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series A Preferred Shares as to liquidation rights, then the holders of the Series A Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.

(c) Written notice of the effective date of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Shares at the address of such holder as the same shall appear on the share transfer records of the Trust.

(d) After payment of the full amount of the Liquidation Preference to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of the Trust.

4

(e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust’s assets or business shall be considered a liquidation, dissolution or winding up of the Trust.

5. Redemption

(a) Except as described in Section 6 below and this Section 5, the Series A Preferred Shares are not redeemable prior to March 11, 2016. To ensure that the Trust remains qualified as a REIT for federal income tax purposes, however, the Series A Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series A Preferred Shares owned by a shareholder in excess of the Share Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after March 11, 2016, the Trust, at its option, upon giving notice as provided below, may redeem the Series A Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series A Preferred Shares to, but not including, the date of such redemption (the “Redemption Right”).

(b) If fewer than all of the outstanding Series A Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed may be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method determined by the Trust. If such redemption is to be by lot and, as a result of such redemption, any holder of Series A Preferred Shares would become a holder of a number of Series A Preferred Shares in excess of the Share Ownership Limit because such holder’s Series A Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold in excess of the Share Ownership Limit subsequent to such redemption.

(c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series A Preferred Shares shall have been or contemporaneously are declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Shares shall be redeemed unless all outstanding Series A Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the redemption or purchase by the Trust of Series A Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series A Preferred Shares. In addition, unless full cumulative distributions on all Series A Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a

5

sinking fund for the redemption of, any Series A Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series A Preferred Shares for the purpose of preserving the Trust’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares).

(d) Immediately prior to or upon any redemption of Series A Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions to, but not including, the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series A Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Shares for which a notice of redemption has been given.

(e) The following provisions set forth the procedures for redemption pursuant to the Redemption Right:

(i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given.

(ii) In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series A Preferred Shares to be redeemed; (D) the place or places where the certificates, to the extent Series A Preferred Shares are certificated, for the Series A Preferred Shares are to be surrendered (if so required in the notice) for payment of the redemption price; and (E) that distributions on the Series A Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed.

(iii) If the Trust shall so require and the notice shall so state, on or after the redemption date, each holder of Series A Preferred Shares to be redeemed shall present and surrender the certificates evidencing his Series A Preferred Shares, to the extent such shares are certificated, to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions to, but not

6

including, the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series A Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series A Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. In the event that the Series A Preferred Shares to be redeemed are uncertificated, such shares shall be redeemed in accordance with the notice and the applicable procedures of any depository and no further action on the part of the holders of such shares shall be required.

(iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series A Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions to, but not including, the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust’s share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to, but not including, the redemption date) of the Series A Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series A Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares, to the extent such shares are certificated, at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to, but not including, the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series A Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust.

(f) Subject to applicable law and the limitation on purchases when distributions on the Series A Preferred Shares are in arrears, the Trust may, at any time and from time to time, purchase any Series A Preferred Shares in the open market, by tender or by private agreement.

(g) Any Series A Preferred Shares that shall at any time have been redeemed or otherwise acquired shall, after such redemption or acquisition, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more classified and designated as part of a particular series by the Board.

6. Special Optional Redemption by the Trust.

(a) Upon the occurrence of a Change of Control (as defined below), the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust, to redeem the Series A Preferred Shares, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at

7

twenty-five dollars ($25.00) per share plus accrued and unpaid distributions, if any, to, but not including, the redemption date (“Special Optional Redemption Right”). No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. If, prior to the Change of Control Conversion Date (as defined below), the Trust has provided or provides notice of redemption with respect to the Series A Preferred Shares (whether pursuant to the Redemption Right or the Special Optional Redemption Right), the holders of Series A Preferred Shares will not have the conversion right described below in Section 9.

A “Change of Control” is when, after the original issuance of the Series A Preferred Shares, the following have occurred and are continuing:

(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Trust entitling that person to exercise more than 50% of the total voting power of all shares of the Trust entitled to vote generally in elections of trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), and

(ii) following the closing of any transaction referred to in (i) above, neither the Trust nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (the “NYSE”), the NYSE Amex Equities (the “NYSE Amex”), or the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ.

(b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series A Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series A Preferred Shares, to the extent Series A Preferred Shares are certificated, are to be surrendered (if so required in the notice) for payment of the redemption price; (E) that the Series A Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control; (F) that holders of the Series A Preferred Shares to which the notice relates will not be able to tender such Series A Preferred Shares for conversion in connection with the Change of Control and each Series A Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date; and (G) that distributions on the Series A Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed.

8

If fewer than all of the outstanding Series A Preferred Shares are to be redeemed pursuant to the Special Optional Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trust. If such redemption is to be by lot and, as a result of such redemption, any holder of Series A Preferred Shares would become a holder of a number of Series A Preferred Shares in excess of the Share Ownership Limit because such holder’s Series A Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold in excess of the Share Ownership Limit subsequent to such redemption.

(c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series A Preferred Shares shall have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Shares shall be redeemed unless all outstanding Series A Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series A Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series A Preferred Shares. In addition, unless full cumulative distributions on all Series A Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series A Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series A Preferred Shares for the purpose of preserving the Trust’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares).

(d) Immediately prior to any redemption of Series A Preferred Shares pursuant to the Special Optional Redemption Right, the Trust shall pay, in cash, any accumulated and unpaid distributions to, but not including, the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series A Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Shares for which a notice of redemption has been given.

9

(e) If the Trust shall so require and the notice shall so state, on or after the redemption date, each holder of Series A Preferred Shares to be redeemed shall present and surrender the certificates evidencing his Series A Preferred Shares, to the extent such shares are certificated, to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions to, but not including, the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series A Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series A Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. In the event that the Series A Preferred Shares to be redeemed are uncertificated, such shares shall be redeemed in accordance with the notice and the applicable procedures of any depository and no further action on the part of the holders of such shares shall be required.

(f) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series A Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions to, but not including, the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust’s share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to, but not including, the redemption date) of the Series A Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series A Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares, to the extent such shares are certificated, at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to, but not including, the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series A Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust.

(g) Any Series A Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more classified and designated as part of a particular series by the Board.

7. Voting Rights.

(a) Holders of the Series A Preferred Shares will not have any voting rights, except as set forth below. In any matter in which the holders of Series A Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series A Preferred Share held by such holder. If the holders of the Series A Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series A Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference.

10

(b) Whenever distributions on any Series A Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the number of trustees then constituting the Board shall be increased by two and the holders of Series A Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 33% of the outstanding Series A Preferred Shares or the holders of at least 33% of any other series of Parity Preferred Shares so in arrears if such request is received 90 or more days before the date fixed for the next annual or special meeting of shareholders, or at the next annual or special meeting of shareholders, and at each subsequent annual or special meeting until all distributions accumulated on the Series A Preferred Shares for the past distribution periods and the then-current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full.

(c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series A Preferred Shares shall have been paid in full or authorized and declared and set aside for payment in full, the holders of Series A Preferred Shares shall be divested of the voting rights set forth in Section 7(b) (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Board and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate and the number of trustees shall be reduced accordingly. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in Section 7(b) and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in Section 7(b) and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter.

(d) So long as any Series A Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series A Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series A Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such

11

equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust, whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of any Event set forth in (ii) above, so long as Series A Preferred Shares remain outstanding with the terms thereof materially unchanged or the holders of Series A Preferred Shares receive shares of stock or beneficial interest or other equity securities with rights, preferences, privileges and voting powers substantially similar, taken as a whole, to the rights, preferences, privileges and voting powers of the Series A Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series A Preferred Shares or the holders thereof; and provided further that any increase in the amount of the authorized Series A Preferred Shares or the creation or issuance, or increase in the amounts authorized, of any other class or series of equity securities ranking on a parity with or junior to the Series A Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

8. Information Rights. During any period in which the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series A Preferred Shares are outstanding, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series A Preferred Shares, as their names and addresses appear in the Trust’s record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the Securities and Exchange Commission (the “SEC”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject thereto (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series A Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series A Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act.

9. Conversion. The Series A Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust, except as provided in this Section 9.

(a) Upon the occurrence of a Change of Control, each holder of Series A Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem the Series A Preferred Shares pursuant to the Redemption Right or Special Optional Redemption Right, to convert some or all of the Series A Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number Common Shares, per Series A

12

Preferred Share to be converted (the “Common Share Conversion Consideration”) equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference plus (y) the amount of any accrued and unpaid distributions to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case no additional amount for such accrued and unpaid distribution will be included in such sum) by (ii) the Common Share Price (as defined below) and (B) 2.3234 (the “Share Cap”), subject to the immediately succeeding paragraph.

The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a Common Share distribution), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split shall be the number of Common Shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split.

For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 11,617,000 Common Shares (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap.

In the case of a Change of Control pursuant to which Common Shares shall be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series A Preferred Shares shall receive upon conversion of such Series A Preferred Shares the kind and amount of Alternative Form Consideration which such holder of Series A Preferred Shares would have owned or been entitled to receive upon the Change of Control had such holder of Series A Preferred Shares held a number of Common Shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, shall be referred to herein as the “Conversion Consideration”).

In the event that holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of Series A Preferred Shares shall receive shall be the form of consideration elected by the holders of the Common Shares who participate in the determination (based on the weighted average of elections) and shall be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.

13

The “Change of Control Conversion Date” shall be a Business Day set forth in the notice of Change of Control provided in accordance with Section 9(c) below that is no less than 20 days nor more than 35 days after the date on which the Trust provides such notice pursuant to Section 9(c).

The “Common Share Price” shall be (i) the amount of cash consideration per Common Share, if the consideration to be received in the Change of Control by holders of Common Shares is solely cash, and (ii) the average of the closing prices per Common Share on the NYSE for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash.

(b) No fractional Common Shares shall be issued upon the conversion of Series A Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price.

(c) Within 15 days following the occurrence of a Change of Control, a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, shall be delivered to the holders of record of the Series A Preferred Shares at their addresses as they appear on the Trust’s share transfer records and notice shall be provided to the Trust’s transfer agent. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series A Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date, which shall be a Business Day occurring within 20 to 35 days following the date of such notice; (vi) that if, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem all or any portion of the Series A Preferred Shares, the holder will not be able to convert Series A Preferred Shares and such Series A Preferred Shares shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series A Preferred Share; (viii) the name and address of the paying agent and the conversion agent; and (ix) the procedures that the holders of Series A Preferred Shares must follow to exercise the Change of Control Conversion Right.

(d) The Trust shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Trust’s website, in any event prior to the opening of business on the first Business Day following any date on which the Trust provides notice pursuant to Section 9(c) above to the holders of Series A Preferred Shares.

(e) In order to exercise the Change of Control Conversion Right, a holder of Series A Preferred Shares shall be required to deliver, on or before the close of business on the

14

Change of Control Conversion Date, the certificates evidencing the Series A Preferred Shares, to the extent such shares are certificated, to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Trust’s transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of Series A Preferred Shares to be converted; and (iii) that the Series A Preferred Shares are to be converted pursuant to the applicable terms of the Series A Preferred Shares. Notwithstanding the foregoing, if the Series A Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company (“DTC”).

(f) Holders of Series A Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Trust’s transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn Series A Preferred Shares; (ii) if certificated Series A Preferred Shares have been issued, the certificate numbers of the withdrawn Series A Preferred Shares; and (iii) the number of Series A Preferred Shares, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the Series A Preferred Shares are held in global form, the notice of withdrawal shall comply with applicable procedures of DTC.

(g) Series A Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem such Series A Preferred Shares, whether pursuant to its Redemption Right or Special Optional Redemption Right. If the Trust elects to redeem Series A Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series A Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to, but not including, the redemption date.

(h) The Trust shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of Control Conversion Date.

(i) Notwithstanding anything to the contrary contained herein, no holder of Series A Preferred Shares will be entitled to convert such Series A Preferred Shares into Common Shares to the extent that receipt of such Common Shares would cause the holder of such Common Shares (or any other person) to Beneficially Own or Constructively Own, within the meaning of the Declaration of Trust, Common Shares of the Trust in excess of the Share Ownership Limit, as such term is defined in the Declaration of Trust, as applicable.

10. Application of Article VII. The Series A Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust.

THIRD: The Series A Preferred Shares have been classified and designated by the Board under the authority contained in the Declaration of Trust.

15

FOURTH: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.

FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record.

SIXTH: The undersigned Executive Vice President and Chief Investment Officer of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned Executive Vice President and Chief Investment Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature page follows.]

16

IN WITNESS WHEREOF, PEBBLEBROOK HOTEL TRUST has caused these Articles Supplementary to be signed in its name and on its behalf by its Executive Vice President and Chief Investment Officer witnessed by its Executive Vice President, Chief Financial Officer, Treasurer and Secretary on March 9, 2011.

WITNESS:		PEBBLEBROOK HOTEL TRUST
By:	/s/ Raymond D. Martz	By:	/s/ Thomas C. Fisher
	Raymond D. Martz Executive Vice President, Chief Financial Officer, Treasurer and Secretary		Thomas C. Fisher Executive Vice President and Chief Investment Officer

17

PEBBLEBROOK HOTEL TRUST

ARTICLES SUPPLEMENTARY

Pebblebrook Hotel Trust, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “SDAT”) as follows:

FIRST: Under a power set forth in Article VI of the declaration of trust of the Trust, as amended and restated and as supplemented by Articles Supplementary accepted for record by the SDAT on March 9, 2011 (which, as hereinafter amended, restated or supplemented from time to time is herein called the “Declaration of Trust”), the Board of Trustees of the Trust (the “Board of Trustees”), by resolution duly adopted, classified and designated 4,000,000 authorized but unissued preferred shares of beneficial interest (the “Additional Series A Preferred Shares”), par value $.01 per share, of the Trust as additional 7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”), having the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series A Preferred Shares set forth in the Declaration of Trust.

SECOND: The Additional Series A Preferred Shares have been classified and designated by the Board of Trustees under the authority contained in the Declaration of Trust. After giving effect to the classification and designation of the Additional Series A Preferred Shares set forth herein, the total number of Series A Preferred Shares that the Trust has authority to issue is 9,000,000 shares.

THIRD: These Articles Supplementary have been approved by the Board of Trustees in the manner and by the vote required by law.

FOURTH: The undersigned officer of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned officer acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature page follows.]

IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be executed under seal in its name and on its behalf by the undersigned officer and attested to by its Secretary on this 10th day of July, 2011.

ATTEST:	PEBBLEBROOK HOTEL TRUST
	By:
/s/ Raymond D. Martz	/s/ Jon E. Bortz (SEAL)
Name: Raymond D. Martz Title: Secretary	Name: Jon E. Bortz Title: Chairman, President and Chief Executive Officer

PEBBLEBROOK HOTEL TRUST

ARTICLES SUPPLEMENTARY

ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF

8.00% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES,

$0.01 PAR VALUE PER SHARE

PEBBLEBROOK HOTEL TRUST, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Trust (the “Board”) by Article VI, Section 6.3 of the Declaration of Trust of the Trust (which, as amended and supplemented from time to time, together with these Articles Supplementary, is referred to herein as the “Declaration of Trust”), the Board has duly classified and designated 3,400,000 authorized but unissued preferred shares of beneficial interest, $0.01 par value per share, of the Trust as 8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, of the Trust (“Series B Preferred Shares”).

SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series B Preferred Shares are as follows, which, upon any restatement of the Declaration of Trust, shall become a part of Article VI of the Declaration of Trust, with any appropriate renumbering or relettering of the sections or subsections thereof:

8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share

1. Designation and Number. A series of Preferred Shares, designated the “8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share”, is hereby established. The number of authorized Series B Preferred Shares shall be 3,400,000.

2. Relative Seniority. The Series B Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series B Preferred Shares; (b) on a parity with the 7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share, of the Trust and all other equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series B Preferred Shares and which were issued in accordance with the terms of Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities.

3. Distributions.

(a) Holders of Series B Preferred Shares shall be entitled to receive, when and as authorized by the Board and declared by the Trust, out of funds legally available for the

payment of distributions, cumulative preferential cash distributions at the rate of eight percent (8.00%) per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series B Preferred Shares (equivalent to a fixed annual amount of $2.00 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on October 17, 2011 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series B Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Board for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”).

(b) No distribution on the Series B Preferred Shares shall be authorized by the Board or declared by the Trust or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding anything to the contrary contained herein, distributions on the Series B Preferred Shares shall accumulate whether or not the restrictions referred to in Section 3(b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized or declared. Accumulated but unpaid distributions on the Series B Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest.

(d) If any Series B Preferred Shares are outstanding, no distributions will be authorized by the Board or declared by the Trust or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series B Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized by the Board and declared by the Trust and paid or authorized and declared and a sum sufficient for the payment thereof set apart for such payment on the Series B Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series B Preferred Shares, all distributions authorized and declared, paid

2

or set apart for payment upon the Series B Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series B Preferred Shares shall be authorized and declared and paid pro rata, or authorized and declared and set apart for payment pro rata, so that the amount of distributions authorized and declared per Series B Preferred Share and each such other equity security ranking on a parity, as to distributions, shall in all cases bear to each other the same ratio that accumulated distributions per Series B Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series B Preferred Shares which may be in arrears.

(e) Except as provided in Section 3(d), unless full cumulative distributions on the Series B Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation) shall be authorized and declared or paid or set apart for payment nor shall any other distribution be authorized and declared or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series B Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series B Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust’s status as a real estate investment trust (“REIT”)) for federal income tax purposes.

(f) If, for any taxable year, the Trust elects to designate as “capital gain dividends” (as defined in Section 857 of the Internal Revenue Code of 1986, as amended) any portion (the “Capital Gains Amount”) of the dividends (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of shares (the “Total Dividends”), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series B Preferred Shares shall be the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series B Preferred Shares for the year bears to the Total Dividends. The Trust may elect to retain and pay income tax on its net long-term capital gains. In such a case, the holders of Series B Preferred Shares would include in income their appropriate share of the Trust’s undistributed long-term capital gains, as designated by the Trust.

(g) Holders of Series B Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series B Preferred Shares as described above. Any distribution payment made on the Series B Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable.

3

(h) In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of the Trust’s equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution.

(i) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.

4. Liquidation Rights.

(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series B Preferred Shares then outstanding shall be entitled to be paid, or have the Trust declare and set apart for payment, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series B Preferred Share, plus an amount equal to all accumulated and unpaid distributions to, but not including, the date of payment (the “Liquidation Preference”), before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series B Preferred Shares as to liquidation rights.

(b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to pay the full amount of the Liquidation Preference to holders of Series B Preferred Shares and the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series B Preferred Shares as to liquidation rights, then the holders of the Series B Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.

(c) Written notice of the effective date of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series B Preferred Shares at the address of such holder as the same shall appear on the share transfer records of the Trust.

(d) After payment of the full amount of the Liquidation Preference to which they are entitled, the holders of Series B Preferred Shares will have no right or claim to any of the remaining assets of the Trust.

4

(e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust’s assets or business shall be considered a liquidation, dissolution or winding up of the Trust.

5. Redemption

(a) Except as described in Section 6 below and this Section 5, the Series B Preferred Shares are not redeemable prior to September 21, 2016. To ensure that the Trust remains qualified as a REIT for federal income tax purposes, however, the Series B Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series B Preferred Shares owned by a shareholder in excess of the Share Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after September 21, 2016, the Trust, at its option, upon giving notice as provided below, may redeem the Series B Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series B Preferred Shares to, but not including, the date of such redemption (the “Redemption Right”).

(b) If fewer than all of the outstanding Series B Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed may be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method determined by the Trust. If such redemption is to be by lot and, as a result of such redemption, any holder of Series B Preferred Shares would become a holder of a number of Series B Preferred Shares in excess of the Share Ownership Limit because such holder’s Series B Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series B Preferred Shares of such holder such that no holder will hold in excess of the Share Ownership Limit subsequent to such redemption.

(c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series B Preferred Shares shall have been or contemporaneously are declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Shares shall be redeemed unless all outstanding Series B Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the redemption or purchase by the Trust of Series B Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series B Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series B Preferred Shares. In addition, unless full cumulative distributions on all Series B Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a

5

sinking fund for the redemption of, any Series B Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series B Preferred Shares for the purpose of preserving the Trust’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Shares).

(d) Immediately prior to or upon any redemption of Series B Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions to, but not including, the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series B Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Shares for which a notice of redemption has been given.

(e) The following provisions set forth the procedures for redemption pursuant to the Redemption Right:

(i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series B Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Preferred Shares except as to the holder to whom notice was defective or not given.

(ii) In addition to any information required by law or by the applicable rules of any exchange upon which Series B Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series B Preferred Shares to be redeemed; (D) the place or places where the certificates, to the extent Series B Preferred Shares are certificated, for the Series B Preferred Shares are to be surrendered (if so required in the notice) for payment of the redemption price; and (E) that distributions on the Series B Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series B Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series B Preferred Shares held by such holder to be redeemed.

(iii) If the Trust shall so require and the notice shall so state, on or after the redemption date, each holder of Series B Preferred Shares to be redeemed shall present and surrender the certificates evidencing his Series B Preferred Shares, to the extent such shares are certificated, to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions to, but not

6

including, the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series B Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series B Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. In the event that the Series B Preferred Shares to be redeemed are uncertificated, such shares shall be redeemed in accordance with the notice and the applicable procedures of any depository and no further action on the part of the holders of such shares shall be required.

(iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series B Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions to, but not including, the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust’s share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to, but not including, the redemption date) of the Series B Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series B Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares, to the extent such shares are certificated, at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to, but not including, the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series B Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust.

(f) Subject to applicable law and the limitation on purchases when distributions on the Series B Preferred Shares are in arrears, the Trust may, at any time and from time to time, purchase any Series B Preferred Shares in the open market, by tender or by private agreement.

(g) Any Series B Preferred Shares that shall at any time have been redeemed or otherwise acquired shall, after such redemption or acquisition, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more classified and designated as part of a particular series by the Board.

6. Special Optional Redemption by the Trust.

(a) Upon the occurrence of a Change of Control (as defined below), the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series B Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust, to redeem the Series B Preferred Shares, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at

7

twenty-five dollars ($25.00) per share plus accrued and unpaid distributions, if any, to, but not including, the redemption date (“Special Optional Redemption Right”). No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Preferred Shares except as to the holder to whom notice was defective or not given. If, prior to the Change of Control Conversion Date (as defined below), the Trust has provided or provides notice of redemption with respect to the Series B Preferred Shares (whether pursuant to the Redemption Right or the Special Optional Redemption Right), the holders of Series B Preferred Shares will not have the conversion right described below in Section 9.

A “Change of Control” is when, after the original issuance of the Series B Preferred Shares, the following have occurred and are continuing:

(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Trust entitling that person to exercise more than 50% of the total voting power of all shares of the Trust entitled to vote generally in elections of trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), and

(ii) following the closing of any transaction referred to in (i) above, neither the Trust nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (the “NYSE”), the NYSE Amex Equities (the “NYSE Amex”), or the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ.

(b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series B Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series B Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series B Preferred Shares, to the extent Series B Preferred Shares are certificated, are to be surrendered (if so required in the notice) for payment of the redemption price; (E) that the Series B Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control; (F) that holders of the Series B Preferred Shares to which the notice relates will not be able to tender such Series B Preferred Shares for conversion in connection with the Change of Control and each Series B Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date; and (G) that distributions on the Series B Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series B Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series B Preferred Shares held by such holder to be redeemed.

8

If fewer than all of the outstanding Series B Preferred Shares are to be redeemed pursuant to the Special Optional Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trust. If such redemption is to be by lot and, as a result of such redemption, any holder of Series B Preferred Shares would become a holder of a number of Series B Preferred Shares in excess of the Share Ownership Limit because such holder’s Series B Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series B Preferred Shares of such holder such that no holder will hold in excess of the Share Ownership Limit subsequent to such redemption.

(c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series B Preferred Shares shall have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Shares shall be redeemed unless all outstanding Series B Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series B Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series B Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series B Preferred Shares. In addition, unless full cumulative distributions on all Series B Preferred Shares have been or contemporaneously are authorized and declared and paid or authorized and declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series B Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series B Preferred Shares for the purpose of preserving the Trust’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Shares).

(d) Immediately prior to any redemption of Series B Preferred Shares pursuant to the Special Optional Redemption Right, the Trust shall pay, in cash, any accumulated and unpaid distributions to, but not including, the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series B Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Shares for which a notice of redemption has been given.

9

(e) If the Trust shall so require and the notice shall so state, on or after the redemption date, each holder of Series B Preferred Shares to be redeemed shall present and surrender the certificates evidencing his Series B Preferred Shares, to the extent such shares are certificated, to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions to, but not including, the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series B Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series B Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. In the event that the Series B Preferred Shares to be redeemed are uncertificated, such shares shall be redeemed in accordance with the notice and the applicable procedures of any depository and no further action on the part of the holders of such shares shall be required.

(f) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series B Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions to, but not including, the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust’s share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to, but not including, the redemption date) of the Series B Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series B Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares, to the extent such shares are certificated, at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to, but not including, the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series B Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust.

(g) Any Series B Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more classified and designated as part of a particular series by the Board.

7. Voting Rights.

(a) Holders of the Series B Preferred Shares will not have any voting rights, except as set forth below. In any matter in which the holders of Series B Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series B Preferred Share held by such holder. If the holders of the Series B Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series B Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference.

10

(b) Whenever distributions on any Series B Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the number of trustees then constituting the Board shall be increased by two and the holders of Series B Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 33% of the outstanding Series B Preferred Shares or the holders of at least 33% of any other series of Parity Preferred Shares so in arrears if such request is received 90 or more days before the date fixed for the next annual or special meeting of shareholders, or at the next annual or special meeting of shareholders, and at each subsequent annual or special meeting until all distributions accumulated on the Series B Preferred Shares for the past distribution periods and the then-current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full.

(c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series B Preferred Shares shall have been paid in full or authorized and declared and set aside for payment in full, the holders of Series B Preferred Shares shall be divested of the voting rights set forth in Section 7(b) (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Board and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate and the number of trustees shall be reduced accordingly. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in Section 7(b) and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in Section 7(b) and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter.

(d) So long as any Series B Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series B Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series B Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such

11

equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust, whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series B Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of any Event set forth in (ii) above, so long as Series B Preferred Shares remain outstanding with the terms thereof materially unchanged or the holders of Series B Preferred Shares receive shares of stock or beneficial interest or other equity securities with rights, preferences, privileges and voting powers substantially similar, taken as a whole, to the rights, preferences, privileges and voting powers of the Series B Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series B Preferred Shares or the holders thereof; and provided further that any increase in the amount of the authorized Series B Preferred Shares or the creation or issuance, or increase in the amounts authorized, of any other class or series of equity securities ranking on a parity with or junior to the Series B Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

8. Information Rights. During any period in which the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series B Preferred Shares are outstanding, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series B Preferred Shares, as their names and addresses appear in the Trust’s record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the Securities and Exchange Commission (the “SEC”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject thereto (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series B Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series B Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act.

9. Conversion. The Series B Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust, except as provided in this Section 9.

(a) Upon the occurrence of a Change of Control, each holder of Series B Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem the Series B Preferred Shares pursuant to the Redemption Right or Special Optional Redemption Right, to convert some or all of the Series B Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number Common Shares, per Series B

12

Preferred Share to be converted (the “Common Share Conversion Consideration”) equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference plus (y) the amount of any accrued and unpaid distributions to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case no additional amount for such accrued and unpaid distribution will be included in such sum) by (ii) the Common Share Price (as defined below) and (B) 3.4483 (the “Share Cap”), subject to the immediately succeeding paragraph.

The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a Common Share distribution), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split shall be the number of Common Shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split.

For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 11,724,220 Common Shares (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap.

In the case of a Change of Control pursuant to which Common Shares shall be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series B Preferred Shares shall receive upon conversion of such Series B Preferred Shares the kind and amount of Alternative Form Consideration which such holder of Series B Preferred Shares would have owned or been entitled to receive upon the Change of Control had such holder of Series B Preferred Shares held a number of Common Shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, shall be referred to herein as the “Conversion Consideration”).

In the event that holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of Series B Preferred Shares shall receive shall be the form of consideration elected by the holders of the Common Shares who participate in the determination (based on the weighted average of elections) and shall be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.

13

The “Change of Control Conversion Date” shall be a Business Day set forth in the notice of Change of Control provided in accordance with Section 9(c) below that is no less than 20 days nor more than 35 days after the date on which the Trust provides such notice pursuant to Section 9(c).

The “Common Share Price” shall be (i) the amount of cash consideration per Common Share, if the consideration to be received in the Change of Control by holders of Common Shares is solely cash, and (ii) the average of the closing prices per Common Share on the NYSE for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash.

(b) No fractional Common Shares shall be issued upon the conversion of Series B Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price.

(c) Within 15 days following the occurrence of a Change of Control, a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, shall be delivered to the holders of record of the Series B Preferred Shares at their addresses as they appear on the Trust’s share transfer records and notice shall be provided to the Trust’s transfer agent. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any Series B Preferred Shares except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series B Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date, which shall be a Business Day occurring within 20 to 35 days following the date of such notice; (vi) that if, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem all or any portion of the Series B Preferred Shares, the holder will not be able to convert Series B Preferred Shares and such Series B Preferred Shares shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series B Preferred Share; (viii) the name and address of the paying agent and the conversion agent; and (ix) the procedures that the holders of Series B Preferred Shares must follow to exercise the Change of Control Conversion Right.

(d) The Trust shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Trust’s website, in any event prior to the opening of business on the first Business Day following any date on which the Trust provides notice pursuant to Section 9(c) above to the holders of Series B Preferred Shares.

(e) In order to exercise the Change of Control Conversion Right, a holder of Series B Preferred Shares shall be required to deliver, on or before the close of business on the

14

Change of Control Conversion Date, the certificates evidencing the Series B Preferred Shares, to the extent such shares are certificated, to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Trust’s transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of Series B Preferred Shares to be converted; and (iii) that the Series B Preferred Shares are to be converted pursuant to the applicable terms of the Series B Preferred Shares. Notwithstanding the foregoing, if the Series B Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company (“DTC”).

(f) Holders of Series B Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Trust’s transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn Series B Preferred Shares; (ii) if certificated Series B Preferred Shares have been issued, the certificate numbers of the withdrawn Series B Preferred Shares; and (iii) the number of Series B Preferred Shares, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the Series B Preferred Shares are held in global form, the notice of withdrawal shall comply with applicable procedures of DTC.

(g) Series B Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem such Series B Preferred Shares, whether pursuant to its Redemption Right or Special Optional Redemption Right. If the Trust elects to redeem Series B Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series B Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to, but not including, the redemption date.

(h) The Trust shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of Control Conversion Date.

(i) Notwithstanding anything to the contrary contained herein, no holder of Series B Preferred Shares will be entitled to convert such Series B Preferred Shares into Common Shares to the extent that receipt of such Common Shares would cause the holder of such Common Shares (or any other person) to Beneficially Own or Constructively Own, within the meaning of the Declaration of Trust, Common Shares of the Trust in excess of the Share Ownership Limit, as such term is defined in the Declaration of Trust, as applicable.

10. Application of Article VII. The Series B Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust.

THIRD: The Series B Preferred Shares have been classified and designated by the Board under the authority contained in the Declaration of Trust.

15

FOURTH: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.

FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record.

SIXTH: The undersigned Chairman of the Board, President and Chief Executive Officer of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned Chairman of the Board, President and Chief Executive Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature page follows.]

16

IN WITNESS WHEREOF, PEBBLEBROOK HOTEL TRUST has caused these Articles Supplementary to be signed in its name and on its behalf by its Chairman of the Board, President and Chief Executive Officer witnessed by its Executive Vice President, Chief Financial Officer, Treasurer and Secretary on September 15, 2011.

WITNESS:		PEBBLEBROOK HOTEL TRUST
By:	/s/ Raymond D. Martz	By:	/s/ Jon E. Bortz
	Raymond D. Martz Executive Vice President, Chief Financial Officer, Treasurer and Secretary		Jon E. Bortz Chairman of the Board, President and Chief Executive Officer

17

EX-3.3

Exhibit 3.3

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

PEBBLEBROOK HOTEL, L.P.

(a Delaware limited partnership)

TABLE OF CONTENTS

ARTICLE I DEFINED TERMS		1
ARTICLE II FORMATION OF PARTNERSHIP		11
2.01	Formation of the Partnership	11
2.02	Name	11
2.03	Registered Office and Agent; Principal Office	11
2.04	Term and Dissolution	11
2.05	Filing of Certificate and Perfection of Limited Partnership	12
2.06	Certificates Describing Partnership Units	12
ARTICLE III BUSINESS OF THE PARTNERSHIP		12
ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS		13
4.01	Capital Contributions	13
4.02	Additional Capital Contributions and Issuances of Additional Partnership Units	13
4.03	Additional Funding	16
4.04	LTIP Units	16
4.05	Conversion of LTIP Units	19
4.06	Capital Accounts	22
4.07	Percentage Interests	23
4.08	No Interest on Contributions	23
4.09	Return of Capital Contributions	23
4.10	No Third-Party Beneficiary	23
ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS		24
5.01	Allocation of Profit and Loss	24
5.02	Distribution of Cash	26
5.03	REIT Distribution Requirements	27
5.04	No Right to Distributions in Kind	27
5.05	Limitations on Return of Capital Contributions	28
5.06	Distributions Upon Liquidation	28
5.07	Substantial Economic Effect	28
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER		28
6.01	Management of the Partnership	28
6.02	Delegation of Authority	31
6.03	Indemnification and Exculpation of Indemnitees	31
6.04	Liability of the General Partner	33
6.05	Partnership Obligations	34
6.06	Outside Activities	34
6.07	Employment or Retention of Affiliates	34
6.08	General Partner Activities	35
6.09	Title to Partnership Assets	35
6.10	Redemption of General Partner’s Partnership Units	35

- i -

ARTICLE VII CHANGES IN GENERAL PARTNER		36
7.01	Transfer of the General Partner’s Partnership Interest	36
7.02	Admission of a Substitute or Additional General Partner	38
7.03	Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner	38
7.04	Removal of a General Partner	39
ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS		40
8.01	Management of the Partnership	40
8.02	Power of Attorney	40
8.03	Limitation on Liability of Limited Partners	40
8.04	Class A Unit Redemption Right	40
8.05	Registration	43
ARTICLE IX TRANSFERS OF PARTNERSHIP INTERESTS		47
9.01	Purchase for Investment	47
9.02	Restrictions on Transfer of Partnership Units	47
9.03	Admission of Substitute Limited Partner	49
9.04	Rights of Assignees of Partnership Interests	50
9.05	Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner	50
9.06	Joint Ownership of Partnership Units	50
ARTICLE X BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS		51
10.01	Books and Records	51
10.02	Custody of Partnership Funds; Bank Accounts	51
10.03	Fiscal and Taxable Year	51
10.04	Annual Tax Information and Report	51
10.05	Tax Matters Partner; Tax Elections; Special Basis Adjustments	51
10.06	Reports to Limited Partners	52
ARTICLE XI AMENDMENT OF AGREEMENT; MERGER		53
11.01	Amendment of Agreement	53
11.02	Merger of Partnership	53
ARTICLE XII GENERAL PROVISIONS		53
12.01	Notices	53
12.02	Survival of Rights	54
12.03	Additional Documents	54
12.04	Severability	54
12.05	Entire Agreement	54
12.06	Pronouns and Plurals	54
12.07	Headings	54
12.08	Counterparts	54
12.09	Governing Law	54

- ii -

EXHIBITS

EXHIBIT A — Partners, Capital Contributions and Percentage Interests

EXHIBIT B — Notice of Exercise of Common Unit Redemption Right

EXHIBIT C-1 — Certification of Non-Foreign Status (For Redeeming Limited Partners That Are Entities)

EXHIBIT C-2 — Certification of Non-Foreign Status (For Redeeming Limited Partners That Are Individuals)

EXHIBIT D — Notice of Election by Partner to Convert LTIP Units into Common Units

EXHIBIT E — Notice of Election by Partnership to Force Conversion of LTIP Units into Common Units

- iii -

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

PEBBLEBROOK HOTEL, L.P.

RECITALS

Pebblebrook Hotel, L.P. (the “Partnership”) was formed as a limited partnership under the laws of the State of Delaware, pursuant to a Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware effective as of December 3, 2009 and the Agreement of Limited Partnership, entered into on December 3, 2009 (the “Original Agreement”), by and between Pebblebrook Hotel Trust, a Maryland real estate investment trust (together with its successors and assigns, the “General Partner”), and Jon E. Bortz, as the original Limited Partner.

On December 14, 2009, the Partnership issued Common Units to Pebblebrook Hotel Trust, the Partnership issued LTIP Units to Jon E. Bortz, Raymond D. Martz and Andrew H. Dittamo, Jon E. Bortz withdrew as the original Limited Partner, and Exhibit A was amended and restated as of that date. On January 11, 2010, the Partnership issued LTIP Units to Thomas C. Fisher, and Exhibit A was amended and restated as of that date.

The Partners now desire to amend and restate the Original Agreement (as amended and restated, the “Agreement”), effective as of January 10, 2010.

Capitalized terms used herein but not otherwise defined shall have the meaning given to such terms in Article I below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINED TERMS

The following defined terms used in this Agreement shall have the meanings specified below:

“Act” means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time.

- 1 -

“Additional Funds” has the meaning set forth in Section 4.03 hereof.

“Additional Securities” has the meaning set forth in Section 4.02(a)(2) hereof.

“Adjustment Event” has the meaning set forth in Section 4.04(a)(1) hereof.

“Administrative Expenses” means (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) administrative costs and expenses of the General Partner, including any salaries or other payments to trustees, officers or employees of the General Partner, and any accounting and legal expenses of the General Partner, which expenses, the Partners have agreed, are expenses of the Partnership and not the General Partner, and (iii) to the extent not included in clauses (i) or (ii) above, REIT Expenses; provided, however, that Administrative Expenses shall not include any administrative costs and expenses incurred by the General Partner that are attributable to Properties or interests in a Subsidiary that are owned by the General Partner other than through its ownership interest in the Partnership.

“Affiliate” means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any officer, director, employee, partner, member, manager or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities or partnership interests or otherwise.

“Agreed Value” means the fair market value of a Partner’s non-cash Capital Contribution as of the date of contribution as agreed to by such Partner and the General Partner. The names and addresses of the Partners, number of Partnership Units issued to each Partner, and the Agreed Value of non-cash Capital Contributions as of the date of contribution is set forth on Exhibit A, as it may be amended or restated from time to time.

“Agreement” means this First Amended and Restated Agreement of Limited Partnership , as it may be amended, supplemented or restated from time to time.

“Board of Trustees” means the Board of Trustees of the General Partner.

“Capital Account” has the meaning provided in Section 4.06 hereof.

“Capital Account Limitation” has the meaning set forth in Section 4.05(b) hereof.

“Capital Contribution” means the total amount of cash, cash equivalents, and the Agreed Value of any Property or other asset contributed or agreed to be contributed, as the context requires, to the Partnership by each Partner pursuant to the terms of the Agreement. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner.

- 2 -

“Cash Amount” means an amount of cash per Common Unit equal to the Value of the REIT Shares Amount on the date of receipt by the Partnership and the General Partner of a Notice of Redemption.

“Certificate” means any instrument or document that is required under the laws of the State of Delaware, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-of-attorney granted to the General Partner in Section 8.02 hereof) and filed for recording in the appropriate public offices within the State of Delaware or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the State of Delaware or such other jurisdiction.

“Change of Control” means, as to the General Partner, the occurrence of any of the following: (i) the sale, lease or transfer, in one or a series of related transactions, of 80% or more of the assets of the General Partner, taken as a whole, to any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), other than an Affiliate of the General Partner; or (ii) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than an Affiliate of the General Partner in a single transaction or in a related series of transactions, by way of merger, share exchange, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of more than 50% of the total voting power of the voting capital securities of the General Partner.

“Common Unit Economic Balance” means (i) the Capital Account balance of the General Partner, to the extent attributable to the General Partner’s ownership of Common Units, divided by (ii) the number of Common Units held by the General Partner.

“Common Partnership Unit Distribution” has the meaning set forth in Section 4.04(a)(2) hereof.

“Common Redemption Amount” means either the Cash Amount or the REIT Shares Amount, as selected by the General Partner pursuant to Section 8.04(b) hereof.

“Common Unit” means a Partnership Unit which is designated as a Common Unit of the Partnership.

“Common Unit Distribution” has the meaning set forth in Section 4.04(a) hereof.

“Common Unit Economic Balance” has the meaning set forth in Section 5.01(g) hereof.

“Common Unit Redemption Right” has the meaning provided in Section 8.04(a) hereof.

“Common Unit Transaction” has the meaning set forth in Section 4.05(f) hereof.

- 3 -

“Code” means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the Code.

“Commission” means the U.S. Securities and Exchange Commission.

“Constituent Person” has the meaning set forth in Section 4.05(f) hereof.

“Conversion Date” has the meaning set forth in Section 4.05(b) hereof.

“Conversion Factor” means 1.0, provided that in the event that the General Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on such date and, provided further, that in the event that an entity other than an Affiliate of the General Partner shall become General Partner pursuant to any merger, consolidation or combination of the General Partner with or into another entity (the “Successor Entity”), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number of shares of the Successor Entity into which one REIT Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event; provided, however, that if the General Partner receives a Notice of Redemption after the record date, but prior to the effective date of such dividend, distribution, subdivision or combination, the Conversion Factor shall be determined as if the General Partner had received the Notice of Redemption immediately prior to the record date for such dividend, distribution, subdivision or combination.

“Conversion Notice” has the meaning set forth in Section 4.05(b) hereof.

“Conversion Right” has the meaning set forth in Section 4.05(a) hereof.

“Declaration of Trust” means the Articles of Amendment and Restatement of the General Partner filed with the Secretary of State of the State of Delaware, as amended, supplemented or restated from time to time.

“Defaulting Limited Partner” means a Limited Partner that has failed to pay any amount owed to the Partnership under a Partnership Loan within 15 days after demand for payment thereof is made by the Partnership.

“Distributable Amount” has the meaning set forth in Section 5.02(d) hereof.

- 4 -

“Economic Capital Account Balances” has the meaning set forth in Section 5.01(g) hereof.

“Equity Incentive Plan” means any equity incentive or compensation plan hereafter adopted by the Partnership or the General Partner, including, without limitation, the General Partner’s 2009 Equity Incentive Plan.

“Event of Bankruptcy” as to any Person means (i) the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978, as amended, or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); (ii) the insolvency or bankruptcy of such Person as finally determined by a court proceeding; (iii) the filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; or (iv) the commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days.

“Excepted Holder Limit” has the meaning set forth in the Declaration of Trust.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Forced Conversion” has the meaning set forth in Section 4.05(c) hereof.

“Forced Conversion Notice” has the meaning set forth in Section 4.05(c) hereof.

“General Partner” has the meaning set forth in the first paragraph of this Agreement.

“General Partner Loan” means a loan extended by the General Partner to a Defaulting Limited Partner in the form of a payment on a Partnership Loan by the General Partner to the Partnership on behalf of the Defaulting Limited Partner.

“General Partnership Interest” means the Partnership Interest held by the General Partner in its capacity as the general partner of the Partnership, which Partnership Interest is an interest as a general partner under the Act. The General Partnership Interest may be expressed as a number of Partnership Units. A number of Common Units held by the General Partner equal to one-tenth of one percent (0.1%) of all outstanding Partnership Units shall be deemed to be the General Partnership Interest. All other Partnership Units owned by the General Partner and any Partnership Units owned by any Affiliate or Subsidiary of the General Partner shall be considered to constitute a Limited Partnership Interest.

“Indemnified Party” has the meaning set forth in Section 8.05(f).

“Indemnifying Party” has the meaning set forth in Section 8.05(f).

- 5 -

“Indemnitee” means (i) any Person made a party to a proceeding by reason of its status as (A) the General Partner or (B) a trustee of the General Partner or an officer or employee of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.

“Independent Trustee” means a trustee of the General Partner who meets the NYSE requirements for an independent director as set forth from time to time.

“Limited Partner” means any Person named as a Limited Partner on Exhibit A attached hereto, as it may be amended or restated from time to time, and any Person who becomes a Substitute Limited Partner or any additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.

“Limited Partnership Interest” means a Partnership Interest held by a Limited Partner at any particular time representing a fractional part of the Partnership Interest of all Limited Partners, and includes any and all benefits to which the holder of such a Limited Partnership Interest may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act. Limited Partnership Interests may be expressed as a number of Common Units, LTIP Units or other Partnership Units.

“Liquidating Gains” means net capital gains realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership, including but not limited to net capital gain realized in connection with an adjustment to the value of Partnership assets pursuant to Section 4.06.

“LTIP Capital Account Balance” means the Capital Account balance of an LTIP Unitholder to the extent attributable to the LTIP Unitholder’s ownership of LTIP Units.

“LTIP Unit” means a Partnership Unit which is designated as an LTIP Unit and which has the rights, preferences and other privileges designated in Section 4.04 hereof and elsewhere in this Agreement in respect of holders of LTIP Units. The allocation of LTIP Units among the Partners shall be set forth on Exhibit A, as it may be amended or restated from time to time.

“LTIP Unitholder” means a Partner that holds LTIP Units.

“Loss” has the meaning provided in Section 5.01(h) hereof.

“Majority in Interest” means the Limited Partners holding more than fifty percent (50%) of the Percentage Interests of the Limited Partners.

“Notice of Redemption” means the Notice of Exercise of Common Unit Redemption Right substantially in the form attached as Exhibit B hereto.

“NYSE” means the New York Stock Exchange.

- 6 -

“Offer” has the meaning set forth in Section 7.01(c) hereof.

“Offering” means the underwritten initial public offering of REIT Shares by the General Partner.

“Original Agreement” means the Agreement of Limited Partnership, dated December 3, 2009, by and between Pebblebrook Hotel Trust, a Maryland real estate investment trust, as General Partner, and Jon E. Bortz, as the original Limited Partner.

“Partner” means any General Partner or Limited Partner, and “Partners” means the General Partner and the Limited Partners.

“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(i). A Partner’s share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).

“Partnership” means Pebblebrook Hotel, L.P., a limited partnership formed under the Act and pursuant to the Original Agreement, and any successor thereto.

“Partnership Interest” means an ownership interest in the Partnership held by either a Limited Partner or the General Partner, and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Common Units, LTIP Units or other Partnership Units.

“Partnership Loan” means a loan from the Partnership to the Partner on the day the Partnership pays over the excess of the Withheld Amount over the Distributable Amount to a taxing authority.

“Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner’s share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1).

“Partnership Record Date” means the record date established by the General Partner for the distribution of cash pursuant to Section 5.02 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such distribution.

“Partnership Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder, and includes Common Units, LTIP Units and any other class or series of Partnership Units that may be established after the date hereof. The number of Partnership Units outstanding and the Percentage Interests represented by such Partnership Units are set forth on Exhibit A hereto, as it may be amended or restated from time to time. The ownership of Partnership Units may be evidenced by a certificate in a form approved by the General Partner.

- 7 -

“Percentage Interest” means the percentage determined by dividing the number of Partnership Units of a Partner by the sum of the number of Partnership Units of all Partners.

“Person” means any individual, partnership, corporation, limited liability company, joint venture, trust or other entity.

“Profit” has the meaning provided in Section 5.01(h) hereof.

“Property” means any property or other investment in which the Partnership, directly or indirectly, holds an ownership interest.

“Redemption Shares” has the meaning set forth in Section 8.05(a) hereof.

“Redeeming Limited Partner” has the meaning provided in Section 8.04(a) hereof.

“Regulations” means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations.

“REIT” means a real estate investment trust under Sections 856 through 860 of the Code.

“REIT Expenses” means (i) costs and expenses relating to the formation and continuity of existence and operation of the General Partner and any Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included within the definition of the General Partner), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer or employee of the General Partner, (ii) costs and expenses relating to any public offering and registration, or private offering, of securities by the General Partner, and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offering of securities, and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (iii) costs and expenses associated with any repurchase of any securities by the General Partner, (iv) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the General Partner under federal, state or local laws or regulations, including filings with the Commission, (v) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (vi) costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the General Partner, (vii) costs and expenses incurred by the General Partner relating to any issuing or redemption of Partnership Interests and (viii) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of or in connection with the Partnership.

“REIT Share” means one common share of beneficial interest, par value $0.01 per share, of the General Partner (or Successor Entity, as the case may be).

- 8 -

“REIT Shares Amount” means the number of REIT Shares equal to the product of (X) the number of Common Units offered for redemption by a Redeeming Limited Partner, multiplied by (Y) the Conversion Factor as adjusted to and including the Specified Redemption Date; provided that in the event the General Partner issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the holders of REIT Shares to subscribe for or purchase additional REIT Shares, or any other securities or property (collectively, the “Rights”), and such Rights have not expired at the Specified Redemption Date, then the REIT Shares Amount shall also include such Rights issuable to a holder of the REIT Shares Amount on the record date fixed for purposes of determining the holders of REIT Shares entitled to Rights.

“Restriction Notice” has the meaning set forth in Section 8.04(f) hereof.

“Rights” has the meaning set forth in the definition of “REIT Shares Amount” contained herein.

“S-3 Eligible Date” has the meaning set forth in Section 8.05(a) hereof.

“Safe Harbor Election” has the meaning set forth in Section 11.01 hereof.

“Safe Harbor Interest” has the meaning set forth in Section 11.01 hereof.

“Securities Act” means the Securities Act of 1933, as amended.

“Service” means the Internal Revenue Service.

“Share Ownership Limit” has the meaning set forth in the Declaration of Trust.

“Specified Redemption Date” means the first business day of the month that is at least 60 calendar days after the receipt by the General Partner of a Notice of Redemption.

“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.

“Subsidiary Partnership” means any partnership or limited liability company in which the General Partner, the Partnership, or a wholly owned subsidiary of the General Partner or the Partnership owns a partnership or limited liability company interest.

“Substitute Limited Partner” means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03 hereof.

“Successor Entity” has the meaning set forth in the definition of “Conversion Factor” contained herein.

“Survivor” has the meaning set forth in Section 7.01(d) hereof.

“Tax Matters Partner” has the meaning set forth within Section 6231(a)(7) of the Code.

- 9 -

“Trading Day” means a day on which the principal national securities exchange on which a security is listed or admitted to trading is open for the transaction of business or, if a security is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Transaction” has the meaning set forth in Section 7.01(c) hereof.

“Transfer” has the meaning set forth in Section 9.02(a) hereof.

“TRS” means a taxable REIT subsidiary (as defined in Section 856(l) of the Code) of the General Partner.

“Unvested LTIP Units” has the meaning set forth in Section 4.04(c) hereof.

“Value” means, with respect to any security, the average of the daily market price of such security for the ten consecutive Trading Days immediately preceding the date of such valuation. The market price for each such Trading Day shall be: (i) if the security is listed or admitted to trading on the NYSE or any national securities exchange, the last reported sale price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, (ii) if the security is not listed or admitted to trading on the NYSE or any national securities exchange, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or (iii) if the security is not listed or admitted to trading on the NYSE or any national securities exchange and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten days prior to the date in question) for which prices have been so reported; provided that if there are no bid and asked prices reported during the ten days prior to the date in question, the value of the security shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the security includes any additional rights, then the value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.

“Vested LTIP Units” has the meaning set forth in Section 4.04(c) hereof.

“Vesting Agreement” means each or any, as the context implies, agreement or instrument entered into by an LTIP Unitholder upon acceptance of an award of LTIP Units under an Equity Incentive Plan.

“Withheld Amount” means any amount required to be withheld by the Partnership to pay over to any taxing authority as a result of any allocation or distribution of income to a Partner.

- 10 -

ARTICLE II

FORMATION OF PARTNERSHIP

2.01 Formation of the Partnership. The Partnership was formed as a limited partnership pursuant to the provisions of the Act and upon the terms and conditions set forth in the Original Agreement and this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.

2.02 Name. The Name of the Partnership shall be “Pebblebrook Hotel, L.P.” and the Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “LP,” “L.P.” or “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners.

2.03 Registered Office and Agent; Principal Office. The address of the registered office of the Partnership in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is The Corporation Trust Company, a Delaware corporation. The principal office of the Partnership is located at 2 Bethesda Metro Center, Suite 1530, Bethesda, MD 20814, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems necessary or desirable.

2.04 Term and Dissolution.

(a) The term of the Partnership shall continue in full force and effect until dissolved upon the first to occur of any of the following events:

(1) the occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death, removal or withdrawal of a General Partner unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof; provided that if a General Partner is on the date of such occurrence a partnership, the dissolution of such General Partner as a result of the dissolution, death, withdrawal, removal or Event of Bankruptcy of a partner in such partnership shall not be an event of dissolution of the Partnership if the business of such General Partner is continued by the remaining partner or partners, either alone or with additional partners, and such General Partner and such partners comply with any other applicable requirements of this Agreement;

(2) the passage of 90 days after the sale or other disposition of all or substantially all of the assets of the Partnership (provided that if the Partnership receives an installment obligation as consideration for such sale or other disposition, the Partnership shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as such installment obligations are paid in full);

- 11 -

(3) the redemption of all Limited Partnership Interests (other than any such Limited Partnership Interests held by the General Partner), unless the General Partner determines to continue the term of the Partnership by the admission of one or more additional Limited Partners; or

(4) the election by the General Partner that the Partnership should be dissolved.

(b) Upon dissolution of the Partnership (unless the business of the Partnership is continued pursuant to Section 7.03(b) hereof), the General Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership’s assets and apply and distribute the proceeds thereof in accordance with Section 5.06 hereof. Notwithstanding the foregoing, the liquidating General Partner may either (i) defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership (including those necessary to satisfy the Partnership’s debts and obligations), or (ii) distribute the assets to the Partners in kind.

2.05 Filing of Certificate and Perfection of Limited Partnership. The General Partner shall execute, acknowledge, record and file at the expense of the Partnership the Certificate and any and all amendments thereto and all requisite fictitious name statements and notices in such places and jurisdictions as may be necessary to cause the Partnership to be treated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business.

2.06 Certificates Describing Partnership Units. At the request of a Limited Partner, the General Partner, at its option, may issue a certificate summarizing the terms of such Limited Partner’s interest in the Partnership, including the class or series and number of Partnership Units owned and the Percentage Interest represented by such Partnership Units as of the date of such certificate. Any such certificate (i) shall be in form and substance as determined by the General Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the following effect:

THIS CERTIFICATE IS NOT NEGOTIABLE. THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY AND TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP OF PEBBLEBROOK HOTEL, L.P., AS AMENDED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME.

ARTICLE III

BUSINESS OF THE PARTNERSHIP

The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership organized

- 12 -

pursuant to the Act, provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to qualify as a REIT, unless the General Partner otherwise ceases to, or the Board of Trustees determines that the General Partner shall no longer, qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the General Partner’s right in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge that the General Partner intends to elect REIT status and the avoidance of income and excise taxes on the General Partner inures to the benefit of all the Partners and not solely to the General Partner. Notwithstanding the foregoing, the Limited Partners agree that the General Partner may terminate or revoke its status as a REIT under the Code at any time. The General Partner shall also be empowered to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” taxable as a corporation for purposes of Section 7704 of the Code.

ARTICLE IV

CAPITAL CONTRIBUTIONS AND ACCOUNTS

4.01 Capital Contributions. The General Partner and each Limited Partner has made a capital contribution to the Partnership in exchange for the Partnership Units set forth opposite such Partner’s name on Exhibit A hereto, as it may be amended or restated from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units or similar events having an effect on a Partner’s ownership of Partnership Units.

4.02 Additional Capital Contributions and Issuances of Additional Partnership Units. Except as provided in this Section 4.02 or in Section 4.03 hereof, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership. The General Partner may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests, in the form of Partnership Units, in respect thereof, in the manner contemplated in this Section 4.02.

(a) Issuances of Additional Partnership Units.

(1) General. As of the effective date of this Agreement, the Partnership shall have two classes of Partnership Units, entitled “Common Units” and “LTIP Units.” The General Partner is hereby authorized to cause the Partnership to issue such additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose at any time or from time to time to the Partners (including the General Partner) or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners. The General Partner’s determination that consideration is adequate shall be conclusive insofar as the adequacy of consideration relates to whether the Partnership Units are validly issued and fully paid. Any additional Partnership Units issued thereby may be issued in one or more classes, or one or more

- 13 -

series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to the then-outstanding Partnership Units held by the Limited Partners, all as shall be determined by the General Partner in its sole and absolute discretion and without the approval of any Limited Partner, subject to Delaware law, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Units; (ii) the right of each such class or series of Partnership Units to share in Partnership distributions; and (iii) the rights of each such class or series of Partnership Units upon dissolution and liquidation of the Partnership; provided, however, that no additional Partnership Units shall be issued to the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) unless:

(A) (A) the additional Partnership Units are issued in connection with an issuance of REIT Shares of or other interests in the General Partner, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership Units issued to the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) by the Partnership in accordance with this Section 4.02 and (B) the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) shall make a Capital Contribution to the Partnership in an amount equal to the cash consideration received by the General Partner from the issuance of such REIT Shares or other interests in the General Partner;

(B) (A) the additional Partnership Units are issued in connection with an issuance of REIT Shares of or other interests in the General Partner pursuant to a taxable share dividend declared by the General Partner, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Partnership Units issued to the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) by the Partnership in accordance with this Section 4.02, (B) if the General Partner allows the holders of its REIT Shares to elect whether to receive such dividend in REIT Shares, other interests of the General Partner or cash, the Partnership will give the Limited Partners (excluding the General Partner or any direct or indirect Subsidiary of the General Partner) the same election to elect to receive (I) Partnership Units or cash or, (II) at the election of the General Partner, REIT Shares or cash, and (C) if the Partnership issues additional Partnership Units pursuant to this Section 4.02(a)(1)(B), then an amount of income equal to the value of the Partnership Units received will be allocated to those holders of Common Units that elect to receive additional Partnership Units;

- 14 -

(C) the additional Partnership Units are issued in exchange for property owned by the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) with a fair market value, as determined by the General Partner, in good faith, equal to the value of the Partnership Units; or

(D) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests.

Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership.

(2) Upon Issuance of Additional Securities. The General Partner shall not issue any additional REIT Shares (other than REIT Shares issued in connection with an exchange pursuant to Section 8.04 hereof or a taxable share dividend as described in Section 4.02(a)(1)(B) hereof) or Rights (collectively, “Additional Securities”) other than to all holders of REIT Shares, unless (A) the General Partner shall cause the Partnership to issue to the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) Partnership Units or Rights having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the Additional Securities, and (B) the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) contributes the proceeds from the issuance of such Additional Securities and from any exercise of Rights contained in such Additional Securities to the Partnership; provided, however, that the General Partner is allowed to issue Additional Securities in connection with an acquisition of Property to be held directly by the General Partner, but if and only if, such direct acquisition and issuance of Additional Securities have been approved by a majority of the Independent Directors. Without limiting the foregoing, the General Partner is expressly authorized to issue Additional Securities for less than fair market value, and the General Partner is authorized to cause the Partnership to issue to the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) corresponding Partnership Units, so long as (x) the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership and (y) the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) contributes all proceeds from such issuance to the Partnership, including without limitation, the issuance of REIT Shares and corresponding Partnership Units pursuant to a share purchase plan providing for purchases of REIT Shares at a discount from fair market value or pursuant to share awards, including share options that have an exercise price that is less than the fair market value of the REIT Shares, either at the time of issuance or at the time of exercise, and restricted or other share awards approved by the Board of Trustees. For example, in the event the General Partner issues REIT Shares for a cash purchase price and the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) contributes all of the proceeds of such issuance to the Partnership as required hereunder, the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) shall be issued a number of additional Partnership Units equal to the product of (A) the number of such REIT Shares issued by the General Partner, the proceeds of which were so contributed, multiplied by (B) a fraction, the numerator of which is 100%, and the denominator of which is the Conversion Factor in effect on the date of such contribution.

- 15 -

(b) Certain Contributions of Proceeds of Issuance of REIT Shares. In connection with any and all issuances of REIT Shares, the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) shall make Capital Contributions to the Partnership of the proceeds therefrom, provided that if the proceeds actually received and contributed by the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) are less than the gross proceeds of such issuance as a result of any underwriter’s discount, commissions, placement fees or other expenses paid or incurred in connection with such issuance, then the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) shall make a Capital Contribution of such net proceeds to the Partnership but shall receive additional Partnership Units with a value equal to the aggregate amount of the gross proceeds of such issuance pursuant to Section 4.02(a) hereof. Upon any such Capital Contribution by the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner), the Capital Account of the General Partner (or any direct or indirect wholly owned Subsidiary of the General Partner) shall be increased by the actual amount of its Capital Contribution pursuant to Section 4.06 hereof.

(c) Repurchases of Shares. If the General Partner shall repurchase shares of any class of its shares of beneficial interest, the purchase price thereof and all costs incurred in connection with such repurchase shall be reimbursed to the General Partner by the Partnership pursuant to Section 6.05 hereof and the General Partner shall cause the Partnership to redeem an equivalent number of Partnership Units of the appropriate class or series held by the General Partner (which, in the case of REIT Shares, shall be a number equal to the quotient of the number of such REIT Shares divided by the Conversion Factor) in the manner provided in Section 6.10 hereof.

4.03 Additional Funding. If the General Partner determines that it is in the best interests of the Partnership to provide for additional Partnership funds (“Additional Funds”) for any Partnership purpose, the General Partner may (i) cause the Partnership to obtain such funds from outside borrowings, or (ii) elect to have the General Partner or any of its Affiliates provide such Additional Funds to the Partnership through loans or otherwise.

4.04 LTIP Units.

(a) Issuance of LTIP Units. The General Partner may from time to time issue LTIP Units to Persons who provide services to the Partnership or the General Partner, for such consideration as the General Partner may determine to be appropriate, and admit such Persons as Limited Partners. Subject to the following provisions of this Section 4.04 and the special provisions of Sections 4.05 and 5.01(g) hereof, LTIP Units shall be treated as Common Units, with all of the rights, privileges and obligations attendant thereto. For purposes of computing the Partners’ Percentage Interests, holders of LTIP Units shall be treated as Common Unit holders and LTIP Units shall be treated as Common Units. In particular, the Partnership shall maintain at all times a one-to-one correspondence between LTIP Units and Common Units for conversion, distribution and other purposes, including, without limitation, complying with the following procedures:

- 16 -

(1) If an Adjustment Event (as defined below) occurs, then the General Partner shall make a corresponding adjustment to the LTIP Units to maintain a one-for-one conversion and economic equivalence ratio between Common Units and LTIP Units. The following shall be “Adjustment Events”: (A) the Partnership makes a distribution on all outstanding Common Units in Partnership Units, (B) the Partnership subdivides the outstanding Common Units into a greater number of units or combines the outstanding Common Units into a smaller number of units, or (C) the Partnership issues any Partnership Units in exchange for its outstanding Common Units by way of a reclassification or recapitalization of its Common Units. If more than one Adjustment Event occurs, the adjustment to the LTIP Units need be made only once using a single formula that takes into account each and every Adjustment Event as if all Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be Adjustment Events: (x) the issuance of Partnership Units in a financing, reorganization, acquisition or other similar business Common Unit Transaction, (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distribution reinvestment plan or (z) the issuance of any Partnership Units to the General Partner in respect of a capital contribution to the Partnership of proceeds from the sale of Additional Securities by the General Partner. If the Partnership takes an action affecting the Common Units other than actions specifically described above as “Adjustment Events” and in the opinion of the General Partner such action would require an adjustment to the LTIP Units to maintain the one-to-one correspondence described above, the General Partner shall have the right to make such adjustment to the LTIP Units, to the extent permitted by law and by any Equity Incentive Plan, in such manner and at such time as the General Partner, in its sole discretion, may determine to be appropriate under the circumstances. If an adjustment is made to the LTIP Units, as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth such adjustment and a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each LTIP Unitholder setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment; and

(2) The LTIP Unitholders shall, when, as and if authorized and declared by the General Partner out of assets legally available for that purpose, be entitled to receive distributions in an amount per LTIP Unit equal to the distributions per Common Unit (the “Common Partnership Unit Distribution”), paid to holders of Common Units on such Partnership Record Date established by the General Partner with respect to such distribution. So long as any LTIP Units are outstanding, no distributions (whether in cash or in kind) shall be authorized, declared or paid on Common Units, unless equal distributions have been or contemporaneously are authorized, declared and paid on the LTIP Units.

(b) Priority. Subject to the provisions of this Section 4.04 and the special provisions of Sections 4.05 and 5.01(g) hereof, the LTIP Units shall rank pari passu with the

- 17 -

Common Units as to the payment of regular and special periodic or other distributions and distribution of assets upon liquidation, dissolution or winding up. As to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, any class or series of Partnership Units which by its terms specifies that it shall rank junior to, on a parity with, or senior to the Common Units shall also rank junior to, or pari passu with, or senior to, as the case may be, the LTIP Units. Subject to the terms of any Vesting Agreement, an LTIP Unitholder shall be entitled to transfer his or her LTIP Units to the same extent, and subject to the same restrictions as holders of Common Units are entitled to transfer their Common Units pursuant to Article IX.

(c) Special Provisions. LTIP Units shall be subject to the following special provisions:

(1) Vesting Agreements. LTIP Units may, in the sole discretion of the General Partner, be issued subject to vesting, forfeiture and additional restrictions on transfer pursuant to the terms of a Vesting Agreement. The terms of any Vesting Agreement may be modified by the General Partner from time to time in its sole discretion, subject to any restrictions on amendment imposed by the relevant Vesting Agreement or by the Equity Incentive Plan, if applicable. LTIP Units that have vested under the terms of a Vesting Agreement are referred to as “Vested LTIP Units”; all other LTIP Units shall be treated as “Unvested LTIP Units.”

(2) Forfeiture. Unless otherwise specified in the Vesting Agreement, upon the occurrence of any event specified in a Vesting Agreement as resulting in either the right of the Partnership or the General Partner to repurchase LTIP Units at a specified purchase price or some other forfeiture of any LTIP Units, then if the Partnership or the General Partner exercises such right to repurchase or forfeiture in accordance with the applicable Vesting Agreement, the relevant LTIP Units shall immediately, and without any further action, be treated as cancelled and no longer outstanding for any purpose. Unless otherwise specified in the Vesting Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with respect to a Partnership Record Date prior to the effective date of the forfeiture. In connection with any repurchase or forfeiture of LTIP Units, the balance of the portion of the Capital Account of the LTIP Unitholder that is attributable to all of his or her LTIP Units shall be reduced by the amount, if any, by which it exceeds the target balance contemplated by Section 5.01(g) hereof, calculated with respect to the LTIP Unitholder’s remaining LTIP Units, if any.

(3) Allocations. LTIP Unitholders shall be entitled to certain special allocations of gain under Section 5.01(g) hereof.

(4) Redemption. The Common Unit Redemption Right provided to Limited Partners under Section 8.04 hereof shall not apply with respect to LTIP Units unless and until they are converted to Common Units as provided in clause (5) below and Section 4.05 hereof.

- 18 -

(5) Conversion to Common Units. Vested LTIP Units are eligible to be converted into Common Units in accordance with Section 4.05 hereof.

(d) Voting. LTIP Unitholders shall (a) have the same voting rights as the Limited Partners, with the LTIP Units voting as a single class with the Common Units and having one vote per LTIP Unit; and (b) have the additional voting rights that are expressly set forth below. So long as any LTIP Units remain outstanding, the Partnership shall not, without the affirmative vote of the holders of a majority of the LTIP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of this Agreement applicable to LTIP Units so as to materially and adversely affect any right, privilege or voting power of the LTIP Units or the LTIP Unitholders as such, unless such amendment, alteration, or repeal affects equally, ratably and proportionately the rights, privileges and voting powers of the Limited Partners; but subject, in any event, to the following provisions:

(1) With respect to any Common Unit Transaction (as defined in Section 4.05(f) hereof), so long as the LTIP Units are treated in accordance with Section 4.05(f) hereof, the consummation of such Common Unit Transaction shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the LTIP Units or the LTIP Unitholders as such; and

(2) Any creation or issuance of any Partnership Units or of any class or series of Partnership Interest including without limitation additional Common Units or LTIP Units, whether ranking senior to, junior to, or on a parity with the LTIP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the LTIP Units or the LTIP Unitholders as such.

The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required will be effected, all outstanding LTIP Units shall have been converted into Common Units.

4.05 Conversion of LTIP Units.

(a) An LTIP Unitholder shall have the right (the “Conversion Right”), at his or her option, at any time to convert all or a portion of his or her Vested LTIP Units into Common Units; provided, however, that a holder may not exercise the Conversion Right for less than one thousand (1,000) Vested LTIP Units or, if such holder holds less than one thousand Vested LTIP Units, all of the Vested LTIP Units held by such holder. LTIP Unitholders shall not have the right to convert Unvested LTIP Units into Common Units until they become Vested LTIP Units; provided, however, that when an LTIP Unitholder is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such LTIP Unitholder may give the Partnership a Conversion Notice conditioned upon and effective as of the time of vesting and such Conversion Notice, unless subsequently revoked by the LTIP Unitholder, shall be accepted by the Partnership subject to such condition. The General Partner shall have the right at any time to cause a conversion of Vested LTIP Units into Common Units. In all cases, the conversion of any LTIP Units into Common Units shall be subject to the conditions and procedures set forth in this Section 4.05.

- 19 -

(b) A holder of Vested LTIP Units may convert such LTIP Units into an equal number of fully paid and non-assessable Common Units, giving effect to all adjustments (if any) made pursuant to Section 4.04 hereof. Notwithstanding the foregoing, in no event may a holder of Vested LTIP Units convert a number of Vested LTIP Units that exceeds (x) the Economic Capital Account Balance of such Limited Partner, to the extent attributable to its ownership of LTIP Units, divided by (y) the Common Unit Economic Balance, in each case as determined as of the effective date of conversion (the “Capital Account Limitation”).

In order to exercise his or her Conversion Right, an LTIP Unitholder shall deliver a notice (a “Conversion Notice”) in the form attached as Exhibit D to the Partnership (with a copy to the General Partner) not less than ten nor more than 60 days prior to a date (the “Conversion Date”) specified in such Conversion Notice; provided, however, that if the General Partner has not given to the LTIP Unitholders notice of a proposed or upcoming Common Unit Transaction (as defined in Section 4.05(f) hereof) at least 30 days prior to the effective date of such Common Unit Transaction, then LTIP Unitholders shall have the right to deliver a Conversion Notice until the earlier of (x) the tenth day after such notice from the General Partner of a Common Unit Transaction or (y) the third business day immediately preceding the effective date of such Common Unit Transaction. A Conversion Notice shall be provided in the manner provided in Section 12.01 hereof. Each LTIP Unitholder covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section 4.05(b) shall be free and clear of all liens. Notwithstanding anything herein to the contrary, a holder of LTIP Units may deliver a Notice of Redemption pursuant to Section 8.04(a) hereof relating to those Common Units that will be issued to such holder upon conversion of such LTIP Units into Common Units in advance of the Conversion Date; provided, however, that the redemption of such Common Units by the Partnership shall in no event take place until after the Conversion Date. For clarity, it is noted that the objective of this paragraph is to put an LTIP Unitholder in a position where, if he or she so wishes, the Common Units into which his or her Vested LTIP Units will be converted can be redeemed by the Partnership simultaneously with such conversion, with the further consequence that, if the General Partner elects to assume the Partnership’s redemption obligation with respect to such Common Units under Section 8.04(b) hereof by delivering to such holder REIT Shares rather than cash, then such holder can have such REIT Shares issued to him or her simultaneously with the conversion of his or her Vested LTIP Units into Common Units. The General Partner and LTIP Unitholder shall reasonably cooperate with each other to coordinate the timing of the events described in the foregoing sentence.

(c) The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units held by an LTIP Unitholder to be converted (a “Forced Conversion”) into an equal number of Common Units, giving effect to all adjustments (if any) made pursuant to Section 4.04 hereof; provided, however, that the Partnership may not cause Forced Conversion of any LTIP Units that would not at the time be eligible for conversion at the option of such LTIP Unitholder pursuant to Section 4.05(b) hereof. In order to exercise its right of Forced Conversion, the Partnership shall deliver a notice (a “Forced Conversion Notice”) in the form attached as Exhibit E to the applicable LTIP Unitholder not less than ten nor more than 60 days prior to the Conversion Date specified in such Forced Conversion Notice. A Forced Conversion Notice shall be provided in the manner provided in Section 12.01 hereof.

- 20 -

(d) A conversion of Vested LTIP Units for which the holder thereof has given a Conversion Notice or the Partnership has given a Forced Conversion Notice shall occur automatically after the close of business on the applicable Conversion Date without any action on the part of such LTIP Unitholder, as of which time such LTIP Unitholder shall be credited on the books and records of the Partnership with the issuance as of the opening of business on the next day of the number of Common Units issuable upon such conversion. After the conversion of LTIP Units as aforesaid, the Partnership shall deliver to such LTIP Unitholder, upon his or her written request, a certificate of the General Partner certifying the number of Common Units and remaining LTIP Units, if any, held by such person immediately after such conversion. The Assignee of any Limited Partner pursuant to Article IX hereof may exercise the rights of such Limited Partner pursuant to this Section 4.05 and such Limited Partner shall be bound by the exercise of such rights by the Assignee.

(e) For purposes of making future allocations under Section 5.01(g) hereof and applying the Capital Account Limitation, the portion of the Economic Capital Account Balance of the applicable LTIP Unitholder that is treated as attributable to his or her LTIP Units shall be reduced, as of the date of conversion, by the product of the number of LTIP Units converted and the Common Unit Economic Balance.

(f) If the Partnership or the General Partner shall be a party to any Common Unit Transaction (including without limitation a merger, consolidation, unit exchange, self tender offer for all or substantially all Common Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any Common Unit Transaction which constitutes an Adjustment Event) in each case as a result of which Common Units shall be exchanged for or converted into the right, or the holders of such Units shall otherwise be entitled, to receive cash, securities or other property or any combination thereof (each of the foregoing being referred to herein as a “Common Unit Transaction”), then the General Partner shall, immediately prior to the Common Unit Transaction, exercise its right to cause a Forced Conversion with respect to the maximum number of LTIP Units then eligible for conversion, taking into account any allocations that occur in connection with the Common Unit Transaction or that would occur in connection with the Common Unit Transaction if the assets of the Partnership were sold at the Common Unit Transaction price or, if applicable, at a value determined by the General Partner in good faith using the value attributed to the Partnership Units in the context of the Common Unit Transaction (in which case the Conversion Date shall be the effective date of the Common Unit Transaction).

In anticipation of such Forced Conversion and the consummation of the Common Unit Transaction, the Partnership shall use commercially reasonable efforts to cause each LTIP Unitholder to be afforded the right to receive in connection with such Common Unit Transaction in consideration for the Common Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Common Unit Transaction by a holder of the same number of Common Units, assuming such holder of Common Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the

- 21 -

Partnership or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an affiliate of a Constituent Person. In the event that holders of Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Common Unit Transaction, prior to such Common Unit Transaction the General Partner shall give prompt written notice to each LTIP Unitholder of such election, and shall use commercially reasonable efforts to afford the LTIP Unitholders the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into Common Units in connection with such Common Unit Transaction. If an LTIP Unitholder fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of a Common Unit would receive if such Common Unit holder failed to make such an election.

Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and any Equity Incentive Plan, the Partnership shall use commercially reasonable effort to cause the terms of any Common Unit Transaction to be consistent with the provisions of this Section 4.05(f) and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any LTIP Unitholders whose LTIP Units will not be converted into Common Units in connection with the Common Unit Transaction that will (i) contain provisions enabling the holders of LTIP Units that remain outstanding after such Common Unit Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Common Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in this Agreement for the benefit of the LTIP Unitholders.

4.06 Capital Accounts. A separate capital account (a “Capital Account”) shall be established and maintained for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires an additional Partnership Interest in exchange for more than a de minimis Capital Contribution, (ii) the Partnership distributes to a Partner more than a de minimis amount of Partnership property as consideration for a Partnership Interest, (iii) the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), or (iv) the Partnership grants a Partnership Interest (other than a de minimis Partnership Interest) as consideration for the provision of services to or for the benefit of the Partnership to an existing Partner acting in a Partner capacity, or to a new Partner acting in a Partner capacity or in anticipation of being a Partner, the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f); provided that the issuance of any LTIP Unit shall be deemed to require a revaluation pursuant to this Section 4.06; provided, further, that if any LTIP Units are issued before the Partnership has acquired, directly or indirectly, any real estate assets, the property of the Partnership shall be deemed to have a value equal to or less than the net carrying value of the assets on the balance sheet of the Partnership on the date that the LTIP Units were issued. If any LTIP Units are issued before the Partnership has acquired, directly or indirectly, any real estate assets and it is subsequently determined that the value of Partnership property at such time was in excess of the net carrying value of the assets on the balance sheet of the Partnership on the date that LTIP Units were issued, any such excess will be allocated to the

- 22 -

General Partner. When the Partnership’s property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Partners pursuant to Section 5.01 hereof if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) on the date of the revaluation.

4.07 Percentage Interests. If the number of outstanding Common Units or other class or series of Partnership Units increases or decreases during a taxable year, each Partner’s Percentage Interest shall be adjusted by the General Partner effective as of the effective date of each such increase or decrease to a percentage equal to the number of Common Units or other class or series of Partnership Units held by such Partner divided by the aggregate number of Common Units or other class or series of Partnership Units, as applicable, outstanding after giving effect to such increase or decrease. If the Partners’ Percentage Interests are adjusted pursuant to this Section 4.07, the Profits and Losses for the taxable year in which the adjustment occurs shall be allocated between the part of the year ending on the day when the Partnership’s property is revalued by the General Partner and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate Profits and Losses for the taxable year in which the adjustment occurs. The allocation of Profits and Losses for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses for the later part shall be based on the adjusted Percentage Interests.

4.08 No Interest on Contributions. No Partner shall be entitled to interest on its Capital Contribution.

4.09 Return of Capital Contributions. No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Partner or withdrawn Partner any part of such Partner’s Capital Contribution for so long as the Partnership continues in existence.

4.10 No Third-Party Beneficiary. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction

- 23 -

holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.

ARTICLE V

PROFITS AND LOSSES; DISTRIBUTIONS

5.01 Allocation of Profit and Loss.

(a) Profit. Profit of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(b) Loss. Loss of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(c) Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a “nonrecourse deduction” within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Partners’ respective Percentage Interests, (ii) any expense of the Partnership that is a “partner nonrecourse deduction” within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that bears the “economic risk of loss” of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). The manner in which it is reasonably expected that the deductions attributable to nonrecourse liabilities will be allocated for purposes of determining a Partner’s share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be in accordance with a Partner’s Percentage Interest.

(d) Qualified Income Offset. If a Partner receives in any taxable year an adjustment, allocation or distribution described in subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Partner’s Capital Account that exceeds the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(d).

- 24 -

(e) Capital Account Deficits. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner’s Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(e), to the extent permitted by Regulations Section 1.704-1(b), Profit first shall be allocated to the General Partner in an amount necessary to offset the Loss previously allocated to the General Partner under this Section 5.01(e).

(f) Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership’s fiscal year had ended on the date of the transfer or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss between the transferor and the transferee Partner.

(g) Special Allocations Regarding LTIP Units.

(1) Notwithstanding the provisions of Section 5.01(a) and (b), Liquidating Gains shall be allocated as follows:

(A) First, to the General Partner and the Limited Partners, except to the extent that a Limited Partner’s interest is attributable to the Limited Partner’s ownership of LTIP Units, to the extent of and in proportion to the amount, if any, by which the balances of the General Partner’s and Limited Partners’ Capital Accounts are less than the balances of the General Partner’s and Limited Partners’ Capital Accounts as of the date on which any LTIP Units were issued, in each case without regard to the Limited Partners’ LTIP Capital Account Balances;

(B) Second, to the LTIP Unitholders individually in proportion to and to the extent of the amount, if any, by which an LTIP Unitholder’s LTIP Capital Account Balance is less than (a) the Common Unit Economic Balance multiplied by (b) the number of the LTIP Unitholder’s LTIP Units; and

- 25 -

(C) Third, to the Partners in accordance with their respective Percentage Interests.

(2) The Partners agree that the intent of Section 5.01(g)(1)(A) is to make the Capital Account balance associated with each LTIP Unit be economically equivalent to the Capital Account balance associated with the General Partner’s Common Units (on a per-Unit basis), but only to the extent that there are sufficient Liquidating Gains available.

(3) For the avoidance of doubt, allocations of Liquidating Gains shall be made after all other allocations pursuant to Section 5.01 (including allocations pursuant to the Minimum Gain Chargeback provisions of Section 5.01(c)).

(h) Definition of Profit and Loss. “Profit” and “Loss” and any items of income, gain, expense or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 5.01(c), (d)or (e) hereof. All allocations of income, Profit, gain, Loss and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). With respect to properties acquired by the Partnership, the General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain and expense as required by Section 704(c) of the Code with respect to such properties, and such election shall be binding on all Partners.

5.02 Distribution of Cash.

(a) Subject to Sections 5.02(d), (d) and (e) hereof, the Partnership shall distribute cash at such times and in such amounts as are determined by the General Partner in its sole and absolute discretion, to the Partners who are Partners on the Partnership Record Date with respect to such quarter (or other distribution period) in proportion with their respective Common Units on the Partnership Record Date.

(b) In accordance with Section 4.04(a)(2), the LTIP Unitholders shall be entitled to receive distributions in an amount per LTIP Unit equal to the Common Unit Distribution.

(c) If a new or existing Partner acquires additional Partnership Units in exchange for a Capital Contribution on any date other than a Partnership Record Date, the cash distribution attributable to such additional Partnership Units relating to the Partnership Record Date next following the issuance of such additional Partnership Units shall be reduced in the proportion to (i) the number of days that such additional Partnership Units are held by such Partner bears to (ii) the number of days between such Partnership Record Date and the immediately preceding Partnership Record Date.

- 26 -

(d) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to a Partner or assignee (including by reason of Section 1446 of the Code), either (i) if the actual amount to be distributed to the Partner (the “Distributable Amount”) equals or exceeds the Withheld Amount, the entire Distributable Amount shall be treated as a distribution of cash to such Partner, or (ii) if the Distributable Amount is less than the Withheld Amount, the excess of the Withheld Amount over the Distributable Amount shall be treated as a Partnership Loan from the Partnership to the Partner on the day the Partnership pays over such amount to a taxing authority. A Partnership Loan shall be repaid upon the demand of the Partnership or, alternatively, through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee. In the event that a Limited Partner fails to pay any amount owed to the Partnership with respect to the Partnership Loan within 15 days after demand for payment thereof is made by the Partnership on the Limited Partner, the General Partner, in its sole and absolute discretion, may elect to make the payment to the Partnership on behalf of such Defaulting Limited Partner. In such event, on the date of payment, the General Partner shall be deemed to have extended a General Partner Loan to the Defaulting Limited Partner in the amount of the payment made by the General Partner and shall succeed to all rights and remedies of the Partnership against the Defaulting Limited Partner as to that amount. Without limitation, the General Partner shall have the right to receive any distributions that otherwise would be made by the Partnership to the Defaulting Limited Partner until such time as the General Partner Loan has been paid in full, and any such distributions so received by the General Partner shall be treated as having been received by the Defaulting Limited Partner and immediately paid to the General Partner.

Any amounts treated as a Partnership Loan or a General Partner Loan pursuant to this Section 5.02(d) shall bear interest at the lesser of (i) 300 basis points above the base rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal, or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date the Partnership or the General Partner, as applicable, is deemed to extend the loan until such loan is repaid in full.

(e) In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a cash dividend as the holder of record of a REIT Share for which all or part of such Partnership Unit has been or will be redeemed.

5.03 REIT Distribution Requirements. The General Partner shall use commercially reasonable efforts to cause the Partnership to distribute amounts sufficient to enable the General Partner to pay distributions to its shareholders that will allow the General Partner to (i) meet its distribution requirement for qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid any federal income or excise tax liability imposed by the Code, other than to the extent the General Partner elects to retain and pay income tax on its net capital gain.

5.04 No Right to Distributions in Kind. No Partner shall be entitled to demand property other than cash in connection with any distributions by the Partnership.

- 27 -

5.05 Limitations on Return of Capital Contributions. Notwithstanding any of the provisions of this Article V, no Partner shall have the right to receive, and the General Partner shall not have the right to make, a distribution that includes a return of all or part of a Partner’s Capital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership’s assets.

5.06 Distributions Upon Liquidation.

(a) Upon liquidation of the Partnership, after payment of, or adequate provision for, debts and obligations of the Partnership, including any Partner loans, any remaining assets of the Partnership shall be distributed to all Partners with positive Capital Accounts in accordance with their respective positive Capital Account balances.

(b) For purposes of Section 5.06(a) hereof, the Capital Account of each Partner shall be determined after the following adjustments: (i) all adjustments made in accordance with Sections 5.01 and 5.02 hereof resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership’s assets, and (ii) allocating to the General Partner an amount equal to the excess of (A) the value of the Partnership Units it received in exchange for Capital Contributions of the proceeds of an issuance of REIT Shares pursuant to Section 4.02(b) hereof over (B) the actual amount of its Capital Contributions pursuant to Section 4.02(b) hereof (i.e., as a result of any underwriters’ discount, commissions, placement fees or other expenses paid or incurred in connection with such issuance).

(c) Any distributions pursuant to this Section 5.06 shall be made by the end of the Partnership’s taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations.

5.07 Substantial Economic Effect. It is the intent of the Partners that the allocations of Profit and Loss under the Agreement have substantial economic effect (or be consistent with the Partners’ interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto. Article V and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent.

ARTICLE VI

RIGHTS, OBLIGATIONS AND

POWERS OF THE GENERAL PARTNER

6.01 Management of the Partnership.

(a) Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business and assets of the Partnership. Subject to the restrictions specifically contained in this Agreement, the powers of the General Partner shall include, without limitation, the authority to take the following actions on behalf of the Partnership:

- 28 -

(1) to acquire, purchase, own, operate, lease and dispose of any real property and any other property or assets including, but not limited to, notes and mortgages that the General Partner determines are necessary or appropriate in the business of the Partnership;

(2) to construct buildings and make other improvements on the properties owned or leased by the Partnership;

(3) to authorize, issue, sell, redeem or otherwise purchase any Partnership Units or any securities (including secured and unsecured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Units, or Rights relating to any class or series of Partnership Units) of the Partnership;

(4) to borrow or lend money for the Partnership, issue or receive evidences of indebtedness in connection therewith, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such indebtedness, and secure indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership’s assets;

(5) to pay, either directly or by reimbursement, for all operating costs and general administrative expenses of the Partnership to third parties or to the General Partner or its Affiliates as set forth in this Agreement;

(6) to guarantee or become a co-maker of indebtedness of any Subsidiary of the General Partner or the Partnership, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such guarantee or indebtedness, and secure such guarantee or indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership’s assets;

(7) to use assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with this Agreement, including, without limitation, payment, either directly or by reimbursement, of all operating costs and general and administrative expenses of the General Partner, the Partnership or any Subsidiary of either, to third parties or to the General Partner as set forth in this Agreement;

(8) to lease all or any portion of any of the Partnership’s assets, whether or not the terms of such leases extend beyond the termination date of the Partnership and whether or not any portion of the Partnership’s assets so leased are to be occupied by the lessee, or, in turn, subleased in whole or in part to others, for such consideration and on such terms as the General Partner may determine;

(9) to prosecute, defend, arbitrate or compromise any and all claims or liabilities in favor of or against the Partnership, on such terms and in such manner as the General Partner may reasonably determine, and similarly to prosecute, settle or defend litigation with respect to the Partners, the Partnership or the Partnership’s assets;

- 29 -

(10) to file applications, communicate and otherwise deal with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership’s assets or any other aspect of the Partnership’s business;

(11) to make or revoke any election permitted or required of the Partnership by any taxing authority;

(12) to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the protection of the Partnership, for the conservation of Partnership assets, or for any other purpose convenient or beneficial to the Partnership, in such amounts and such types, as it shall determine from time to time;

(13) to determine whether or not to apply any insurance proceeds for any property to the restoration of such property or to distribute the same;

(14) to establish one or more divisions of the Partnership, to hire and dismiss employees of the Partnership or any division of the Partnership, and to retain legal counsel, accountants, consultants, real estate brokers and such other persons as the General Partner may deem necessary or appropriate in connection with the Partnership business and to pay therefor such reasonable remuneration as the General Partner may deem reasonable and proper;

(15) to retain other services of any kind or nature in connection with the Partnership business, and to pay therefor such remuneration as the General Partner may deem reasonable and proper;

(16) to negotiate and conclude agreements on behalf of the Partnership with respect to any of the rights, powers and authority conferred upon the General Partner;

(17) to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of the Partnership;

(18) to distribute Partnership cash or other Partnership assets in accordance with this Agreement;

(19) to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity interest from time to time);

(20) to establish Partnership reserves for working capital, capital expenditures, contingent liabilities or any other valid Partnership purpose;

- 30 -

(21) to merge, consolidate or combine the Partnership with or into another person;

(22) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” taxable as a corporation under Section 7704 of the Code; and

(23) to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and perform any and all other acts that the General Partner deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Partnership (including, without limitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status) and to possess and enjoy all of the rights and powers of a general partner as provided by the Act.

(b) Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.

6.02 Delegation of Authority. The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervision of the General Partner, perform any acts or services for the Partnership as the General Partner may approve.

6.03 Indemnification and Exculpation of Indemnitees.

(a) The Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including reasonable legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 6.03(a). The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be made only out of the assets of the Partnership.

- 31 -

(b) The Partnership shall reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party to a proceeding in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 6.03 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

(c) The indemnification provided by this Section 6.03 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity.

(d) The Partnership may purchase and maintain insurance, as an expense of the Partnership, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

(e) For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 6.03; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is not opposed to the best interests of the Partnership.

(f) In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.

(g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.03 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

(h) The provisions of this Section 6.03 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons.

(i) Any amendment, modification or repeal of this Section 6.03 or any provision hereof shall be prospective only and shall not in any way affect the indemnification of an Indemnitee by the Partnership under this Section 6.03 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

- 32 -

6.04 Liability of the General Partner.

(a) Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner, nor any of its trustees, officers, agents or employees shall be liable for monetary damages to the Partnership or any Partners for losses sustained or liabilities incurred as a result of errors in judgment or mistakes of fact or law or of any act or omission if any such party acted in good faith. The General Partner shall not be in breach of any duty that the General Partner may owe to the Limited Partners or the Partnership or any other Persons under this Agreement or of any duty stated or implied by law or equity provided the General Partner, acting in good faith, abides by the terms of this Agreement.

(b) The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership and the General Partner’s shareholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or the tax consequences of some, but not all, of the Limited Partners) in deciding whether to cause the Partnership to take (or decline to take) any actions. In the event of a conflict between the interests of the shareholders of the General Partner on the one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the conflict in a manner not adverse to either the shareholders of the General Partner or the Limited Partners; provided, however, that for so long as the General Partner owns a controlling interest in the Partnership, any such conflict that the General Partner, in its sole and absolute discretion, determines cannot be resolved in a manner not adverse to either the shareholders of the General Partner or the Limited Partners shall be resolved in favor of the shareholders of the General Partner. The General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Limited Partners in connection with such decisions.

(c) Subject to its obligations and duties as General Partner set forth in Section 6.01 hereof, the General Partner may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.

(d) Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to continue to qualify as a REIT or (ii) to prevent the General Partner from incurring any taxes under Section 857, Section 4981 or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

- 33 -

(e) Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner’s or any of its officer’s, director’s, agent’s or employee’s liability to the Partnership and the Limited Partners under this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted.

6.05 Partnership Obligations.

(a) Except as provided in this Section 6.05 and elsewhere in this Agreement (including the provisions of Articles V and VI hereof regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.

(b) All Administrative Expenses shall be obligations of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditure (including Administrative Expenses) incurred by it on behalf of the Partnership that shall be made other than out of the funds of the Partnership.

6.06 Outside Activities. Subject to Section 6.08 hereof, the Declaration of Trust and any agreements entered into by the General Partner or its Affiliates with the Partnership or a Subsidiary, any officer, director, employee, agent, trustee, Affiliate or shareholder of the General Partner, the General Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar or identical to those of the Partnership. Neither the Partnership nor any of the Limited Partners shall have any rights by virtue of this Agreement in any such business ventures, interest or activities. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such business ventures, interests or activities, and the General Partner shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Limited Partner, even if such opportunity is of a character that, if presented to the Partnership or any Limited Partner, could be taken by such Person.

6.07 Employment or Retention of Affiliates.

(a) Any Affiliate of the General Partner may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent, lender or otherwise) and may receive from the Partnership any compensation, price or other payment therefor that the General Partner determines to be fair and reasonable.

(b) The Partnership may lend or contribute to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.

- 34 -

(c) The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are consistent with this Agreement and applicable law.

6.08 General Partner Activities. The General Partner agrees that, generally, all business activities of the General Partner, including activities pertaining to the acquisition, development, ownership of or investment in hotel properties or other property, shall be conducted through the Partnership or one or more Subsidiary Partnerships; provided, however, that the General Partner may make direct acquisitions or undertake business activities if such acquisitions or activities are made in connection with the issuance of Additional Securities by the General Partner or the business activity has been approved by a majority of the Independent Trustees.

6.09 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.

6.10 Redemption of General Partner’s Partnership Units. In the event the General Partner redeems or repurchases any REIT Shares, then the General Partner shall cause the Partnership to purchase from the General Partner a number of Partnership Units as determined based on the application of the Conversion Factor on the same terms that the General Partner redeemed such REIT Shares. Moreover, if the General Partner makes a cash tender offer or other offer to acquire REIT Shares, then the General Partner shall cause the Partnership to make a corresponding offer to the General Partner to acquire an equal number of Partnership Units held by the General Partner. In the event any REIT Shares are redeemed or repurchased by the General Partner pursuant to such offer, the Partnership shall redeem or repurchase an equivalent number of the General Partner’s Partnership Units for an equivalent purchase price based on the application of the Conversion Factor.

- 35 -

ARTICLE VII

CHANGES IN GENERAL PARTNER

7.01 Transfer of the General Partner’s Partnership Interest.

(a) The General Partner shall not transfer all or any portion of its General Partnership Interests, and the General Partner shall not withdraw as General Partner, except as provided in or in connection with a transaction contemplated by Sections 7.01(c), (d) or (e) hereof.

(b) The General Partner agrees that its General Partnership Interest will at all times be in the aggregate at least 0.1%.

(c) Except as otherwise provided in Section 7.01(d) or (e) hereof, the General Partner shall not engage in any merger, consolidation or other combination with or into another Person or sale of all or substantially all of its assets (other than in connection with a change in the General Partner’s state of incorporation or organizational form), in each case which results in a Change of Control of the General Partner (a “Transaction”), unless at least one of the following conditions is met:

(1) the consent of a Majority in Interest (other than the General Partner or any Subsidiary of the General Partner) is obtained;

(2) as a result of such Transaction, all Limited Partners (other than the General Partner and any Subsidiary of the General Partner) will receive, or have the right to receive, for each Partnership Unit an amount of cash, securities or other property equal in value to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid in the Transaction to a holder of one REIT Share in consideration of one REIT Share, provided that if, in connection with such Transaction, a purchase, tender or exchange offer (“Offer”) shall have been made to and accepted by the holders of more than 50% of the outstanding REIT Shares, each holder of Partnership Units (other than the General Partner and any Subsidiary of the General Partner) shall be given the option to exchange its Partnership Units for the greatest amount of cash, securities or other property that such Limited Partner would have received had it (A) exercised its Common Unit Redemption Right pursuant to Section 8.04 hereof and (B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received upon exercise of the Common Unit Redemption Right immediately prior to the expiration of the Offer; or

(3) the General Partner is the surviving entity in the Transaction and either (A) the holders of REIT Shares do not receive cash, securities or other property in the Transaction or (B) all Limited Partners (other than the General Partner or any Subsidiary of the General Partner) receive for each Partnership Unit an amount of cash, securities or other property (expressed as an amount per REIT Share) that is no less in value than the product of the Conversion Factor and the greatest amount of cash, securities or other property (expressed as an amount per REIT Share) received in the Transaction by any holder of REIT Shares.

- 36 -

(d) Notwithstanding Section 7.01(c) hereof, the General Partner may merge with or into or consolidate with another entity if immediately after such merger or consolidation (i) substantially all of the assets of the successor or surviving entity (the “Survivor”), other than Partnership Units held by the General Partner, are contributed, directly or indirectly, to the Partnership as a Capital Contribution in exchange for Partnership Units with a fair market value equal to the value of the assets so contributed as determined by the Survivor in good faith and (ii) the Survivor expressly agrees to assume all obligations of the General Partner hereunder. Upon such contribution and assumption, the Survivor shall have the right and duty to amend this Agreement as set forth in this Section 7.01(d). The Survivor shall in good faith arrive at a new method for the calculation of the Cash Amount, the REIT Shares Amount and Conversion Factor for a Partnership Unit after any such merger or consolidation so as to approximate the existing method for such calculation as closely as reasonably possible. Such calculation shall take into account, among other things, the kind and amount of securities, cash and other property that was receivable upon such merger or consolidation by a holder of REIT Shares or options, warrants or other rights relating thereto, and which a holder of Partnership Units could have acquired had such Partnership Units been exchanged immediately prior to such merger or consolidation. Such amendment to this Agreement shall provide for adjustment to such method of calculation, which shall be as nearly equivalent as may be practicable to the adjustments provided for with respect to the Conversion Factor. The Survivor also shall in good faith modify the definition of REIT Shares and make such amendments to Section 8.04 hereof so as to approximate the existing rights and obligations set forth in Section 8.04 hereof as closely as reasonably possible. The above provisions of this Section 7.01(d) shall similarly apply to successive mergers or consolidations permitted hereunder.

In respect of any transaction described in the preceding paragraph, the General Partner is required to use its commercially reasonable efforts to structure such transaction to avoid causing the Limited Partners (other than the General Partner or any Subsidiary) to recognize a gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with and subject in all respects to the exercise of the Board of Trustees’ fiduciary duties to the shareholders of the General Partner under applicable law.

(e) Notwithstanding anything in this Article VII,

(1) The General Partner may transfer all or any portion of its General Partnership Interest to (A) any wholly owned Subsidiary of the General Partner or (B) the owner of all of the ownership interests of the General Partner, and following a transfer of all of its General Partnership Interest, may withdraw as General Partner; and

(2) the General Partner may engage in a transaction required by law or by the rules of any national securities exchange or over-the-counter interdealer quotation system on which the REIT Shares are listed or traded.

- 37 -

7.02 Admission of a Substitute or Additional General Partner. A Person shall be admitted as a substitute or additional General Partner of the Partnership only if the following terms and conditions are satisfied:

(a) the Person to be admitted as a substitute or additional General Partner shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencing the admission of such Person as a General Partner shall have been filed for recordation and all other actions required by Section 2.05 hereof in connection with such admission shall have been performed;

(b) if the Person to be admitted as a substitute or additional General Partner is a corporation or a partnership, it shall have provided the Partnership with evidence satisfactory to counsel for the Partnership of such Person’s authority to become a General Partner and to be bound by the terms and provisions of this Agreement; and

(c) counsel for the Partnership shall have rendered an opinion (relying on such opinions from other counsel as may be necessary) that the admission of the Person to be admitted as a substitute or additional General Partner is in conformity with the Act, that none of the actions taken in connection with the admission of such Person as a substitute or additional General Partner will cause (i) the Partnership to be classified other than as a partnership for federal income tax purposes, or (ii) the loss of any Limited Partner’s limited liability.

7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of General Partner.

(a) Upon the occurrence of an Event of Bankruptcy as to the General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of the General Partner (except that, if the General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of the General Partner if the business of the General Partner is continued by the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner.

(b) Following the occurrence of an Event of Bankruptcy as to the General Partner (and its removal pursuant to Section 7.04(a) hereof) or the death, withdrawal, removal or dissolution of the General Partner (except that, if the General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such partnership shall be deemed not to be a dissolution of the General Partner if the business of such General Partner is continued by the remaining partner or partners), the Limited Partners, within 90 days after such occurrence, may elect to continue the business of the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof and any other provisions of this Agreement, a substitute General Partner by consent of a Majority in Interest. If the Limited Partners elect to continue the business of the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement.

- 38 -

7.04 Removal of General Partner.

(a) Upon the occurrence of an Event of Bankruptcy as to, or the dissolution of, the General Partner, the General Partner shall be deemed to be removed automatically; provided, however, that if the General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be deemed not to be a dissolution of the General Partner if the business of the General Partner is continued by the remaining partner or partners. The Limited Partners may not remove the General Partner, with or without cause.

(b) If the General Partner has been removed pursuant to this Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof, the General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership to the substitute General Partner approved by a Majority in Interest in accordance with Section 7.03(b) hereof and otherwise be admitted to the Partnership in accordance with Section 7.02 hereof. At the time of assignment, the removed General Partner shall be entitled to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General Partner as reduced by any damages caused to the Partnership by such General Partner. Such fair market value shall be determined by an appraiser mutually agreed upon by the General Partner and a Majority in Interest (excluding the General Partner and any Subsidiary of the General Partner) within ten days following the removal of the General Partner. In the event that the parties are unable to agree upon an appraiser, the removed General Partner and a Majority in Interest (excluding the General Partner and any Subsidiary of the General Partner) each shall select an appraiser. Each such appraiser shall complete an appraisal of the fair market value of the removed General Partner’s General Partnership Interest within 30 days of the General Partner’s removal, and the fair market value of the removed General Partner’s General Partnership Interest shall be the average of the two appraisals; provided, however, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiser who shall complete an appraisal of the fair market value of the removed General Partner’s General Partnership Interest no later than 60 days after the removal of the General Partner. In such case, the fair market value of the removed General Partner’s General Partnership Interest shall be the average of the two appraisals closest in value.

(c) The General Partnership Interest of a removed General Partner, during the time after default until transfer under Section 7.04(b) hereof, shall be converted to that of a special Limited Partner; provided, however, such removed General Partner shall not have any rights to participate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income, expense, profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to the Limited Partners. Instead, such removed General Partner shall receive and be entitled only to retain distributions or allocations of such items that it would have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b) hereof.

- 39 -

(d) All Partners shall have given and hereby do give such consents, shall take such actions and shall execute such documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section 7.04.

ARTICLE VIII

RIGHTS AND OBLIGATIONS

OF THE LIMITED PARTNERS

8.01 Management of the Partnership. The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner.

8.02 Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner its true and lawful attorney-in-fact, who may act for each Limited Partner and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance with their terms, including amendments hereto, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Limited Partner, or the transfer by the Limited Partner of any part or all of its Partnership Interest.

8.03 Limitation on Liability of Limited Partners. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership. A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution, if any, as and when due hereunder. After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership.

8.04 Common Unit Redemption Right.

(a) Subject to Sections 8.04(b), (c), (d), (e) and (f) hereof and the provisions of any agreements between the Partnership and one or more Limited Partners with respect to Common Units (including any LTIP Units that are converted into Common Units) held by them, each Limited Partner (other than the General Partner or any Subsidiary of the General Partner, shall have the right (the “Common Unit Redemption Right”) to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Common Units held by such Limited Partner at a redemption price equal to and in the form of the Common Redemption Amount to be paid by the Partnership, provided that such Common Units shall have been outstanding for at least one year (or such lesser time as determined by the General Partner in its sole and absolute discretion), and subject to any restriction agreed to in writing between the Redeeming Limited Partner and the General Partner. The Common Unit Redemption Right shall be exercised pursuant to a Notice of Exercise of Redemption Right in the form attached hereto as Exhibit B delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Common Unit Redemption Right (the “Redeeming Limited

- 40 -

Partner”); provided, however, that the Partnership shall, in its sole and absolute discretion, have the option to deliver either the Cash Amount or the REIT Shares Amount; provided, further, that the Partnership shall not be obligated to satisfy such Common Unit Redemption Right if the General Partner elects to purchase the Common Units subject to the Notice of Redemption; and provided, further, that no Limited Partner may deliver more than two Notices of Redemption during each calendar year. A Limited Partner may not exercise the Common Unit Redemption Right for less than one thousand (1,000) Common Units or, if such Limited Partner holds less than one thousand (1,000) Common Units, all of the Common Units held by such Limited Partner. The Redeeming Limited Partner shall have no right, with respect to any Common Units so redeemed, to receive any distribution paid with respect to Common Units if the record date for such distribution is on or after the Specified Redemption Date.

(b) Notwithstanding the provisions of Section 8.04(a) hereof, a Limited Partner that exercises the Common Unit Redemption Right shall be deemed to have offered to sell the Common Units described in the Notice of Redemption to the General Partner, and the General Partner may, in its sole and absolute discretion, elect to purchase directly and acquire such Common Units by paying to the Redeeming Limited Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner (in its sole and absolute discretion), on the Specified Redemption Date, whereupon the General Partner shall acquire the Common Units offered for redemption by the Redeeming Limited Partner and shall be treated for all purposes of this Agreement as the owner of such Common Units. If the General Partner shall elect to exercise its right to purchase Common Units under this Section 8.04(b) with respect to a Notice of Redemption, it shall so notify the Redeeming Limited Partner within five Business Days after the receipt by the General Partner of such Notice of Redemption.

In the event the General Partner shall exercise its right to purchase Common Units with respect to the exercise of a Common Unit Redemption Right, the Partnership shall have no obligation to pay any amount to the Redeeming Limited Partner with respect to such Redeeming Limited Partner’s exercise of such Common Unit Redemption Right, and each of the Redeeming Limited Partner, the Partnership and the General Partner shall treat the transaction between the General Partner and the Redeeming Limited Partner for federal income tax purposes as a sale of the Redeeming Limited Partner’s Common Units to the General Partner. Each Redeeming Limited Partner agrees to execute such documents as the General Partner may reasonably require in connection with the issuance of REIT Shares upon exercise of the Common Unit Redemption Right.

(c) Notwithstanding the provisions of Section 8.04(a) and 8.04(b) hereof, a Limited Partner shall not be entitled to exercise the Common Unit Redemption Right if the delivery of REIT Shares to such Limited Partner on the Specified Redemption Date by the General Partner pursuant to Section 8.04(b) hereof (regardless of whether or not the General Partner would in fact exercise its rights under Section 8.04(b) hereof) would (i) result in such Limited Partner or any other Person (as defined in the Declaration of Trust) owning, directly or indirectly, REIT Shares in excess of the Share Ownership Limit or any Excepted Holder Limit (each as defined in Declaration of Trust) and calculated in accordance therewith, except as provided in the Declaration of Trust, (ii) result in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), (iii) result in the General Partner being “closely held” within the meaning of Section 856(h) of the Code, (iv) cause the

- 41 -

General Partner to own, actually or constructively, 10% or more of the ownership interests in a tenant (other than a TRS) of the General Partner’s, the Partnership’s or a Subsidiary Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, (v) otherwise cause the General Partner to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any “eligible independent contractor” (as defined in Section 856(d)(9)(A) of the Code) that operates a “qualified lodging facility” (as defined in Section 856(d)(9)(D) of the Code) on behalf of a TRS failing to qualify as such, or (vi) cause the acquisition of REIT Shares by such Limited Partner to be “integrated” with any other distribution of REIT Shares or Common Units for purposes of complying with the registration provisions of the Securities Act. The General Partner, in its sole and absolute discretion, may waive the restriction on redemption set forth in this Section 8.04(c).

(d) Any Cash Amount to be paid to a Redeeming Limited Partner pursuant to this Section 8.04 shall be paid on the Specified Redemption Date; provided, however, that the General Partner may elect to cause the Specified Redemption Date to be delayed for up to an additional 90 days to the extent required for the General Partner to cause additional REIT Shares to be issued to provide financing to be used to make such payment of the Cash Amount. Any REIT Share Amount to be paid to a Redeeming Limited Partner pursuant to this Section 8.04 shall be paid on the Specified Redemption Date; provided, however, that the General Partner may elect to cause the Specified Redemption Date to be delayed for up to an additional 60 days to the extent required for the General Partner to cause additional REIT Shares to be issued. Notwithstanding the foregoing, the General Partner agrees to use its best efforts to cause the closing of the acquisition of redeemed Common Units hereunder to occur as quickly as reasonably possible.

(e) Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law that apply upon a Redeeming Limited Partner’s exercise of the Common Unit Redemption Right. If a Redeeming Limited Partner believes that it is exempt from such withholding upon the exercise of the Common Unit Redemption Right, such Partner must furnish the General Partner with a FIRPTA Certificate in the form attached hereto as Exhibit C. If the Partnership or the General Partner is required to withhold and pay over to any taxing authority any amount upon a Redeeming Limited Partner’s exercise of the Common Unit Redemption Right and if the Common Redemption Amount equals or exceeds the Withheld Amount, the Withheld Amount shall be treated as an amount received by such Partner in redemption of its Common Units. If, however, the Common Redemption Amount is less than the Withheld Amount, the Redeeming Limited Partner shall not receive any portion of the Common Redemption Amount, the Common Redemption Amount shall be treated as an amount received by such Partner in redemption of its Common Units, and the Partner shall contribute the excess of the Withheld Amount over the Common Redemption Amount to the Partnership before the Partnership is required to pay over such excess to a taxing authority.

(f) Notwithstanding any other provision of this Agreement, the General Partner shall place appropriate restrictions on the ability of the Limited Partners to exercise their Common Unit Redemption Rights as and if deemed necessary to ensure that the Partnership does not constitute a “publicly traded partnership” taxable as a corporation under Section 7704 of the

- 42 -

Code. If and when the General Partner determines that imposing such restrictions is necessary, the General Partner shall give prompt written notice thereof (a “Restriction Notice”) to each of the Limited Partners, which notice shall be accompanied by a copy of an opinion of counsel to the Partnership that states that, in the opinion of such counsel, restrictions are necessary in order to avoid the Partnership being treated as a “publicly traded partnership” under Section 7704 of the Code.

8.05 Registration. Subject to the terms of any agreement between the General Partner and a Limited Partner with respect to Common Units held by such Limited Partner:

(a) Shelf Registration of the REIT Shares. Following the date on which the General Partner becomes eligible to use a registration statement on Form S-3 for the registration of securities under the Securities Act (the “S-3 Eligible Date”) and within the time period that may be agreed by the General Partner and a Limited Partner (other than the General Partner or any Subsidiary of the General Partner), the General Partner shall file with the Commission a shelf registration statement under Rule 415 of the Securities Act (a “Registration Statement”), or any similar rule that may be adopted by the Commission, covering (i) the issuance of REIT Shares issuable upon redemption of the Common Units held by such Limited Partner (“Redemption Shares”) and/or (ii) the resale by the holder of the Redemption Shares, with respect to Common Units issued prior to the S-3 Eligible Date; provided, however, that the General Partner shall be required to file only two such registrations in any 12-month period. In connection therewith, the General Partner will:

(1) use its reasonable best efforts to have such Registration Statement declared effective;

(2) furnish to each holder of Redemption Shares such number of copies of prospectuses, and supplements or amendments thereto, and such other documents as such holder reasonably requests;

(3) register or qualify the Redemption Shares covered by the Registration Statement under the securities or blue sky laws of such jurisdictions within the United States as any holder of Redemption Shares shall reasonably request, and do such other reasonable acts and things as may be required of it to enable such holders to consummate the sale or other disposition in such jurisdictions of the Redemption Shares; provided, however, that the General Partner shall not be required to (i) qualify as a foreign corporation or consent to a general or unlimited service or process in any jurisdictions in which it would not otherwise be required to be qualified or so consent or (ii) qualify as a dealer in securities; and

(4) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission.

The General Partner further agrees to supplement or make amendments to each Registration Statement, if required by the rules, regulations or instructions applicable to the registration form utilized by the General Partner or by the Securities Act or rules and regulations thereunder for such Registration Statement. Each Limited Partner agrees to furnish to the General Partner, upon request, such information with respect to the Limited Partner as may be required to complete and file the Registration Statement.

- 43 -

In connection with and as a condition to the General Partner’s obligations with respect to the filing of a Registration Statement pursuant to this Section 8.05, each Limited Partner agrees with the General Partner that:

(x) it will not offer or sell its Redemption Shares until (A) such Redemption Shares have been included in a Registration Statement and (B) it has received copies of a prospectus, and any supplement or amendment thereto, as contemplated by Section 8.05(a) hereof, and receives notice that the Registration Statement covering such Redemption Shares, or any post-effective amendment thereto, has been declared effective by the Commission;

(y) if the General Partner determines in its good faith judgment, after consultation with counsel, that the use of the Registration Statement, including any post-effective amendment thereto, or the use of any prospectus contained in such Registration Statement would require the disclosure of important information that the General Partner has a bona fide business purpose for preserving as confidential or the disclosure of which would impede the General Partner’s ability to consummate a significant transaction, upon written notice of such determination by the General Partner, the rights of each Limited Partner to offer, sell or distribute its Redemption Shares pursuant to such Registration Statement or prospectus or to require the General Partner to take action with respect to the registration or sale of any Redemption Shares pursuant to a Registration Statement (including any action contemplated by this Section 8.05) will be suspended until the date upon which the General Partner notifies such Limited Partner in writing (which notice shall be deemed sufficient if given through the issuance of a press release) that suspension of such rights for the grounds set forth in this paragraph is no longer necessary; provided, however, that the General Partner may not suspend such rights for an aggregate period of more than 90 days in any 12-month period; and

(z) in the case of the registration of any underwritten equity offering proposed by the General Partner (other than any registration by the General Partner on Form S-8, or a successor or substantially similar form, of (A) an employee share option, share purchase or compensation plan or of securities issued or issuable pursuant to any such plan or (B) a dividend reinvestment plan), each Limited Partner will agree, if requested in writing by the managing underwriter or underwriters administering such offering, not to effect any offer, sale or distribution of any REIT Shares or Redemption Shares (or any option or right to acquire REIT Shares or Redemption Shares) during the period commencing on the tenth day prior to the expected effective date (which date shall be stated in such notice) of the registration statement covering such underwritten primary equity offering or, if such offering shall be a “take-down” from an effective shelf registration statement, the tenth day prior to the expected commencement date (which date shall be stated in such notice) of such offering, and ending on the date specified by such managing underwriter in such written request to the Limited Partners; provided, however, that no Limited Partner shall be required to agree not to effect any offer, sale or distribution of its Redemption Shares for a period of time that is longer than the greater of 90 days or the period of time for which any senior executive of the General Partner is required so to agree in connection with such offering. Nothing in this paragraph shall be read to limit the ability of any Limited Partner to redeem its Common Units in accordance with the terms of this Agreement.

- 44 -

(b) Listing on Securities Exchange. If the General Partner lists or maintains the listing of REIT Shares on any securities exchange or national market system, it shall, at its expense and as necessary to permit the registration and sale of the Redemption Shares hereunder, list thereon, maintain and, when necessary, increase such listing to include such Redemption Shares.

(c) Registration Not Required. Notwithstanding the foregoing, the General Partner shall not be required to file or maintain the effectiveness of a registration statement relating to Redemption Shares after the first date upon which, in the opinion of counsel to the General Partner, all of the Redemption Shares covered thereby could be sold by the holders thereof pursuant to Rule 144 under the Securities Act, or any successor rule thereto.

(d) Allocation of Expenses. The Partnership shall pay all expenses in connection with the Registration Statement, including without limitation (i) all expenses incident to filing with the Financial Industry Regulatory Authority, Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal fees and expenses, except to the extent holders of Redemption Shares elect to engage accountants or attorneys in addition to the accountants and attorneys engaged by the General Partner or the Partnership, which fees and expenses for such accountants or attorneys shall be for the account of the holders of the Redemption Shares, (v) accounting expenses incident to or required by any such registration or qualification and (vi) expenses of complying with the securities or blue sky laws of any jurisdictions in connection with such registration or qualification; provided, however, neither the Partnership nor the General Partner shall be liable for (A) any discounts or commissions to any underwriter or broker attributable to the sale of Redemption Shares, or (B) any fees or expenses incurred by holders of Redemption Shares in connection with such registration that, according to the written instructions of any regulatory authority, the Partnership or the General Partner is not permitted to pay.

(e) Indemnification.

(1) In connection with the Registration Statement, the General Partner and the Partnership agree to indemnify holders of Redemption Shares within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any untrue, or alleged untrue, statement of a material fact contained in the Registration Statement, preliminary prospectus or prospectus (as amended or supplemented if the General Partner shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement, alleged untrue statement, omission, or alleged omission based upon information furnished to the General Partner by the Limited Partner of the holder for use therein. The General Partner and each officer, director and controlling person of the General Partner and the Partnership shall be indemnified by each Limited Partner or holder of Redemption Shares covered by

- 45 -

the Registration Statement for all such losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any untrue, or alleged untrue, statement or any omission, or alleged omission, based upon information furnished to the General Partner by the Limited Partner or the holder for use therein.

(2) Promptly upon receipt by a party indemnified under this Section 8.05(e) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 8.05(e), such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure to so notify the indemnifying party shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8.05(e) unless such failure shall materially adversely affect the defense of such action. In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the reasonable fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the indemnifying party agrees to pay the same, (ii) the indemnifying party fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) have been advised by such counsel that representation of such indemnified party and the indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (in which case the indemnified party shall have the right to separate counsel and the indemnifying party shall pay the reasonable fees and expenses of such separate counsel, provided that, the indemnifying party shall not be liable for more than one separate counsel). No indemnifying party shall be liable for any settlement entered into without its consent.

(f) Contribution.

(1) If for any reason the indemnification provisions contemplated by Section 8.05(e) hereof are either unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then the party that would otherwise be required to provide indemnification or the indemnifying party (in either case, for purposes of this Section 8.05(f), the “Indemnifying Party”) in respect of such losses, claims, damages or liabilities, shall contribute to the amount paid or payable by the party that would otherwise be entitled to indemnification or the indemnified party (in either case, for purposes of this Section 8.05(f), the “Indemnified Party”) as a result of such losses, claims, damages, liabilities or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related

- 46 -

to information supplied by the Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party.

(2) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8.05(f) were determined by pro rata allocation (even if the holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person or entity determined to have committed a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

(3) The contribution provided for in this Section 8.05(f) shall survive the termination of this Agreement and shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party.

ARTICLE IX

TRANSFERS OF PARTNERSHIP INTERESTS

9.01 Purchase for Investment.

(a) Each Limited Partner, by its signature below or by its subsequent admission to the Partnership, hereby represents and warrants to the General Partner and to the Partnership that the acquisition of such Limited Partner’s Partnership Units is made for investment purposes only and not with a view to the resale or distribution of such Partnership Units.

(b) Subject to the provisions of Section 9.02 hereof, each Limited Partner agrees that such Limited Partner will not sell, assign or otherwise transfer such Limited Partner’s Partnership Units or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to any Person who does not make the representations and warranties to the General Partner set forth in Section 9.01(a) hereof.

9.02 Restrictions on Transfer of Partnership Units.

(a) Subject to the provisions of Sections 9.02(b), (c) and (d) hereof, no Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all or any portion of such Limited Partner’s Partnership Units, or any of such Limited Partner’s economic rights as a Limited Partner, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively, a “Transfer”) without the consent of the General Partner, which consent may be granted or withheld in its sole and absolute discretion. The General Partner may require, as a condition of any Transfer to which it consents, that the transferor assume all costs incurred by the Partnership in connection therewith.

- 47 -

(b) No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer (i.e., a Transfer consented to as contemplated by clause (a) above or clause (c) below or a Transfer pursuant to Section 9.05 hereof) of all of such Limited Partner’s Partnership Units pursuant to this Article IX or pursuant to a redemption of all of such Limited Partner’s Common Units pursuant to Section 8.04 hereof. Upon the permitted Transfer or redemption of all of a Limited Partner’s Common Units, such Limited Partner shall cease to be a Limited Partner.

(c) Subject to Sections 9.02(d), (e) and (f) hereof, a Limited Partner may Transfer, with the consent of the General Partner, all or a portion of such Limited Partner’s Partnership Units to such Limited Partner’s (i) parent or parent’s spouse, (ii) spouse, (iii) natural or adopted descendant or descendants, (iv) spouse of such Limited Partner’s descendant, (v) brother or sister, (vi) trust created by such Limited Partner for the primary benefit of such Limited Partner and/or any such Person(s) described in (i) through (v) above, of which trust such Limited Partner or any such Person(s) or bank or other commercial entity in the business of acting as a fiduciary in its ordinary course of business and having an equity capitalization of at least $100,000,000 is a trustee, (vii) a corporation, partnership or limited liability company controlled by a Person or Persons named in (i) through (v) above, or (viii) if the Limited Partner is an entity, its beneficial owners.

(d) No Limited Partner may effect a Transfer of its Partnership Units, in whole or in part, if, in the opinion of legal counsel for the Partnership, such proposed Transfer would require the registration of the Partnership Units under the Securities Act or would otherwise violate any applicable federal or state securities or blue sky law (including investment suitability standards).

(e) No Transfer by a Limited Partner of its Partnership Units, in whole or in part, may be made to any Person if (i) in the opinion of legal counsel for the Partnership, such Transfer would result in the Partnership being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the opinion of legal counsel for the Partnership, it would adversely affect the ability of the General Partner to continue to qualify as a REIT or subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code or (iii) such Transfer is effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code.

(f) Any purported Transfer in contravention of any of the provisions of this Article IX shall be void ab initio and ineffectual and shall not be binding upon, or recognized by, the General Partner or the Partnership.

(g) Prior to the consummation of any Transfer under this Article IX, the transferor and/or the transferee shall deliver to the General Partner such opinions, certificates and other documents as the General Partner shall request in connection with such Transfer.

- 48 -

9.03 Admission of Substitute Limited Partner.

(a) Subject to the other provisions of this Article IX, an assignee of the Partnership Units of a Limited Partner (which shall be understood to include any purchaser, transferee, donee or other recipient of any disposition of such Partnership Units) shall be deemed admitted as a Limited Partner of the Partnership only with the consent of the General Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion, and upon the satisfactory completion of the following:

(1) The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised Exhibit A, and such other documents or instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner.

(2) To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have been signed, acknowledged and filed in accordance with the Act.

(3) The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a) hereof and the representations and warranties set forth in Section 9.01(b) hereof.

(4) If the assignee is a corporation, partnership or trust, the assignee shall have provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee’s authority to become a Limited Partner under the terms and provisions of this Agreement.

(5) The assignee shall have executed a power of attorney containing the terms and provisions set forth in Section 8.02 hereof.

(6) The assignee shall have paid all legal fees and other expenses of the Partnership and the General Partner and filing and publication costs in connection with its substitution as a Limited Partner.

(7) The assignee shall have obtained the prior written consent of the General Partner to its admission as a Substitute Limited Partner, which consent may be given or denied in the exercise of the General Partner’s sole and absolute discretion.

(b) For the purpose of allocating Profits and Losses and distributing cash received by the Partnership, a Substitute Limited Partner shall be treated as having become, and appearing in the records of the Partnership as, a Partner upon the filing of the Certificate described in Section 9.03(a)(2) hereof or, if no such filing is required, the later of the date specified in the transfer documents or the date on which the General Partner has received all necessary instruments of transfer and substitution.

(c) The General Partner and the Substitute Limited Partner shall cooperate with each other by preparing the documentation required by this Section 9.03 and making all official filings and publications. The Partnership shall take all such action as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited Partner of the Partnership.

- 49 -

9.04 Rights of Assignees of Partnership Units.

(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except as required by operation of law, the Partnership shall not be obligated for any purposes whatsoever to recognize the assignment by any Limited Partner of its Partnership Units until the Partnership has received notice thereof.

(b) Any Person who is the assignee of all or any portion of a Limited Partner’s Partnership Units, but does not become a Substitute Limited Partner and desires to make a further assignment of such Partnership Units, shall be subject to all the provisions of this Article IX to the same extent and in the same manner as any Limited Partner desiring to make an assignment of its Partnership Units.

9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the death of a Limited Partner or a final adjudication that a Limited Partner is incompetent (which term shall include, but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate or, if such Limited Partner dies, such Limited Partner’s executor, administrator or trustee, or, if such Limited Partner is finally adjudicated incompetent, such Limited Partner’s committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing such Limited Partner’s estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of such Limited Partner’s Partnership Units and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner.

9.06 Joint Ownership of Partnership Units. A Partnership Unit may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are married or are related and share the same home as tenants in common. The written consent or vote of both owners of any such jointly held Partnership Unit shall be required to constitute the action of the owners of such Partnership Unit; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactory to the counsel for the Partnership that the actions of a single joint owner can bind both owners under the applicable laws of the state of residence of such joint owners. Upon the death of one owner of a Partnership Unit held in a joint tenancy with a right of survivorship, the Partnership Unit shall become owned solely by the survivor as a Limited Partner and not as an assignee. The Partnership need not recognize the death of one of the owners of a jointly-held Partnership Unit until it shall have received notice of such death. Upon notice to the General Partner from either owner, the General Partner shall cause the Partnership Unit to be divided into two equal Partnership Units, which shall thereafter be owned separately by each of the former owners.

- 50 -

ARTICLE X

BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS

10.01 Books and Records. At all times during the continuance of the Partnership, the General Partner shall keep or cause to be kept at the Partnership’s specified office true and complete books of account in accordance with generally accepted accounting principles, including: (a) a current list of the full name and last known business address of each Partner, (b) a copy of the Certificate Limited Partnership and all certificates of amendment thereto, (c) copies of the Partnership’s federal, state and local income tax returns and reports, (d) copies of this Agreement and any financial statements of the Partnership for the three most recent years and (e) all documents and information required under the Act. Any Partner or its duly authorized representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours.

10.02 Custody of Partnership Funds; Bank Accounts.

(a) All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking or brokerage institutions as the General Partner shall determine, and withdrawals shall be made only on such signature or signatures as the General Partner may, from time to time, determine.

(b) All deposits and other funds not needed in the operation of the business of the Partnership may be invested by the General Partner. The funds of the Partnership shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an investment in those investment companies permitted by this Section 10.02(b).

10.03 Fiscal and Taxable Year. The fiscal and taxable year of the Partnership shall be the calendar year unless otherwise required by the Code.

10.04 Annual Tax Information and Report. Within 75 days after the end of each fiscal year of the Partnership, the General Partner shall furnish to each person who was a Limited Partner at any time during such year the tax information necessary to file such Limited Partner’s individual tax returns as shall be reasonably required by law.

10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.

(a) The General Partner shall be the Tax Matters Partner of the Partnership. As Tax Matters Partner, the General Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. The General Partner shall have the right to retain professional assistance in respect of any audit of the Partnership by the Service and all out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner’s reasons for determining not to file such a petition.

- 51 -

(b) All elections required or permitted to be made by the Partnership under the Code or any applicable state or local tax law shall be made by the General Partner in its sole and absolute discretion.

(c) In the event of a transfer of all or any part of the Partnership Interest of any Partner, the Partnership, at the option of the General Partner, may elect pursuant to Section 754 of the Code to adjust the basis of the Properties. Notwithstanding anything contained in Article V of this Agreement, any adjustments made pursuant to Section 754 shall affect only the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or computing Capital Accounts for the other Partners for any purpose under this Agreement. Each Partner will furnish the Partnership with all information necessary to give effect to such election.

The Partners, intending to be legally bound, hereby authorize the Partnership to make an election (the “Safe Harbor Election”) to have the “liquidation value” safe harbor provided in Proposed Treasury Regulation § 1.83-3(1) and the Proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43, as such safe harbor may be modified when such proposed guidance is issued in final form or as amended by subsequently issued guidance (the “Safe Harbor”), apply to any interest in the Partnership transferred to a service provider while the Safe Harbor Election remains effective, to the extent such interest meets the Safe Harbor requirements (collectively, such interests are referred to as “Safe Harbor Interests”). The Tax Matters Partner is authorized and directed to execute and file the Safe Harbor Election on behalf of the Partnership and the Partners. The Partnership and the Partners (including any person to whom an interest in the Partnership is transferred in connection with the performance of services) hereby agree to comply with all requirements of the Safe Harbor (including forfeiture allocations) with respect to all Safe Harbor Interests and to prepare and file all U.S. federal income tax returns reporting the tax consequences of the issuance and vesting of Safe Harbor Interests consistent with such final Safe Harbor guidance. The Partnership is also authorized to take such actions as are necessary to achieve, under the Safe Harbor, the effect that the election and compliance with all requirements of the Safe Harbor referred to above would be intended to achieve under Proposed Treasury Regulation § 1.83-3, including amending this Agreement.

10.06 Reports to Limited Partners.

(a) If the General Partner is required to furnish an annual report to its shareholders containing financial statements of the General Partner, the General Partner will, at the same time and in the same manner, furnish such annual report to each Limited Partner.

(b) Any Partner shall further have the right to a private audit of the books and records of the Partnership, provided that such audit is made for Partnership purposes, at the expense of the Partner desiring it and is made during normal business hours.

- 52 -

ARTICLE XI

AMENDMENT OF AGREEMENT; MERGER

11.01 Amendment of Agreement.

The General Partner’s consent shall be required for any amendment to this Agreement. The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect; provided, however, that the following amendments shall require the consent of a Majority in Interest (other than the General Partner or any Subsidiary of the General Partner):

(a) any amendment affecting the operation of the Conversion Factor or the Common Unit Redemption Right (except as otherwise provided herein) in a manner that adversely affects the Limited Partners;

(b) any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof;

(c) any amendment that would alter the Partnership’s allocations of Profit and Loss to the Limited Partners, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02 hereof;

(d) any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership; or

(e) any amendment to this Article XI.

11.02 Merger of Partnership.

The General Partner, without the consent of the Limited Partners, may (i) merge or consolidate the Partnership with or into any other domestic or foreign partnership, limited partnership, limited liability company or corporation or (ii) sell all or substantially all of the assets of the Partnership in a transaction pursuant to Sections 7.01(c) or (d) hereof and may amend this Agreement in connection with any such transaction consistent with the provisions of this Article XI; provided, however, that the consent of a Majority in Interest (other than the General Partner or any Subsidiary of the General Partner) shall be required in the case of (a) the merger or consolidation of the Partnership with or into any other domestic or foreign partnership, limited partnership, limited liability company or corporation or (b) sale of all or substantially all of the assets of the Partnership in a transaction that is not pursuant to Sections 7.01(c) or (d) hereof.

ARTICLE XII

GENERAL PROVISIONS

12.01 Notices. All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon deposit in

- 53 -

the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addresses set forth in Exhibit A attached hereto, as it may be amended or restated from time to time; provided, however, that any Partner may specify a different address by notifying the General Partner in writing of such different address. Notices to the General Partner and the Partnership shall be delivered at or mailed to its office address set forth in Section 2.03 hereof. The General Partner and the Partnership may specify a different address by notifying the Limited Partners in writing of such different address.

12.02 Survival of Rights. Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns.

12.03 Additional Documents. Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents that may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act.

12.04 Severability. If any provision of this Agreement shall be declared illegal, invalid or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.

12.05 Entire Agreement. This Agreement and exhibits attached hereto constitute the entire Agreement of the Partners and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.

12.06 Pronouns and Plurals. When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require.

12.07 Headings. The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article.

12.08 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.

12.09 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

[SIGNATURE PAGE FOLLOWS]

- 54 -

IN WITNESS WHEREOF, the parties hereto have hereunder affixed their signatures to this First Amended and Restated Agreement of Limited Partnership, on the respective dates shown, effective as of the 10th day of January, 2010.

GENERAL PARTNER: PEBBLEBROOK HOTEL TRUST
By:	/S/ JON E. BORTZ
	Name: Jon E. Bortz
	Title: Chairman, President and           Chief Executive Officer
Date: May 6, 2010

- 55 -

LIMITED PARTNERS: PEBBLEBROOK HOTEL TRUST
	/S/ JON E. BORTZ
	Name: Jon E. Bortz
	Title:   Chairman, President and             Chief Executive Officer

Date: May 6, 2010

/S/ JON E. BORTZ

Jon E. Bortz

Date: May 6, 2010

/S/ RAYMOND D. MARTZ

Raymond D. Martz

Date: May 6, 2010

/S/ ANDREW H. DITTAMO

Andrew H. Dittamo

Date: May 6, 2010

- 56 -

LIMITED PARTNER:

/S/ THOMAS C. FISHER

Thomas C. Fisher

Date: May 6, 2010

- 57 -

EXHIBIT A

Partners, Capital Contributions and Percentage Interests

Exhibit A-1

EXHIBIT B

NOTICE OF EXERCISE OF REDEMPTION RIGHT

In accordance with Section 8.04 of the Agreement of Limited Partnership (the “Agreement”) of Pebblebrook Hotel, L.P., the undersigned hereby irrevocably (i) presents for redemption             Common Units in Pebblebrook Hotel, L.P. in accordance with the terms of the Agreement and the Common Unit Redemption Right referred to in Section 8.04 thereof, (ii) surrenders such Common Units and all right, title and interest therein and (iii) directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Common Unit Redemption Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below.

Dated:                          ,
	(Signature of Limited Partner)
Name of Limited Partner:
	(Mailing Address)
	(City) (State) (Zip Code)
	Signature Guaranteed by:

If REIT Shares are to be issued, issue to:

Please insert social security or identifying number:

Name:

Exhibit B-1

EXHIBIT C-1

CERTIFICATION OF NON-FOREIGN STATUS

(FOR REDEEMING LIMITED PARTNERS THAT ARE ENTITIES)

Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the “Code”), in the event of a disposition by a non-U.S. person of a partnership interest in a partnership in which (i) 50% or more of the value of the gross assets consists of United States real property interests (“USRPIs”), as defined in Section 897(c) of the Code, and (ii) 90% or more of the value of the gross assets consists of USRPIs, cash, and cash equivalents, the transferee will be required to withhold 10% of the amount realized by the non-U.S. person upon the disposition. To inform Pebblebrook Hotel Trust (the “General Partner”) and Pebblebrook Hotel, L.P. (the “Partnership”) that no withholding is required with respect to the redemption by             (“Partner”) of its Common Units in the Partnership, the undersigned hereby certifies the following on behalf of Partner:

1. Partner is not a foreign corporation, foreign partnership, foreign trust, or foreign estate, as those terms are defined in the Code and the Treasury regulations thereunder.

2. Partner is not a disregarded entity as defined in Treasury Regulation Section 1.1445-2(b)(2)(iii).

3. The U.S. employer identification number of Partner is             .

4. The principal business address of Partner is:             ,             and Partner’s place of incorporation is             .

5. Partner agrees to inform the General Partner if it becomes a foreign person at any time during the three-year period immediately following the date of this notice.

6. Partner understands that this certification may be disclosed to the Internal Revenue Service by the General Partner and that any false statement contained herein could be punished by fine, imprisonment, or both.

PARTNER:

By:

        Name:

        Title:

Exhibit C-1-1

Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of Partner.

Date:	Name:
	Title:

Exhibit C-1-2

EXHIBIT C-2

CERTIFICATION OF NON-FOREIGN STATUS

(FOR REDEEMING LIMITED PARTNERS THAT ARE INDIVIDUALS)

Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the “Code”), in the event of a disposition by a non-U.S. person of a partnership interest in a partnership in which (i) 50% or more of the value of the gross assets consists of United States real property interests (“USRPIs”), as defined in Section 897(c) of the Code, and (ii) 90% or more of the value of the gross assets consists of USRPIs, cash, and cash equivalents, the transferee will be required to withhold 10% of the amount realized by the non-U.S. person upon the disposition. To inform Pebblebrook Hotel Trust (the “General Partner”) and Pebblebrook Hotel, L.P. (the “Partnership”) that no withholding is required with respect to my redemption of my Common Units in the Partnership, I,                     , hereby certify the following:

1. I am not a nonresident alien for purposes of U.S. income taxation.

2. My U.S. taxpayer identification number (social security number) is                    .

3. My home address is:                                             .

4. I agree to inform the General Partner promptly if I become a nonresident alien at any time during the three-year period immediately following the date of this notice.

5. I understand that this certification may be disclosed to the Internal Revenue Service by the General Partner and that any false statement contained herein could be punished by fine, imprisonment, or both.

Name:

Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct, and complete.

Date:
	Name:
	Title:

Exhibit C-2-1

EXHIBIT D

NOTICE OF ELECTION BY PARTNER TO CONVERT

LTIP UNITS INTO COMMON UNITS

The undersigned holder of LTIP Units hereby irrevocably (i) elects to convert the number of LTIP Units in Pebblebrook Hotel, L.P. (the “Partnership”) set forth below into Common Units in accordance with the terms of the Agreement of Limited Partnership of the Partnership, as amended; and (ii) directs that any cash in lieu of Common Units that may be deliverable upon such conversion be delivered to the address specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent to or approval of all persons or entities, if any, having the right to consent or approve such conversion.

Name of Holder:
	(Please Print: Exact Name as Registered with Partnership)

Number of LTIP Units to be Converted:                                                                       

Date of this Notice:                                                                               

        (Signature of Holder: Sign Exact Name as Registered with Partnership)

        (Street Address)

(City) (State) (Zip Code)

        Signature Guaranteed by:

Exhibit D-1

EXHIBIT E

NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF

LTIP UNITS INTO COMMON UNITS

Pebblebrook Hotel, L.P. (the “Partnership”) hereby irrevocably elects to cause the number of LTIP Units held by the holder of LTIP Units set forth below to be converted into Common Units in accordance with the terms of the Agreement of Limited Partnership of the Partnership, as amended.

Name of Holder:
	(Please Print: Exact Name as Registered with Partnership)

Number of LTIP Units to be Converted:                                                           

Date of this Notice:                                                                   

Exhibit E-1

FIRST AMENDMENT TO THE

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP OF

PEBBLEBROOK HOTEL, L.P.

DESIGNATION OF 7.875% SERIES A

CUMULATIVE REDEEMABLE PREFERRED UNITS

March 11, 2011

Pursuant to Section 4.02 and Article XI of the First Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P. (the “Partnership Agreement”), the General Partner hereby amends the Partnership Agreement as follows in connection with the issuance of 5,000,000 shares of 7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (the “Series A Preferred Shares”) of Pebblebrook Hotel Trust and the issuance to the General Partner of Series A Preferred Units (as defined below) in exchange for the contribution by the General Partner of the net proceeds from the issuance and sale of the Series A Preferred Shares:

1. Designation and Number. A series of Preferred Units (as defined below), designated the “7.875% Series A Cumulative Redeemable Preferred Units” (the “Series A Preferred Units”), is hereby established. The number of authorized Series A Preferred Units shall be 5,000,000.

2. Defined Terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Partnership Agreement. The following defined terms used in this Amendment to the Partnership Agreement shall have the meanings specified below:

“Articles Supplementary” means the Articles Supplementary of the General Partner filed with the State Department of Assessments and Taxation of the State of Maryland on March 9, 2011, designating the terms, rights and preferences of the Series A Preferred Shares.

“Base Liquidation Preference” shall have the meaning provided in Section 6(a).

“Common Share” means one common share of beneficial interest of the General Partner.

“Distribution Record Date” shall have the meaning provided in Section 5(a).

“Junior Preferred Units” shall have the meaning provided in Section 4.

“Net Operating Income” shall have the meaning provided in Section 10(f).

“Parity Preferred Units” shall have the meaning provided in Section 4.

“Partnership Agreement” shall have the meaning provided in the recital above.

“Preferred Units” means all Partnership Interests designated as preferred units by the General Partner from time to time in accordance with Section 4.02 of the Partnership Agreement.

“Senior Preferred Units” shall have the meaning provided in Section 4.

“Series A Preferred Return” shall have the meaning provided in Section 5(a).

“Series A Preferred Shares” shall have the meaning provided in the recital above.

“Series A Preferred Unit Distribution Payment Date” shall have the meaning provided in Section 5(a).

“Series A Preferred Units” shall have the meaning provided in Section 1.

“Special Optional Redemption Right” shall have the meaning provided in the Articles Supplementary.

3. Maturity. The Series A Preferred Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption.

4. Rank. The Series A Preferred Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership, rank (a) prior or senior to all classes or series of Common Units of the Partnership and to all classes or series of Preferred Units ranking junior to the Series A Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership (the “Junior Preferred Units”); (b) on a parity with all classes or series of Preferred Units issued by the Partnership, the terms of which specifically provide that such Preferred Units rank on a parity with the Series A Preferred Units with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership (the “Parity Preferred Units”); (c) junior to all classes or series of Preferred Units issued by the Partnership, the terms of which specifically provide that such Preferred Units rank senior to the Series A Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership (the “Senior Preferred Units”); and (d) junior to all existing and future indebtedness of the Partnership. The term “Preferred Units” does not include convertible debt securities of the Partnership, which shall rank senior to the Series A Preferred Units prior to conversion.

5. Distributions.

(a) Holders of the Series A Preferred Units shall be entitled to receive, when and as authorized by the General Partner, and declared by the Partnership out of funds of the Partnership legally available for payment, preferential cumulative cash distributions at the rate of 7.875% per annum of the Base Liquidation Preference (as defined below) per unit (equivalent to a fixed annual amount of $1.96875 per unit) (the “Series A Preferred Return”). Such distributions shall be cumulative from the date of original issue and shall be payable quarterly, in equal amounts, on or before the 15^th day of January, April, July and October of each year (or, if not a business day, the next succeeding business day, each a “Series A Preferred Unit Distribution Payment Date”) for the period ending on such Series A Preferred Unit Distribution Payment Date, commencing on April 15, 2011. “Business day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. Any quarterly distribution payable on the Series A Preferred Units for any partial distribution period will be computed on the basis of twelve 30-day months

2

and a 360-day year. Distributions will be payable in arrears to holders of record of the Series A Preferred Units as they appear on the records of the Partnership at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Series A Preferred Unit Distribution Payment Date occurs or such other date designated by the General Partner of the Partnership for the payment of distributions that is not more than 90 nor less than 10 days prior to such Series A Preferred Unit Distribution Payment Date (each, a “Distribution Record Date”).

(b) No distribution on the Series A Preferred Units shall be authorized by the General Partner or declared or paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the General Partner or the Partnership, including any agreement relating to the indebtedness of either of them, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, distributions on the Series A Preferred Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared and whether or not such is prohibited by agreement. Accumulated but unpaid distributions on the Series A Preferred Units will accumulate as of the Series A Preferred Unit Distribution Date on which they become payable or on the date of redemption, as the case may be. Accrued but unpaid distributions on the Series A Preferred Units will not bear interest and holders of the Series A Preferred Units will not be entitled to any distributions in excess of full cumulative distributions described above. Except as set forth in the next sentence, no distributions will be declared or paid or set apart for payment on any Common Units, Parity Preferred Units or Junior Preferred Units of the Partnership (other than a distribution in Common Units or Junior Preferred Units) for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Units for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Units and any Parity Preferred Units, all distributions declared upon the Series A Preferred Units and any Parity Preferred Units shall be declared pro rata so that the amount of distributions declared per Series A Preferred Unit and such Parity Preferred Units shall in all cases bear to each other the same ratio that accrued distributions per Series A Preferred Unit and such Parity Preferred Units (which shall not include any accrual in respect of unpaid distributions for prior distribution periods if such Parity Preferred Units do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series A Preferred Units which may be in arrears.

(d) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series A Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Units or Junior Preferred Units of the Partnership) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the

3

Common Units, Parity Preferred Units, or Junior Preferred Units, nor shall any Common Units, Parity Preferred Units, or Junior Preferred Units be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Partnership (except (i) by conversion into or exchange for Common Units or Junior Preferred Units of the Partnership, (ii) in connection with the redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the General Partner for officers, trustees or employees or others performing or providing similar services, or (iii) by other redemption, purchase or acquisition of such equity securities by the General Partner for the purpose of preserving the General Partner’s status as a REIT). Holders of Series A Preferred Units shall not be entitled to any distribution, whether payable in cash, property or stock, in excess of full cumulative distributions on the Series A Preferred Units as provided above. Any distribution made on the Series A Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to such shares which remains payable.

(e) In determining whether a distribution (other than upon voluntary or involuntary liquidation) by distribution, redemption or other acquisition of the Partnership Units or otherwise is permitted under Delaware law, no effect shall be given to the amounts that would be needed, if the Partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of Partnership Units whose preferential rights are superior to those receiving the distribution.

6. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Partnership, the holders of the Series A Preferred Units are entitled to be paid out of the assets of the Partnership legally available for distribution to its Partners a liquidation preference of (x) $25 per Series A Preferred Unit (the “Base Liquidation Preference”), plus an amount equal to all accumulated and unpaid distributions to, but not including, the date of the redemption, in cash or property at its fair market value as determined by the General Partner before any distribution of assets is made to Common Units or Junior Preferred Units.

(b) If upon any liquidation, dissolution or winding up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of Series A Preferred Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Preferred Units and any such other Parity Preferred Units ratably in the same proportion as the respective amounts that would be payable on such Series A Preferred Units and any such other Parity Preferred Units if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Partnership, after payment shall have been made in full to the holders of the Series A Preferred Units and any Parity Preferred Units, any other series or class or classes of Junior Preferred Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Preferred Units and any Parity Preferred Units shall not be entitled to share therein.

4

(d) None of a consolidation or merger of the Partnership with or into another entity, a merger of another entity with or into the Partnership, or a sale, lease or conveyance of all or substantially all of the Partnership’s property or business shall be considered a liquidation, dissolution or winding up of the affairs of the Partnership.

7. Redemption.

(a) Except as described in this section 7, the Series A Preferred Units are not redeemable prior to March 11, 2016. On and after March 11, 2016, the Partnership, at its option, upon not less than 30 nor more than 60 days’ written notice, may redeem the Series A Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Base Liquidation Preference, per Series A Preferred Unit, plus all accrued and unpaid distributions thereon to, but not including, the date fixed for redemption (the “Redemption Date”), without interest. No Series A Preferred Units may be redeemed except with assets legally available for the payment of the redemption price.

Holders of Series A Preferred Units to be redeemed shall surrender such Series A Preferred Units at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid distributions payable upon such redemption following such surrender. If notice of redemption of any of the Series A Preferred Units has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Partnership in trust for the pro rata benefit of the holders of any Series A Preferred Units so called for redemption, then from and after the redemption date distributions will cease to accrue on such Series A Preferred Units, such Series A Preferred Units shall no longer be deemed outstanding and all rights of the holders of such Series A Preferred Units will terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Preferred Units are to be redeemed, the Series A Preferred Units to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares), by lot or by any other equitable method determined by the Partnership.

(b) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series A Preferred Units shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Units shall be redeemed unless all outstanding Series A Preferred Units are simultaneously redeemed and the Partnership shall not purchase or otherwise acquire directly or indirectly any Series A Preferred Units (except by exchange for Common Units or Junior Preferred Units of the Partnership); provided, however, that the foregoing shall not prevent a redemption or purchase in connection with a redemption or purchase by the General Partner of Series A Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the General Partner remains qualified as a REIT for federal income tax purposes or pursuant to the terms of the Articles Supplementary, or the purchase or acquisition of Series A Preferred Units pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Units. In addition, unless full cumulative distributions on all Series A Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Units shall be purchased or otherwise

5

acquired directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series A Preferred Units (except by exchange for Common Units or Junior Preferred Units of the Partnership); provided, however, that the foregoing shall not prevent any purchase or acquisition of Series A Preferred Units for the purpose of preserving the General Partner’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Units) or in connection with a redemption by the General Partner of Series A Preferred Shares in accordance with the terms of the Articles Supplementary.

(c) Notice of redemption of the Series A Preferred Units shall be mailed by the Partnership to each holder of record of the Series A Preferred Units to be redeemed by first class mail, postage prepaid at such holder’s address as the same appears on the records of the Partnership. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Units except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the Redemption Date; (ii) the redemption price; (iii) the number of Series A Preferred Units to be redeemed; and (iv) the place or places where the Series A Preferred Units are to be surrendered for payment of the redemption price.

(d) Immediately prior to or upon any redemption of Series A Preferred Units, the Partnership shall pay, in cash, any accumulated and unpaid distributions up to, but not including, the Redemption Date, unless a Redemption Date falls after a Distribution Record Date and prior to the corresponding Series A Preferred Unit Distribution Payment Date, in which case each holder of Series A Preferred Units at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Series A Preferred Unit Distribution Payment Date notwithstanding the redemption of such shares before such Series A Preferred Unit Distribution Payment Date. Except as provided above, the Partnership will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Units for which a notice of redemption has been given.

(e) Notwithstanding anything to the contrary contained herein, the Partnership may redeem one Series A Preferred Unit for each Series A Preferred Share purchased in the open market, through tender or by private agreement by the General Partner.

(f) All Series A Preferred Units redeemed, purchased or otherwise acquired by the Partnership in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Units, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Units in accordance with the applicable provisions of the Partnership Agreement.

(g) Notwithstanding anything to the contrary contained herein, the Partnership may redeem Series A Preferred Units at any time in connection with any redemption by the General Partner of the Series A Preferred Shares.

8. Voting Rights. Holders of the Series A Preferred Units will not have any voting rights.

6

9. Conversion. The Series A Preferred Units are not convertible or exchangeable for any other property or securities, except as provided herein.

(a) In the event that a holder of Series A Preferred Shares of the General Partner exercises its right to convert the Series A Preferred Shares into Common Shares of the General Partner in accordance with the terms of the Articles Supplementary, then, concurrently therewith, an equivalent number of Series A Preferred Units of the Partnership held by the General Partner shall be automatically converted into a number of Common Units of the Partnership equal to the number of Common Shares issued upon conversion of such Series A Preferred Shares; provided, however, that if a holder of Series A Preferred Shares of the General Partner receives cash or other consideration in addition to or in lieu of Common Shares in connection with such conversion, then the General Partner, as the holder of the Series A Preferred Units, shall be entitled to receive cash or such other consideration equal (in amount and form) to the cash or other consideration to be paid by the General Partner to such holder of the Series A Preferred Shares. Any such conversion will be effective at the same time the conversion of Series A Preferred Shares into Common Shares is effective.

(b) No fractional units will be issued in connection with the conversion of Series A Preferred Units into Common Units. In lieu of fractional Common Units, the General Partner shall be entitled to receive a cash payment in respect of any fractional unit in an amount equal to the fractional interest multiplied by the closing price of a Common Share on the date the Series A Preferred Shares are surrendered for conversion by a holder thereof.

10. Allocation of Profit and Loss.

Article V, Section 5.01 of the Partnership Agreement is hereby deleted in its entirety and the following new Section 5.01 is inserted in its place:

(a) Profit. After giving effect to the special allocations set forth in Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Profit of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(b) Loss. After giving effect to the special allocations set forth in Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Loss of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(c) Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a “nonrecourse deduction” within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Partners’ respective Percentage Interests, (ii) any expense of the Partnership that is a “partner nonrecourse deduction” within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that bears the “economic risk of loss” of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and

7

income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). The manner in which it is reasonably expected that the deductions attributable to nonrecourse liabilities will be allocated for purposes of determining a Partner’s share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be in accordance with a Partner’s Percentage Interest.

(d) Qualified Income Offset. If a Partner receives in any taxable year an adjustment, allocation or distribution described in subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Partner’s Capital Account that exceeds the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(d).

(e) Capital Account Deficits. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner’s Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(e), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to each Partner under this Section 5.01(e).

(f) Priority Allocations With Respect To Series A Preferred Units. After giving effect to the allocations set forth in Sections 5.01(c), (d), and (e) hereof, but before giving effect to the allocations set forth in Sections 5.01(a) and 5.01(b), Net Operating Income shall be allocated to the General Partner until the aggregate amount of Net Operating Income allocated to the General Partner under this Section 5.01(f) for the current and all prior years equals the aggregate amount of the Series A Preferred Return paid to the General Partner for the current and all prior years; provided, however, that the General Partner may, in its discretion, allocate Net Operating Income based on accrued Series A Preferred Return with respect to the January Series A Preferred Unit Distribution Payment Date if the General Partner sets the Distribution Record Date for such Series A Distribution Payment Date on or prior to December 31 of the previous year. For purposes of this Section 5.01(f), “Net Operating Income” means the excess, if any, of the Partnership’s gross income over its expenses (but not taking into account depreciation, amortization, or any other noncash expenses of the Partnership), calculated in accordance with the principles of Section 5.01(i) hereof.

8

(g) Special Allocations Regarding LTIP Units.

(1) Notwithstanding the provisions of Section 5.01(a) and 5.01(b), Liquidating Gains shall be allocated as follows:

(A) First, to the General Partner and the Limited Partners, except to the extent that a Limited Partner’s interest is attributable to the Limited Partner’s ownership of LTIP Units, to the extent of and in proportion to the amount, if any, by which the balances of the General Partner’s and Limited Partners’ Capital Accounts are less than the balances of the General Partner’s and Limited Partners’ Capital Accounts as of the date on which any LTIP Units were issued, in each case without regard to the Limited Partners’ LTIP Capital Account Balances;

(B) Second, to the LTIP Unitholders individually in proportion to and to the extent of the amount, if any, by which an LTIP Unitholder’s LTIP Capital Account Balance is less than (a) the Common Unit Economic Balance multiplied by (b) the number of the LTIP Unitholder’s LTIP Units; and

(C) Third, to the Partners in accordance with their respective Percentage Interests.

(2) The Partners agree that the intent of Section 5.01(g)(1)(A) is to make the Capital Account balance associated with each LTIP Unit be economically equivalent to the Capital Account balance associated with the General Partner’s Common Units (on a per-Unit basis), but only to the extent that there are sufficient Liquidating Gains available.

(3) For the avoidance of doubt, allocations of Liquidating Gains shall be made after all other allocations pursuant to Section 5.01 (including allocations pursuant to the Minimum Gain Chargeback provisions of Section 5.01(c)).

(h) Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership’s fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss between the transferor and the transferee Partner.

9

(i) Definition of Profit and Loss. “Profit” and “Loss” and any items of income, gain, expense or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 5.01(c), 5.01(d), 5.01(e), or 5.01(f). All allocations of income, Profit, gain, Loss and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). With respect to properties acquired by the Partnership, the General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain and expense as required by Section 704(c) of the Code with respect to such properties, and such election shall be binding on all Partners.

11. Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the General Partner hereby ratifies and confirms.

10

IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date first set forth above.

GENERAL PARTNER: PEBBLEBROOK HOTEL TRUST, a Maryland real estate investment trust
By:	/s/ RAYMOND D. MARTZ
Name: Title:	Raymond D. Martz Executive Vice President, Chief Financial Officer, Treasurer & Secretary

SECOND AMENDMENT TO THE

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP OF

PEBBLEBROOK HOTEL, L.P.

DESIGNATION OF ADDITIONAL 7.875% SERIES A

CUMULATIVE REDEEMABLE PREFERRED UNITS

August 5, 2011

Pursuant to Section 4.02 and Article XI of the First Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P. (the “Partnership Agreement”), the General Partner hereby amends the Partnership Agreement as follows:

1. Designation and Number. The number of authorized Series A Preferred Units shall be 9,000,000.

2. Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the General Partner hereby ratifies and confirms.

IN WITNESS WHEREOF, the undersigned has executed this Second Amendment to the First Amended and Restated Agreement of Limited Partnership as of the date first set forth above, effective as of the 11th day of July, 2011.

GENERAL PARTNER: PEBBLEBROOK HOTEL TRUST, a Maryland real estate investment trust
By:	/s/ RAYMOND D. MARTZ
Name: Title:	Raymond D. Martz Executive Vice President, Chief Financial Officer, Treasurer & Secretary

THIRD AMENDMENT TO THE

FIRST AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP OF

PEBBLEBROOK HOTEL, L.P.

DESIGNATION OF 8.00% SERIES B

CUMULATIVE REDEEMABLE PREFERRED UNITS

September 20, 2011

Pursuant to Section 4.02 and Article XI of the First Amended and Restated Agreement of Limited Partnership of Pebblebrook Hotel, L.P. (the “Partnership Agreement”), the General Partner hereby amends the Partnership Agreement as follows in connection with the issuance of 3,400,000 shares of 8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (the “Series B Preferred Shares”) of Pebblebrook Hotel Trust and the issuance to the General Partner of Series B Preferred Units (as defined below) in exchange for the contribution by the General Partner of the net proceeds from the issuance and sale of the Series B Preferred Shares:

1. Designation and Number. A series of Preferred Units (as defined below), designated the “8.00% Series B Cumulative Redeemable Preferred Units” (the “Series B Preferred Units”), is hereby established. The number of authorized Series B Preferred Units shall be 3,400,000.

2. Defined Terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Partnership Agreement. The following defined terms used in this Amendment to the Partnership Agreement shall have the meanings specified below:

“Articles Supplementary” means the Articles Supplementary of the General Partner filed with the State Department of Assessments and Taxation of the State of Maryland on September 19, 2011, designating the terms, rights and preferences of the Series B Preferred Shares.

“Base Liquidation Preference” shall have the meaning provided in Section 6(a).

“Common Share” means one common share of beneficial interest of the General Partner.

“Distribution Record Date” shall have the meaning provided in Section 5(a).

“Junior Preferred Units” shall have the meaning provided in Section 4.

“Net Operating Income” shall have the meaning provided in Section 10(f).

“Parity Preferred Units” shall have the meaning provided in Section 4.

“Partnership Agreement” shall have the meaning provided in the recital above.

“Preferred Units” means all Partnership Interests designated as preferred units by the General Partner from time to time in accordance with Section 4.02 of the Partnership Agreement.

“Senior Preferred Units” shall have the meaning provided in Section 4.

“Series B Preferred Return” shall have the meaning provided in Section 5(a).

“Series B Preferred Shares” shall have the meaning provided in the recital above.

“Series B Preferred Unit Distribution Payment Date” shall have the meaning provided in Section 5(a).

“Series B Preferred Units” shall have the meaning provided in Section 1.

“Special Optional Redemption Right” shall have the meaning provided in the Articles Supplementary.

3. Maturity. The Series B Preferred Units have no stated maturity and will not be subject to any sinking fund or mandatory redemption.

4. Rank. The Series B Preferred Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership, rank (a) prior or senior to all classes or series of Common Units of the Partnership and to all classes or series of Preferred Units ranking junior to the Series B Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership (the “Junior Preferred Units”); (b) on a parity with the 7.875% Series A Cumulative Redeemable Preferred Units and all other classes or series of Preferred Units issued by the Partnership, the terms of which specifically provide that such Preferred Units rank on a parity with the Series B Preferred Units with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Partnership (the “Parity Preferred Units”); (c) junior to all classes or series of Preferred Units issued by the Partnership, the terms of which specifically provide that such Preferred Units rank senior to the Series B Preferred Units with respect to distribution rights or rights upon liquidation, dissolution or winding up of the Partnership (the “Senior Preferred Units”); and (d) junior to all existing and future indebtedness of the Partnership. The term “Preferred Units” does not include convertible debt securities of the Partnership, which shall rank senior to the Series B Preferred Units prior to conversion.

5. Distributions.

(a) Holders of the Series B Preferred Units shall be entitled to receive, when and as authorized by the General Partner, and declared by the Partnership out of funds of the Partnership legally available for payment, preferential cumulative cash distributions at the rate of 8.00% per annum of the Base Liquidation Preference (as defined below) per unit (equivalent to a fixed annual amount of $2.00 per unit) (the “Series B Preferred Return”). Such distributions shall be cumulative from the date of original issue and shall be payable quarterly, in equal amounts, on or before the 15^th day of January, April, July and October of each year (or, if not a business day, the next succeeding business day, each a “Series B Preferred Unit Distribution Payment Date”) for the period ending on such Series B Preferred Unit Distribution Payment Date, commencing on October 17, 2011. “Business day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. Any quarterly distribution payable on the Series B Preferred Units

2

for any partial distribution period will be computed on the basis of twelve 30-day months and a 360-day year. Distributions will be payable in arrears to holders of record of the Series B Preferred Units as they appear on the records of the Partnership at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Series B Preferred Unit Distribution Payment Date occurs or such other date designated by the General Partner of the Partnership for the payment of distributions that is not more than 90 nor less than 10 days prior to such Series B Preferred Unit Distribution Payment Date (each, a “Distribution Record Date”).

(b) No distribution on the Series B Preferred Units shall be authorized by the General Partner or declared or paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the General Partner or the Partnership, including any agreement relating to the indebtedness of either of them, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, distributions on the Series B Preferred Units will accrue whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared and whether or not such is prohibited by agreement. Accumulated but unpaid distributions on the Series B Preferred Units will accumulate as of the Series B Preferred Unit Distribution Date on which they become payable or on the date of redemption, as the case may be. Accrued but unpaid distributions on the Series B Preferred Units will not bear interest and holders of the Series B Preferred Units will not be entitled to any distributions in excess of full cumulative distributions described above. Except as set forth in the next sentence, no distributions will be declared or paid or set apart for payment on any Common Units, Parity Preferred Units or Junior Preferred Units of the Partnership (other than a distribution in Common Units or Junior Preferred Units) for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series B Preferred Units for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Units and any Parity Preferred Units, all distributions declared upon the Series B Preferred Units and any Parity Preferred Units shall be declared pro rata so that the amount of distributions declared per Series B Preferred Unit and such Parity Preferred Units shall in all cases bear to each other the same ratio that accrued distributions per Series B Preferred Unit and such Parity Preferred Units (which shall not include any accrual in respect of unpaid distributions for prior distribution periods if such Parity Preferred Units do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series B Preferred Units which may be in arrears.

(d) Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series B Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Units or Junior Preferred Units of the Partnership) shall be declared or

3

paid or set aside for payment nor shall any other distribution be declared or made upon the Common Units, Parity Preferred Units, or Junior Preferred Units, nor shall any Common Units, Parity Preferred Units, or Junior Preferred Units be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Partnership (except (i) by conversion into or exchange for Common Units or Junior Preferred Units of the Partnership, (ii) in connection with the redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the General Partner for officers, trustees or employees or others performing or providing similar services, or (iii) by other redemption, purchase or acquisition of such equity securities by the General Partner for the purpose of preserving the General Partner’s status as a REIT). Holders of Series B Preferred Units shall not be entitled to any distribution, whether payable in cash, property or stock, in excess of full cumulative distributions on the Series B Preferred Units as provided above. Any distribution made on the Series B Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to such shares which remains payable.

(e) In determining whether a distribution (other than upon voluntary or involuntary liquidation) by distribution, redemption or other acquisition of the Partnership Units or otherwise is permitted under Delaware law, no effect shall be given to the amounts that would be needed, if the Partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of Partnership Units whose preferential rights are superior to those receiving the distribution.

6. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Partnership, the holders of the Series B Preferred Units are entitled to be paid out of the assets of the Partnership legally available for distribution to its Partners a liquidation preference of (x) $25 per Series B Preferred Unit (the “Base Liquidation Preference”), plus an amount equal to all accumulated and unpaid distributions to, but not including, the date of the redemption, in cash or property at its fair market value as determined by the General Partner before any distribution of assets is made to Common Units or Junior Preferred Units.

(b) If upon any liquidation, dissolution or winding up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of Series B Preferred Units shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B Preferred Units and any such other Parity Preferred Units ratably in the same proportion as the respective amounts that would be payable on such Series B Preferred Units and any such other Parity Preferred Units if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Partnership, after payment shall have been made in full to the holders of the Series B Preferred Units and any Parity Preferred Units, any other series or class or classes of Junior Preferred Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series B Preferred Units and any Parity Preferred Units shall not be entitled to share therein.

4

(d) None of a consolidation or merger of the Partnership with or into another entity, a merger of another entity with or into the Partnership, or a sale, lease or conveyance of all or substantially all of the Partnership’s property or business shall be considered a liquidation, dissolution or winding up of the affairs of the Partnership.

7. Redemption.

(a) Except as described in this section 7, the Series B Preferred Units are not redeemable prior to September 21, 2016. On and after September 21, 2016, the Partnership, at its option, upon not less than 30 nor more than 60 days’ written notice, may redeem the Series B Preferred Units, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Base Liquidation Preference, per Series B Preferred Unit, plus all accrued and unpaid distributions thereon to, but not including, the date fixed for redemption (the “Redemption Date”), without interest. No Series B Preferred Units may be redeemed except with assets legally available for the payment of the redemption price.

Holders of Series B Preferred Units to be redeemed shall surrender such Series B Preferred Units at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid distributions payable upon such redemption following such surrender. If notice of redemption of any of the Series B Preferred Units has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Partnership in trust for the pro rata benefit of the holders of any Series B Preferred Units so called for redemption, then from and after the redemption date distributions will cease to accrue on such Series B Preferred Units, such Series B Preferred Units shall no longer be deemed outstanding and all rights of the holders of such Series B Preferred Units will terminate, except the right to receive the redemption price. If less than all of the outstanding Series B Preferred Units are to be redeemed, the Series B Preferred Units to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares), by lot or by any other equitable method determined by the Partnership.

(b) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series B Preferred Units shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Units shall be redeemed unless all outstanding Series B Preferred Units are simultaneously redeemed and the Partnership shall not purchase or otherwise acquire directly or indirectly any Series B Preferred Units (except by exchange for Common Units or Junior Preferred Units of the Partnership); provided, however, that the foregoing shall not prevent a redemption or purchase in connection with a redemption or purchase by the General Partner of Series B Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the General Partner remains qualified as a REIT for federal income tax purposes or pursuant to the terms of the Articles Supplementary, or the purchase or acquisition of Series B Preferred Units pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Units. In addition, unless full cumulative distributions on all Series B Preferred Units have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Units shall be purchased or otherwise

5

acquired directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series B Preferred Units (except by exchange for Common Units or Junior Preferred Units of the Partnership); provided, however, that the foregoing shall not prevent any purchase or acquisition of Series B Preferred Units for the purpose of preserving the General Partner’s status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Units) or in connection with a redemption by the General Partner of Series B Preferred Shares in accordance with the terms of the Articles Supplementary.

(c) Notice of redemption of the Series B Preferred Units shall be mailed by the Partnership to each holder of record of the Series B Preferred Units to be redeemed by first class mail, postage prepaid at such holder’s address as the same appears on the records of the Partnership. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Preferred Units except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the Redemption Date; (ii) the redemption price; (iii) the number of Series B Preferred Units to be redeemed; and (iv) the place or places where the Series B Preferred Units are to be surrendered for payment of the redemption price.

(d) Immediately prior to or upon any redemption of Series B Preferred Units, the Partnership shall pay, in cash, any accumulated and unpaid distributions up to, but not including, the Redemption Date, unless a Redemption Date falls after a Distribution Record Date and prior to the corresponding Series B Preferred Unit Distribution Payment Date, in which case each holder of Series B Preferred Units at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Series B Preferred Unit Distribution Payment Date notwithstanding the redemption of such shares before such Series B Preferred Unit Distribution Payment Date. Except as provided above, the Partnership will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Units for which a notice of redemption has been given.

(e) Notwithstanding anything to the contrary contained herein, the Partnership may redeem one Series B Preferred Unit for each Series B Preferred Share purchased in the open market, through tender or by private agreement by the General Partner.

(f) All Series B Preferred Units redeemed, purchased or otherwise acquired by the Partnership in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Units, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Units in accordance with the applicable provisions of the Partnership Agreement.

(g) Notwithstanding anything to the contrary contained herein, the Partnership may redeem Series B Preferred Units at any time in connection with any redemption by the General Partner of the Series B Preferred Shares.

8. Voting Rights. Holders of the Series B Preferred Units will not have any voting rights.

6

9. Conversion. The Series B Preferred Units are not convertible or exchangeable for any other property or securities, except as provided herein.

(a) In the event that a holder of Series B Preferred Shares of the General Partner exercises its right to convert the Series B Preferred Shares into Common Shares of the General Partner in accordance with the terms of the Articles Supplementary, then, concurrently therewith, an equivalent number of Series B Preferred Units of the Partnership held by the General Partner shall be automatically converted into a number of Common Units of the Partnership equal to the number of Common Shares issued upon conversion of such Series B Preferred Shares; provided, however, that if a holder of Series B Preferred Shares of the General Partner receives cash or other consideration in addition to or in lieu of Common Shares in connection with such conversion, then the General Partner, as the holder of the Series B Preferred Units, shall be entitled to receive cash or such other consideration equal (in amount and form) to the cash or other consideration to be paid by the General Partner to such holder of the Series B Preferred Shares. Any such conversion will be effective at the same time the conversion of Series B Preferred Shares into Common Shares is effective.

(b) No fractional units will be issued in connection with the conversion of Series B Preferred Units into Common Units. In lieu of fractional Common Units, the General Partner shall be entitled to receive a cash payment in respect of any fractional unit in an amount equal to the fractional interest multiplied by the closing price of a Common Share on the date the Series B Preferred Shares are surrendered for conversion by a holder thereof.

10. Allocation of Profit and Loss.

Article V, Section 5.01 of the Partnership Agreement is hereby deleted in its entirety and the following new Section 5.01 is inserted in its place:

(a) Profit. After giving effect to the special allocations set forth in Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Profit of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(b) Loss. After giving effect to the special allocations set forth in Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Loss of the Partnership for each fiscal year of the Partnership shall be allocated to the Partners in accordance with their respective Percentage Interests.

(c) Minimum Gain Chargeback. Notwithstanding any provision to the contrary, (i) any expense of the Partnership that is a “nonrecourse deduction” within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Partners’ respective Percentage Interests, (ii) any expense of the Partnership that is a “partner nonrecourse deduction” within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that bears the “economic risk of loss” of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and

7

income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). The manner in which it is reasonably expected that the deductions attributable to nonrecourse liabilities will be allocated for purposes of determining a Partner’s share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be in accordance with a Partner’s Percentage Interest.

(d) Qualified Income Offset. If a Partner receives in any taxable year an adjustment, allocation or distribution described in subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Partner’s Capital Account that exceeds the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(d).

(e) Capital Account Deficits. Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner’s Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Partner’s shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the General Partner. After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(e), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to each Partner under this Section 5.01(e).

(f) Priority Allocations With Respect To Preferred Units. After giving effect to the allocations set forth in Sections 5.01(c), (d), and (e) hereof, but before giving effect to the allocations set forth in Sections 5.01(a) and 5.01(b), Net Operating Income shall be allocated to the General Partner until the aggregate amount of Net Operating Income allocated to the General Partner under this Section 5.01(f) for the current and all prior years equals the aggregate amount of the Series A Preferred Return and the Series B Preferred Return paid to the General Partner for the current and all prior years; provided, however, that the General Partner may, in its discretion, allocate Net Operating Income based on accrued Series A Preferred Return and Series B Preferred Return with respect to the January Series A Preferred Unit Distribution Payment Date and Series B Preferred Unit Distribution Payment Date if the General Partner sets the Distribution Record Date for such Series A Distribution Payment Date or Series B Distribution Payment Date on or prior to December 31 of the previous year. For purposes of this Section 5.01(f), “Net Operating Income” means the excess, if any, of the Partnership’s gross income over its expenses (but not taking into account depreciation, amortization, or any other noncash expenses of the Partnership), calculated in accordance with the principles of Section 5.01(i) hereof.

8

(g) Special Allocations Regarding LTIP Units.

(1) Notwithstanding the provisions of Section 5.01(a) and 5.01(b), Liquidating Gains shall be allocated as follows:

(A) First, to the General Partner and the Limited Partners, except to the extent that a Limited Partner’s interest is attributable to the Limited Partner’s ownership of LTIP Units, to the extent of and in proportion to the amount, if any, by which the balances of the General Partner’s and Limited Partners’ Capital Accounts are less than the balances of the General Partner’s and Limited Partners’ Capital Accounts as of the date on which any LTIP Units were issued, in each case without regard to the Limited Partners’ LTIP Capital Account Balances;

(B) Second, to the LTIP Unitholders individually in proportion to and to the extent of the amount, if any, by which an LTIP Unitholder’s LTIP Capital Account Balance is less than (a) the Common Unit Economic Balance multiplied by (b) the number of the LTIP Unitholder’s LTIP Units; and

(C) Third, to the Partners in accordance with their respective Percentage Interests.

(2) The Partners agree that the intent of Section 5.01(g)(1)(A) is to make the Capital Account balance associated with each LTIP Unit be economically equivalent to the Capital Account balance associated with the General Partner’s Common Units (on a per-Unit basis), but only to the extent that there are sufficient Liquidating Gains available.

(3) For the avoidance of doubt, allocations of Liquidating Gains shall be made after all other allocations pursuant to Section 5.01 (including allocations pursuant to the Minimum Gain Chargeback provisions of Section 5.01(c)).

(h) Allocations Between Transferor and Transferee. If a Partner transfers any part or all of its Partnership Interest, the distributive shares of the various items of Profit and Loss allocable among the Partners during such fiscal year of the Partnership shall be allocated between the transferor and the transferee Partner either (i) as if the Partnership’s fiscal year had ended on the date of the transfer, or (ii) based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners. The General Partner, in its sole and absolute discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss between the transferor and the transferee Partner.

9

(i) Definition of Profit and Loss. “Profit” and “Loss” and any items of income, gain, expense or loss referred to in this Agreement shall be determined in accordance with federal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 5.01(c), 5.01(d), 5.01(e), or 5.01(f). All allocations of income, Profit, gain, Loss and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). With respect to properties acquired by the Partnership, the General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain and expense as required by Section 704(c) of the Code with respect to such properties, and such election shall be binding on all Partners.

11. Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the General Partner hereby ratifies and confirms.

10

IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date first set forth above.

GENERAL PARTNER: PEBBLEBROOK HOTEL TRUST, a Maryland real estate investment trust
By:	/s/ RAYMOND D. MARTZ
Name: Title:	Raymond D. Martz Executive Vice President, Chief Financial Officer, Treasurer & Secretary

[Signature page for Amendment re: Series B Preferred Units—September 2011]

EX-12.1

EXHIBIT 12.1

PEBBLEBROOK HOTEL TRUST

STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

	Year Ended December 31, 2011			Year Ended December 31, 2010			For the period October  2, 2009 (inception) through December 31, 2009
				(In Thousands)
Earnings
Add:
Pre-tax income (loss) from continuing operations before adjustment for income or loss from equity investees	$	13,427		$	(6,722	)	$	(147	)
Fixed charges		25,269			1,688			—
Amortization of capitalized interest		—			—			—
Distributed income of equity investees		—			—			—
Company share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges		—			—			—
Total added Items:		38,696			(5,034	)		(147	)
Subtract:
Interest capitalized		—			—			—
Preference security dividend requirements of consolidated subsidiaries		(10,427	)		—			—
Noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges		—			—			—
Total Earnings	$	28,269		$	(5,034	)	$	(147	)
Fixed Charges
Add:
Interest Expensed	$	12,098			1,225			—
Interest Capitalized		—			—			—
Amortized premiums, discounts and capitalized expenses related to indebtedness		1,555			415			—
Estimate of the Interest within rental expense		1,189			48			—
Total Fixed Charges		14,842			1,688			—
Preference security dividend requirements of consolidated subsidiaries		10,427			—			—
Combined Fixed Charges and Preferred Share Dividends	$	25,269		$	1,688			—
Ratio of Earnings to Fixed Charges and Preferred Share Dividends		1.12	(1)		—	(2)		—	(3)

(1) The total amount of combined fixed charges and preferred share dividends for this period was approximately $25,269,000 and the total amount of earnings was approximately $28,269,000. On March 11, 2011, we issued 5,000,000 7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share (“Series A Preferred Shares”), and preferred share distributions from that date through December 31, 2011 are included in fixed charges for this period. On July 12, 2011, we issued an additional 600,000 Series A Preferred Shares, and preferred share distributions from that date through December 31, 2011 are included in fixed charges for this period. On September 21, 2011, we issued 3,400,000 8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share (“Series B Preferred Shares”) and preferred share distributions from that date through December 31, 2011 are included in fixed charges for this period.

(2) Earnings for this period were less than zero. The total fixed charges amount for this period was approximately $1,688,000 and the total earnings amount was approximately $(5,034,000). The amount of the deficiency, or the amount of fixed charges in excess of earnings, was approximately $6,722,000. There were no preferred shares outstanding during this period.

(3) Earnings for this period were less than zero. The total fixed charges amount for this period was $0 and the total earnings amount was $(147,000). The amount of the deficiency, or the amount of fixed charges in excess of earnings, was approximately $147,000. There were no preferred shares outstanding during this period.

EX-21.1

EXHIBIT 21.1

List of Subsidiaries of Pebblebrook Hotel Trust

	Name	State of Incorporation  or Organization
1.	Pebblebrook Hotel, L.P.	Delaware
2.	Pebblebrook Hotel Lessee, Inc.	Delaware
3.	DC Hotel Trust	Maryland
4.	Tar Heel Owner LLC	Delaware
5.	Tar Heel Lessee LLC	Delaware
6.	Tar Heel Borrower LLC	Delaware
6.	Huskies Owner LLC	Delaware
7.	Huskies Lessee LLC	Delaware
8.	Orangemen Owner LLC	Delaware
9.	Orangemen Lessee LLC	Delaware
10.	Gator Owner LLC	Delaware
11.	Gator Lessee LLC	Delaware
12.	Jayhawk Owner LLC	Delaware
13.	Jayhawk Lessee LLC	Delaware
14.	Blue Devils Owner LLC	Delaware
15.	Blue Devils Lessee LLC	Delaware
16.	Wildcats Owner LLC	Delaware
17.	Wildcats Lessee LLC	Delaware
18.	Terrapins Owner LLC	Delaware
19.	Skamania Lodge Furnishings LLC	Delaware
20.	Terrapins Lessee LLC	Delaware
21.	Spartans Owner LLC	Delaware
22.	Spartans Lessee LLC	Delaware
23.	South 17th Street OwnerCo Mezzanine, L.P.	Delaware
24.	South 17th Street OwnerCo, L.P.	Delaware
25.	South 17th Street LeaseCo LLC	Delaware
26.	South 17th Street LeaseCo Mezzanine LLC	Delaware
27.	Wildcats Owner LLC	Delaware
28.	Wildcats Lessee LLC	Delaware
29.	Bruins Owner LLC	Delaware
30.	Bruins Lessee LLC	Delaware
31.	Running Rebels Owner LLC	Delaware
32.	Running Rebels Lessee LLC	Delaware
33.	Wolverines Owner LLC	Delaware
34.	Wolverines Lessee LLC	Delaware
35.	Hoosiers Owner LLC	Delaware
36.	Hoosiers Lessee LLC	Delaware
37.	Razorbacks Owner LLC	Delaware
38.	Razorbacks Lessee LLC	Delaware
39.	Cardinals Owner LLC	Delaware
40.	Cardinals Lessee LLC	Delaware

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Trustees

Pebblebrook Hotel Trust:

We consent to the incorporation by reference in the registration statements on Form S-3 (File No. 333-171469) and Form S-8 (File No. 333-163638) of Pebblebrook Hotel Trust of our reports dated February 21, 2012, with respect to the consolidated balance sheets of Pebblebrook Hotel Trust as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years ended December 31, 2011 and 2010 and the period from October 2, 2009 (inception) to December 31, 2009, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of Pebblebrook Hotel Trust.

/s/ KPMG LLP

McLean, Virginia

February 21, 2012

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Trustees

Pebblebrook Hotel Trust:

We consent to the incorporation by reference in the registration statements on Form S-3 (File No. 333-171469) and Form S-8 (File No. 333-163638) of Pebblebrook Hotel Trust of our report dated February 16, 2012, with respect to the combined balance sheet of DP Fee Holding Co., LLC and DP Lease Holding, LLC as of December 31, 2011 and the related combined statements of members’ (deficit), operations and cash flows for the period July 29, 2011 to December 31, 2011, which report appears in the December 31, 2011 annual report on Form 10-K of Pebblebrook Hotel Trust.

/s/ PKF O’Connor Davies

A Division of O’Connor Davies, LLP

New York, New York

February 16, 2012

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jon E. Bortz, certify that:

1. I have reviewed this Annual Report on Form 10-K of Pebblebrook Hotel Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Pebblebrook Hotel Trust
Date: February 21, 2012	By:	/s/ JON E. BORTZ
		Jon E. Bortz
		Chairman, President and Chief Executive Officer
		(principal executive officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond D. Martz, certify that:

1. I have reviewed this Annual Report on Form 10-K of Pebblebrook Hotel Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Pebblebrook Hotel Trust
Date: February 21, 2012	By:	/s/ RAYMOND D. MARTZ
		Raymond D. Martz
		Executive Vice President, Chief Financial
		Officer, Treasurer and Secretary
		(principal financial officer and principal accounting officer)

EX-32.1

EXHIBIT 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Pebblebrook Hotel Trust (the “Company”) on Form 10-K for the fiscal year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon E. Bortz, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Pebblebrook Hotel Trust
Date: February 21, 2012	By:	/s/ JON E. BORTZ
		Jon E. Bortz
		Chairman, President and Chief Executive Officer
		(principal executive officer)

EX-32.2

EXHIBIT 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Pebblebrook Hotel Trust (the “Company”) on Form 10-K for the fiscal year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond D. Martz, Executive Vice President, Chief Financial Officer, Treasurer, and Secretary, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Pebblebrook Hotel Trust
Date: February 21, 2012	By:	/s/ RAYMOND D. MARTZ
		Raymond D. Martz
		Executive Vice President, Chief Financial Officer,
		Treasurer and Secretary
		(principal financial officer and principal accounting officer)

EX-99.1

Independent Auditor’s Report

To The Members

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

We have audited the combined balance sheet of DP Fee Holding Co., LLC and DP Lease Holding, LLC as of December 31, 2011, and the related combined statements of members’ (deficit), operations and cash flows for the period July 29, 2011 to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of DP Fee Holding Co., LLC and DP Lease Holding, LLC at December 31, 2011, and the results of its operations and its cash flows for the period July 29, 2011 to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

/s/ PKF O’Connor Davies

A Division of O’Connor Davies, LLP

New York, New York

February 16, 2012

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Balance Sheet

December 31, 2011

ASSETS
Current Assets
Cash and cash equivalents	$	80,903,724
Cash in escrow		32,913,676
Accounts receivable, net of allowance of $3,026		9,415,781
Inventory		352,710
Prepaid expenses		7,313,688
Total Current Assets		130,899,579
Property and equipment (net)		413,059,079
Deferred expenses		4,803,030
Other assets		191,712
Total Assets	$	548,953,400
LIABILITIES AND MEMBERS’ (DEFICIT)
Current Liabilities
Accounts payable	$	3,498,883
Taxes payable		2,591,888
Accrued expenses		17,551,681
Security and deposits		2,085,936
Other liabilities		575,479
Total Current Liabilities		26,303,867
Long-term debt		580,979,455
Total Liabilities		607,283,322
Members’ (deficit)		(58,329,922	)
Total Liabilities and Members’ (Deficit)	$	548,953,400

See notes to combined financial statements

2

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Statement of Members’ (Deficit)

For the Period July 29, 2011 to December 31, 2011

	Total			Accumulated Other Comprehensive Income (Loss)			Members’ (Deficit)
Balance at July 29, 2011	$	(156,597,063	)	$	(186,264	)	$	(156,410,799	)
Contributions		129,254,312			—			129,254,312
Distributions		(37,278,923	)		—			(37,278,923	)
Change in fair value of derivative instrument		159,413			159,413			—
Net income		6,132,339			—			6,132,339
Balance at December 31, 2011	$	(58,329,922	)	$	(26,851	)	$	(58,303,071	)

See notes to combined financial statements

3

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Statement of Operations

For the Period July 29, 2011 to December 31, 2011

REVENUES
Rooms	$	74,143,205
Food and beverage		5,298,723
Telephone		677,186
Other income		2,005,190
Total Revenues		82,124,304
EXPENSES
Rooms		19,215,710
Food and beverage		5,028,374
Telephone		305,314
Administrative and general		9,438,288
Advertising and marketing		4,219,840
Property operations and maintenance		2,425,805
Utilities		2,100,684
Insurance		354,565
Other		41,595
Rent expense		31,160
Real estate taxes		5,910,778
Interest expense		11,592,015
Depreciation and amortization		6,655,248
Loss on disposals of assets		132,082
Reorganization costs		8,458,076
Pre-opening expenses		82,431
Total Expenses		75,991,965
Net Income	$	6,132,339

See notes to combined financial statements

4

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Statement of Cash Flows

For the Period July 29, 2011 to December 31, 2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	6,132,339
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		6,655,248
Amortization of deferred financing costs		2,297,451
Loss on disposals of assets		132,082
Changes in Certain Other Accounts
Cash in escrow		563,831
Accounts receivable		(278,869	)
Inventory		(2,939	)
Prepaid expenses		(592,125	)
Other assets		55,906
Accounts payable		(3,718,768	)
Taxes payable		758,663
Accrued expenses		1,766,458
Security and deposits		(3,237,820	)
Other liabilities		266,268
Total Adjustments		4,665,386
Net Cash Provided by Operating Activities		10,797,725
CASH FLOWS (USED) BY INVESTING ACTIVITIES
Capital expenditures		(7,698,127	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of deferred expenses		(6,365,602	)
Payments on long-term debt		(15,577,472	)
Contributions		129,254,312
Distributions		(37,278,923	)
Net Cash Provided by Financing Activities		70,032,315
Net Increase in Cash and Cash Equivalents		73,131,913
Cash and cash equivalents, at beginning of period		7,771,811
Cash and cash equivalents, at end of period	$	80,903,724
Supplemental Disclosure of Cash Flow Information Cash paid during the period for interest	$	6,799,362
Supplemental Disclosure of Non-Cash Financing Activity During the period, the Company recorded a (decrease) in assets related to an interest cap agreement	$	(159,413	)
In connection with its acquisition of a 49% interest in the Company, the newly admitted member funded a $40,175,941 distribution to the existing member.

See notes to combined financial statements

5

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

1. Organization and Basis of Presentation

The accompanying combined financial statements and notes thereto include the assets, liabilities and operations of DP Fee Holding Co., LLC (“Fee Holding”) and DP Lease Holding, LLC (“Lease Holding”) and their wholly-owned subsidiaries (collectively the “Company”). The statements have been combined to reflect the ownership and operations of the following hotels (the “Hotels”):

Affinia Dumont

Affinia Gardens

Affinia Shelburne

Affinia 50

The Benjamin

Affinia Manhattan

On July 29, 2011, Denihan Ownership Company, LLC (“DOC”), the sole member of Fee Holding, and Cardinals Owner LLC (“Cardinals”) closed on an investment contemplated by a Contribution Agreement dated June 20, 2011 and entered into an Amended and Restated Operating Agreement of Fee Holding (collectively, the “Agreements”), whereby Cardinals was admitted as a new 49 percent member of Fee Holding in exchange for $165.3 million. Pursuant to the Agreements, DOC was deemed to have contributed net assets worth 51 percent of the common equity of Fee Holding and $84.4 million of preferred capital. Concurrently, the members formed a new entity, DP Lease Holding, LLC. Wholly-owned subsidiaries of Fee Holding entered into operating lease agreements with wholly-owned subsidiaries of Lease Holding to lease the defined operations of the above listed Hotels. The financial statements are presented for the period from July 29, 2011 (the date of admission of Cardinals as a member of Fee Holding) through December 31, 2011. Subsequent to the investment transaction, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) the assets and liabilities of the Company continue to be reported at historical cost. The Company incurred approximately $8.5 million in costs related to this reorganization.

The preferred capital is a separate non-voting capital account of Fee Holding which earns a preferred return as defined in the agreements, on the unreturned preferred capital balance. The DOC member may take a loan from the Company up to the amount of unreturned preferred capital or may convert all or a portion of the preferred capital to common capital upon the Company requiring additional capital from its members in order to maintain the 51 percent ownership interest. During the period July 29, 2011 to December 31, 2011, DOC converted $7.8 million of preferred capital to common capital to satisfy a capital call. After the later of (a) 27 months from July 29, 2011 or (b) the date on which Fee Holding refinances, modifies or extends its credit facility, Fee Holding will distribute, under certain conditions, any unreturned preferred capital to the DOC member at the DOC member’s request. There was no preferred return earned for the period July 29, 2011 through December 31, 2011. The preferred capital is not mandatorily redeemable and is classified as an equity instrument since the date of distribution is not determinable.

The Company prepares its financial statements in conformity with US GAAP. In combination, all significant intercompany accounts and transactions have been eliminated.

6

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

2. Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain estimates used by management are particularly susceptible to changes, such as the useful lives and recoverability of costs of property and equipment. Management believes that the estimates used are adequate based on the information currently available.

Significant Concentrations

Certain amounts of the Company’s cash is on deposit in one bank which exceeds federally insured limits. The Company has not experienced any loss on its deposits.

Approximately 72% of the Company’s workforce at December 31, 2011 is covered by collective bargaining agreements which expire June 30, 2012 and April 20, 2014.

Allowance for Uncollectible Accounts Receivable

The allowance for uncollectible accounts is established through a provision for bad debts charged to expenses. Accounts receivable are charged against the allowance for uncollectible accounts when management believes the collectability of principal is unlikely. Recoveries of accounts receivable previously written off are recorded when received.

The allowance is an amount that management believes will be adequate to absorb estimated losses on existing accounts receivable, based on an evaluation of the collectability of accounts receivable and prior bad debt experience. This evaluation also takes into consideration factors such as: changes in the nature and volume of the accounts receivable, overall accounts receivable quality, review of specific accounts receivable balances, and current economic conditions that may affect the customer’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

Revenue Recognition

The Company recognizes rooms, food and beverage, telephone and other operating revenues when services are rendered. Advance deposits on rooms are recorded as a liability until services are provided to the customers.

7

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

2. Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments

The estimated fair value of the Company’s cash, accounts receivable, accounts payable and accrued expenses and related party assets and liabilities (see note 7) approximate carrying amounts due to the short-term maturities of these instruments. The carrying value of the long-term debt approximates fair value since the current interest rate approximates market rates.

Property and Equipment

Property and equipment is stated at cost.

Depreciation of buildings and improvements and furniture, fixtures and equipment is computed using the straight line method over various estimated useful lives as follows:

Buildings and improvements	10 - 40 years
Furniture, fixtures and equipment	3 - 7 years

At December 31, 2011, property and equipment consists of the following:

Land	$	81,182,502
Buildings and improvements		361,285,009
Furniture, fixtures and equipment		50,187,343
Total		492,654,854
Accumulated depreciation		(79,595,775	)
Net	$	413,059,079

Cash and Cash Equivalents

The Company considers all instruments with an original maturity of three months or less to be cash equivalents.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amounts of the asset to aggregate future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value.

8

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

2. Summary of Significant Accounting Policies (continued)

Inventory

Inventory is valued at the lower of cost (first -in, first-out) or market.

Deferred Expenses

Expenditures incurred in connection with obtaining long-term debt are being amortized using a method which approximates the interest method over the term of the related debt. $2,297,451 has been charged to interest expense for the period ended December 31, 2011. Accumulated amortization amounted to $2,885,438 at December 31, 2011.

Accounting for Derivative Instruments and Hedging Activities

The Company applies the provisions of Accounting Standards Codification (ASC) 815-10.

ASC 815-10 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income (loss), depending on whether the derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction.

For cash-flow hedge transactions in which the Company hedges the variability of cash flows related to a variable-rate asset, liability or a forecasted transaction, changes in fair value of the derivative instrument are reported in other comprehensive income (loss). The gains and losses on the derivative instrument that are reported in other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are impacted by the variability of cash flows of the hedged item.

Income Taxes

Fee Holding and Lease Holding are limited liability companies, which are not recognized as taxable entities for Federal or State tax purposes. As such, no provision has been made for income taxes since such taxes, if any, are the responsibility of the ultimate members of Fee Holding and Lease Holding.

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes, which provides a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken in a tax return. Using this guidance, a Company may recognize a tax benefit from an uncertain tax position in its financial statements only if it is more-likely-than-not (i.e., a likelihood of more than 50%) that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

9

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

2. Summary of Significant Accounting Policies (continued)

Income Taxes (continued)

Management has evaluated the Company’s tax positions and has determined that it has no uncertain tax positions. Accordingly, at December 31, 2011, a provision for uncertain income taxes is not reflected in the accompanying financial statements.

The Company’s tax returns for 2011 are open to examination by the respective taxing authorities.

Subsequent Events

Management of the Company has evaluated significant events subsequent to the balance sheet date through the date the combined financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the combined financial statements, except as disclosed in note 3.

3. Long-term Debt

On July 9, 2007, the six Hotels were financed with $600 million in debt obligations ($280 million in the form of mortgage debt and $320 million in mezzanine loans). The mortgage debt is cross collateralized among all of the properties. The mezzanine portion of the financing is secured by the Company’s ownership interest in the properties and is reflected in the total long-term debt in the combined balance sheet.

All loans had an original maturity date of August 1, 2009 and were extended per agreement dated August 16, 2010, and effective as of August 1, 2009, until February 1, 2012 with a one-year extension option.

Under the terms of the agreement, the Company is required to fund the following escrows:

Taxes

Insurance

Mortgage debt service

Administrative fees

Operating expenses

Furniture, fixtures and equipment

Mezzanine debt service

Debt service

Seasonality

Renovations

Excess cash flows

10

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

3. Long-term Debt

In connection with the loan extension in 2010, certain modifications were made to the loan agreement as follows:

Annual interest effective August 1, 2009:

Mortgage loan ($280 million) - LIBOR plus 2.75%

Mezzanine A loan ($105 million) - LIBOR plus 3% with 2.75% payable currently and .25% accrued

Mezzanine B and C loans ($215 million) - LIBOR plus 3.25% with 2% currently payable and 1.25% accrued.

Borrower must purchase an interest rate cap agreement acceptable to the lender. (see note 4)

All cash receipts are to be deposited into a lockbox and such receipts shall be disbursed in accordance with the agreement, which includes amortization of debt principal calculated as defined.

The specified guarantors guarantee the completion of specified renovation projects.

The loans are non-recourse to the borrowers with the exception of certain limited obligations of the borrowers arising out of or in connection with certain events or acts, among which is fraud or material misrepresentation. Further, the loans will become recourse to the guarantors if certain events occur, amongst which is the mezzanine borrower or any individual borrower filing a voluntary bankruptcy petition.

On February 1, 2012, the Company exercised the option to extend the loans until February 1, 2013 and purchased an interest rate cap with an aggregate notional amount of $600 million. The interest rate cap fixes the LIBOR rate at a maximum rate of 2% and expires on February 1, 2013.

4. Derivative Asset and Other Comprehensive Income

Effective August 1, 2010, the Company entered into an interest rate cap agreement with the intent to manage interest rate exposure on its long-term debt. This interest rate cap agreement, with an aggregate notional amount of $600,000,000, expired on February 1, 2012. This agreement fixed the LIBOR rate at a maximum rate of 2%. The interest rate differentials under such agreements were entered into to minimize the risks associated with financial activities. The Company was exposed to credit risk in the event of non-performance by these counterparties; however, the Company considered non-performance to be remote.

11

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

4. Derivative Asset and Other Comprehensive Income (continued)

Applying the provisions of ASC 815-10, the Company’s derivative asset has no value as of December 31, 2011. The difference between the carrying value and fair market value of the interest rate cap has been recorded through members’ (deficit), as accumulated other comprehensive income as of December 31, 2011.

Comprehensive income consists of:
Net income	$	6,132,339
Change in fair value of derivative asset		159,413
Comprehensive income	$	6,291,752

The Company follows FASB guidance on Fair Value Measurements which defines fair value and establishes a fair value hierarchy organized into three levels based upon the input assumptions used in pricing assets. Level 1 inputs have the highest reliability and are related to assets with unadjusted quoted prices in active markets. Level 2 inputs relate to assets with other than quoted prices in active markets which may include quoted prices for similar assets or liabilities or other inputs which can be corroborated by observable market data. Level 3 inputs are unobservable inputs and are used to the extent that observable inputs do not exist.

5. Employee Retirement Plans

The Company makes contributions, along with many other employers, to union-sponsored multiemployer pension plans based on the number of hours worked by employees covered under union contracts. The Multiemployer Pension Plan Amendments Act of 1980 imposes certain liabilities upon employers associated with multiemployer plans who withdraw from such a plan or upon termination of said plan. The Company has not undertaken to terminate, withdraw or partially withdraw from the plan. The Company has not received information from the plan’s administrators to determine its share of unfunded vested benefits, if any. Amounts charged to expense for contributions to the multiemployer plans for the period July 29, 2011 to December 31, 2011 amounted to $937,794.

The Company maintains a defined contribution 401(K) plan for the benefit of its non-union employees. Contributions to the plan by the Company are made at the sole discretion of management. Participants may also make contributions to the plan. Amounts charged to expense for contributions to the 401(k) plan for the period July 29, 2011 to December 31, 2011 amounted to $70,064.

12

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

6. Operating Leases

The Company, as lessor under various operating leases with third parties, will receive rents over the next five years and thereafter over the remaining terms of the leases as follows:

2012	$	2,492,544
2013		2,476,112
2014		2,258,319
2015		2,300,428
2016		1,188,598
Thereafter		1,367,036
Total	$	12,083,037

Certain leases contain provisions for additional rents and renewal options.

7. Related Party Transactions

The Company is charged by a related party for laundry and other expenses consisting of accounting, advertising, executive office, human resources, management information, reservation and sales, security and technical services. Amounts charged to operations for laundry and other services amounted to $807,115 and $6,678,286, respectively, for the period July 29, 2011 to December 31, 2011. The Company uses a purchasing company, which is related to one of the Company’s members through common ownership. The purchasing company provides goods to the Company at cost.

At December 31, 2011 amounts due from (to) related parties were included in the following balance sheet accounts:

Accounts receivable	$	1,056,282
Accounts payable	$	(2,993,931	)

Amounts due from (to) related parties are noninterest-bearing and have no specified date of repayment.

The Company entered into agreements, with an entity related to one of the Company’s members through common ownership, for the management of the day-to-day operations of the Hotels. The agreements provide for a base management fee calculated at 3% of gross operating revenues, as defined, and an incentive management fee calculated at 15% of defined net operating income. In addition, the agreements provide for a marketing fee calculated at 1.5% of gross operating revenues, as defined. For the period July 29, 2011 through December 31, 2011, the Company incurred basic management fees of $2,456,450 and marketing fees of $1,228,225. Incentive fees were not incurred.

13

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2011

8. Litigation

Lawsuits which arose in the normal course of business are pending against the Company. In the opinion of management the eventual disposition of these legal actions, based upon available insurance coverage and the assessment of the merits of such actions by counsel, will not have a material adverse effect on the financial position of the Company.

9. Commitments

During 2011, the Company entered into various contracts with contractors and other vendors for capital improvements. At December 31, 2011 the Company had commitments of $8,182,885, of which $7,365,742 had been incurred as of December 31, 2011 and is included in property and equipment in the accompanying combined balance sheet.

* * * * *

14

XML

Investment in Hotel Properties (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Investment in hotel properties
Land	$ 190,197	$ 106,428
Buildings and improvements	887,217	460,988
Furniture, fixtures and equipment	86,138	37,966
Investment in hotel properties	1,163,552	605,382
Less: Accumulated depreciation	(36,068)	(5,668)
Investment in hotel properties, net	$ 1,127,484	$ 599,714

XML

Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended									12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010
Numerator:
Net income (loss) attributable to common shareholders	$ 3,456	$ 2,825	$ 1,753	$ (3,591)	$ (1,921)	$ (308)	$ (3,814)	$ (599)	$ (147)	$ 4,443	$ (6,642)
Less: Dividends paid on unvested share-based compensation										(398)	(9)
Net income (loss) available to common shareholders									$ (147)	$ 4,045	$ (6,651)
Denominator:
Weighted-average number of common shares-basic									4,011,198	47,921,200	28,669,851
Effect of dilutive share-based compensation										45,107
Weighted-average number of common shares-diluted									4,011,198	47,966,307	28,669,851
Net income (loss) per share available to common shareholders-basic									$ (0.04)	$ 0.08	$ (0.23)
Net income (loss) per share available to common shareholders-diluted									$ (0.04)	$ 0.08	$ (0.23)

XML

Equity (Details Textual) (USD $)	0 Months Ended	1 Months Ended	0 Months Ended	3 Months Ended					12 Months Ended		3 Months Ended	12 Months Ended			3 Months Ended	12 Months Ended
	Apr. 06, 2011	Jul. 28, 2010	Dec. 14, 2009	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010	Mar. 31, 2011 7.875% Series A [Member]	Dec. 31, 2011 7.875% Series A [Member]	Jul. 14, 2011 7.875% Series A [Member]	Mar. 11, 2011 7.875% Series A [Member]	Sep. 30, 2011 8.00% Series B [Member]	Dec. 31, 2011 8.00% Series B [Member]	Sep. 14, 2011 8.00% Series B [Member]
Class of Stock [Line Items]
Preferred shares of beneficial interest, shares issued				9,000,000					9,000,000	0			600,000	5,000,000			3,400,000
Net proceeds, after deducting underwriting discount													$ 15,100,000	$ 120,900,000			$ 82,300,000
Public offering price per share													$ 25.25	$ 25.00			$ 25.00
Percentage of dividend for redeemable preferred shares											7.875%				8.00%
Redemption date of the Company's preferred shares												Mar. 11, 2016				Sep. 21, 2016
Share cap on each preferred shares												$ 2.3234				$ 3.4483
Equity (Textual) [Abstract]
Common shares of beneficial interest, shares authorized				500,000,000					500,000,000	500,000,000
Common shares of beneficial interest, par value				$ 0.01					$ 0.01	$ 0.01
Common shares issued, net of underwriting discounts and offering costs	10,925,000	19,550,000	20,260,000
Common shares raised, net of underwriting discounts and offering costs	$ 226,500,000	$ 318,300,000	$ 379,600,000					$ 379,568,000	$ 443,888,000	$ 318,448,000
Dividend per share/unit				$ 0.12	$ 0.12	$ 0.12	$ 0.12
Preferred shares of beneficial interest, shares authorized				100,000,000					100,000,000	100,000,000
Preferred shares of beneficial interest, par value				$ 0.01					$ 0.01	$ 0.01
Preferred shares of beneficial interest, shares outstanding				9,000,000					9,000,000	0
Preferred Stock, Redemption Price Per Share				$ 25.00					$ 25.00
Preferred stock redemption period									120 days
Operating Partnership outstanding				929,099					929,099	929,099
LTIP units, vested				362,170					362,170	185,820
LTIP units converted to common units				0					0

XML

Earnings Per Share (Details Textual) (Restricted Stock [Member])	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009
Restricted Stock [Member]
Earnings Per Share (Textual) [Abstract]
Unvested restricted shares and Long-Term Incentive Partnership Units	78,440	15,000

XML

Equity (Details) (USD $)	3 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011
Dividends on common shares/units
Dividend per Share/Unit	$ 0.12	$ 0.12	$ 0.12	$ 0.12
Common Shares
Dividends Payable [Line Items]
Record Date	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011
Payable Date	Jan. 16, 2012	Oct. 17, 2011	Jul. 15, 2011	Apr. 15, 2011

XML

Quarterly Operating Results (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2011

Quarterly Operating Results [Abstract]

Unaudited consolidated quarterly operating data

	Year Ended December 31, 2011
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	42,665		$	73,110	$	87,803	$	84,409
Net income (loss)		(3,044	)		4,299		5,838		8,106
Net income (loss) attributable to the Company		(3,044	)		4,214		5,724		7,962
Net income (loss) attributable to common shareholders		(3,591	)		1,753		2,825		3,456
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.09	)	$	0.03	$	0.05	$	0.07

	Year Ended December 31, 2010
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenues	$	—		$	2,216		$	21,637		$	33,908
Net income (loss) attributable to the Company		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) attributable to common shareholders		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.03	)	$	(0.19	)	$	(0.01	)	$	(0.05	)

XML

Commitments and Contingencies (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Commitments and Contingencies (Textual) [Abstract]
Combined base and incentive management fees	$ 8,100,000	$ 1,700,000	$ 0
Reserve funds allowed for hotel maintenance from hotel revenue	4.00%
Restricted cash	9,469,000	4,485,000
Minimum [Member]
Management Agreements [Line Items]
Terms of management agreements not including renewals	5 years
Terms of management agreements including renewals	5 years
Termination fees	0
Base management fee from hotel revenues	2.00%
Maximum [Member]
Management Agreements [Line Items]
Terms of management agreements not including renewals	20 years
Terms of management agreements including renewals	40 years
Combined base and incentive management fees multiplier	6
Base management fee from hotel revenues	4.00%
Monaco Washington D C [Member]
Management Agreements [Line Items]
Base rent	200,000
Ground lease expiry period	2059
Argonaut Hotel [Member]
Management Agreements [Line Items]
Base rent	$ 1,200,000
Ground lease expiry period	2059

XML

Investment in Unconsolidated Joint Ventures (Tables)

12 Months Ended

Dec. 31, 2011

Investment in Unconsolidated Joint Ventures [Abstract]

Summarized results of operations of investment in the Manhattan Collection joint venture

	For the Period from July 29, 2011 (date of investment) through December 31, 2011
Revenues	$	82,124
Total expenses		75,992
Net income		6,132
Company's 49% interest of net income		3,005
Basis adjustment		(669	)
Equity in earnings in unconsolidated joint ventures	$	2,336

XML

Share-Based Compensation Plan (Details Textual) (USD $)			12 Months Ended						1 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011 Restricted Stock [Member] years	Dec. 31, 2010 Restricted Stock [Member]	Dec. 31, 2009 Restricted Stock [Member]	Dec. 31, 2011 Long Term Incentive Partnership Units [Member] years	Dec. 31, 2010 Long Term Incentive Partnership Units [Member]	Dec. 31, 2009 Long Term Incentive Partnership Units [Member]	Feb. 29, 2012 Minimum [Member]	Dec. 31, 2011 Minimum [Member] Restricted Stock [Member]	Feb. 29, 2012 Maximum [Member]	Dec. 31, 2011 Maximum [Member] Restricted Stock [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Restricted stock vesting period									3 years	3 years	5 years	5 years
Weighted average remaining vesting period			1.8			3
Expense related to restricted shares			$ 1,100,000	$ 500,000	$ 5,000	$ 1,600,000	$ 1,600,000	$ 100,000
Total unrecognized compensation cost			$ 1,900,000			$ 4,700,000	$ 6,200,000
Share-Based Compensation Plan (Textual) [Abstract]
Number of common shares available for issuance under the 2009 Equity Incentive Plan	224,317
Operating Partnership outstanding	929,099	929,099
LTIP unit grants were valued at per unit	$ 8.50
LTIP units, vested	362,170	185,820

XML

Debt (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Mortgage debt
Mortgage debt	$ 251,539	$ 143,570
Sofitel Philadelphia [Member] | First Mortgage [Member]
Mortgage debt
Interest Rates	Floating(1)
Mortgage debt	56,070	56,070
Debt Instrument, Maturity Date	Feb. 01, 2012
Monaco Washington D C [Member] | First Mortgage [Member]
Mortgage debt
Interest Rate	5.68%
Mortgage debt	35,000	35,000
Debt Instrument, Maturity Date	Mar. 01, 2012
Argonaut Hotel [Member] | First Mortgage [Member]
Mortgage debt
Interest Rate	5.67%
Mortgage debt	42,000	0
Debt Instrument, Maturity Date	Mar. 01, 2012
Inter Continental Buckhead Hotel [Member] | First Mortgage [Member]
Mortgage debt
Interest Rate	4.88%
Mortgage debt	51,805	52,500
Debt Instrument, Maturity Date	Jan. 01, 2016
Skamania Lodge [Member] | First Mortgage [Member]
Mortgage debt
Interest Rate	5.44%
Mortgage debt	30,664	0
Debt Instrument, Maturity Date	Feb. 01, 2016
Double Tree By Hilton Bethesda Washington D C [Member] | First Mortgage [Member]
Mortgage debt
Interest Rate	5.28%
Mortgage debt	$ 36,000	$ 0
Debt Instrument, Maturity Date	Feb. 01, 2016

XML

Acquisitions of Hotel Properties (Details 1) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Acquisition of proforma financial information
Total revenues	$ 330,215	$ 306,354
Operating income	30,873	21,441
Net income attributable to common shareholders	$ 6,230	$ 16,074
Net income per share available to common shareholders - basic and diluted	$ 0.12	$ 0.34

XML

Income Taxes (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation
Statutory federal tax expense (benefit) at 34%	$ 444	$ (70)
State income tax expense (benefit)	120	(10)
Income tax expense (benefit), Total	$ 564	$ (80)

XML

Real Estate and Accumulated Depreciation (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	$ 251,539
Initial Cost of Land	190,197
Initial Cost of Buildings and Improvements	863,351
Initial Cost of Furniture, Fixtures and Equipment	64,057
Costs Capitalized Subsequent to Acquisition	45,947
Gross amount of Land	190,197
Gross amount of Buildings and Improvements	887,217
Gross amount of Furniture Fixtures and Equipment	86,138
Total	1,163,552
Accumulated Depreciation	36,068
Net Book Value	1,127,484
Double Tree By Hilton Bethesda Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	36,000
Initial Cost of Land	10,065
Initial Cost of Buildings and Improvements	53,000
Initial Cost of Furniture, Fixtures and Equipment	4,035
Costs Capitalized Subsequent to Acquisition	5,739
Gross amount of Land	10,065
Gross amount of Buildings and Improvements	56,822
Gross amount of Furniture Fixtures and Equipment	5,952
Total	72,839
Accumulated Depreciation	3,408
Net Book Value	69,431
Year of Original Construction	1971
Date of Acquisition	06/04/10
Sir Francis Drake [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	22,500
Initial Cost of Buildings and Improvements	60,547
Initial Cost of Furniture, Fixtures and Equipment	6,953
Costs Capitalized Subsequent to Acquisition	9,827
Gross amount of Land	22,500
Gross amount of Buildings and Improvements	66,046
Gross amount of Furniture Fixtures and Equipment	11,281
Total	99,827
Accumulated Depreciation	4,453
Net Book Value	95,374
Year of Original Construction	1928
Date of Acquisition	06/22/10
Inter Continental Buckhead Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	51,805
Initial Cost of Land	25,000
Initial Cost of Buildings and Improvements	68,844
Initial Cost of Furniture, Fixtures and Equipment	11,000
Costs Capitalized Subsequent to Acquisition	6,054
Gross amount of Land	25,000
Gross amount of Buildings and Improvements	71,043
Gross amount of Furniture Fixtures and Equipment	14,855
Total	110,898
Accumulated Depreciation	5,201
Net Book Value	105,697
Year of Original Construction	2004
Date of Acquisition	07/01/10
Monaco Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	35,000
Initial Cost of Land	0
Initial Cost of Buildings and Improvements	60,630
Initial Cost of Furniture, Fixtures and Equipment	2,441
Costs Capitalized Subsequent to Acquisition	1,476
Gross amount of Land	0
Gross amount of Buildings and Improvements	61,838
Gross amount of Furniture Fixtures and Equipment	2,709
Total	64,547
Accumulated Depreciation	2,470
Net Book Value	62,077
Year of Original Construction	1839
Date of Acquisition	09/09/10
The Grand Hotel Minneapolis [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	4,950
Initial Cost of Buildings and Improvements	26,616
Initial Cost of Furniture, Fixtures and Equipment	300
Costs Capitalized Subsequent to Acquisition	5,908
Gross amount of Land	4,950
Gross amount of Buildings and Improvements	29,339
Gross amount of Furniture Fixtures and Equipment	3,485
Total	37,774
Accumulated Depreciation	1,805
Net Book Value	35,969
Year of Original Construction	1912
Date of Acquisition	09/29/10
Skamania Lodge [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	30,664
Initial Cost of Land	7,129
Initial Cost of Buildings and Improvements	44,987
Initial Cost of Furniture, Fixtures and Equipment	3,523
Costs Capitalized Subsequent to Acquisition	1,500
Gross amount of Land	7,129
Gross amount of Buildings and Improvements	46,052
Gross amount of Furniture Fixtures and Equipment	3,958
Total	57,139
Accumulated Depreciation	1,994
Net Book Value	55,145
Year of Original Construction	1993
Date of Acquisition	11/03/10
Sheraton Delfina Santa Monica Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	18,784
Initial Cost of Buildings and Improvements	81,580
Initial Cost of Furniture, Fixtures and Equipment	2,295
Costs Capitalized Subsequent to Acquisition	2,337
Gross amount of Land	18,784
Gross amount of Buildings and Improvements	81,231
Gross amount of Furniture Fixtures and Equipment	4,981
Total	104,996
Accumulated Depreciation	2,704
Net Book Value	102,292
Year of Original Construction	1972
Date of Acquisition	11/19/10
Sofitel Philadelphia [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	56,070
Initial Cost of Land	18,000
Initial Cost of Buildings and Improvements	64,256
Initial Cost of Furniture, Fixtures and Equipment	4,639
Costs Capitalized Subsequent to Acquisition	479
Gross amount of Land	18,000
Gross amount of Buildings and Improvements	64,628
Gross amount of Furniture Fixtures and Equipment	4,746
Total	87,374
Accumulated Depreciation	2,460
Net Book Value	84,914
Year of Original Construction	2000
Date of Acquisition	12/03/10
Argonaut Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	42,000
Initial Cost of Land	0
Initial Cost of Buildings and Improvements	79,492
Initial Cost of Furniture, Fixtures and Equipment	4,247
Costs Capitalized Subsequent to Acquisition	2,510
Gross amount of Land	0
Gross amount of Buildings and Improvements	80,568
Gross amount of Furniture Fixtures and Equipment	5,681
Total	86,249
Accumulated Depreciation	2,289
Net Book Value	83,960
Year of Original Construction	1907
Date of Acquisition	02/16/11
Westin Gaslamp Quarter [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	25,537
Initial Cost of Buildings and Improvements	86,089
Initial Cost of Furniture, Fixtures and Equipment	6,850
Costs Capitalized Subsequent to Acquisition	6,636
Gross amount of Land	25,537
Gross amount of Buildings and Improvements	91,426
Gross amount of Furniture Fixtures and Equipment	8,149
Total	125,112
Accumulated Depreciation	3,338
Net Book Value	121,774
Year of Original Construction	1987
Date of Acquisition	04/06/11
Monaco Seattle [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	10,105
Initial Cost of Buildings and Improvements	38,888
Initial Cost of Furniture, Fixtures and Equipment	2,073
Costs Capitalized Subsequent to Acquisition	1,722
Gross amount of Land	10,105
Gross amount of Buildings and Improvements	39,321
Gross amount of Furniture Fixtures and Equipment	3,362
Total	52,788
Accumulated Depreciation	986
Net Book Value	51,802
Year of Original Construction	1969
Date of Acquisition	04/07/11
Mondrian Los Angeles [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	20,306
Initial Cost of Buildings and Improvements	110,283
Initial Cost of Furniture, Fixtures and Equipment	6,091
Costs Capitalized Subsequent to Acquisition	1,444
Gross amount of Land	20,306
Gross amount of Buildings and Improvements	110,660
Gross amount of Furniture Fixtures and Equipment	7,158
Total	138,124
Accumulated Depreciation	2,401
Net Book Value	135,723
Year of Original Construction	1959
Date of Acquisition	05/03/11
Viceroy Miami [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	8,368
Initial Cost of Buildings and Improvements	24,246
Initial Cost of Furniture, Fixtures and Equipment	3,723
Costs Capitalized Subsequent to Acquisition	146
Gross amount of Land	8,368
Gross amount of Buildings and Improvements	24,308
Gross amount of Furniture Fixtures and Equipment	3,807
Total	36,483
Accumulated Depreciation	913
Net Book Value	35,570
Year of Original Construction	2009
Date of Acquisition	05/26/11
W Boston [Member]
Real Estate and Accumulated Depreciation [Line Items]
Encumbrances	0
Initial Cost of Land	19,453
Initial Cost of Buildings and Improvements	63,893
Initial Cost of Furniture, Fixtures and Equipment	5,887
Costs Capitalized Subsequent to Acquisition	169
Gross amount of Land	19,453
Gross amount of Buildings and Improvements	63,935
Gross amount of Furniture Fixtures and Equipment	6,014
Total	89,402
Accumulated Depreciation	1,646
Net Book Value	$ 87,756
Year of Original Construction	2009
Date of Acquisition	06/08/11
Maximum [Member] | Double Tree By Hilton Bethesda Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Sir Francis Drake [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Inter Continental Buckhead Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Monaco Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | The Grand Hotel Minneapolis [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Skamania Lodge [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Sheraton Delfina Santa Monica Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Sofitel Philadelphia [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Argonaut Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Westin Gaslamp Quarter [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Monaco Seattle [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Mondrian Los Angeles [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | Viceroy Miami [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Maximum [Member] | W Boston [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	40
Minimum [Member] | Double Tree By Hilton Bethesda Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Sir Francis Drake [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	1
Minimum [Member] | Inter Continental Buckhead Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Monaco Washington D C [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | The Grand Hotel Minneapolis [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	1
Minimum [Member] | Skamania Lodge [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Sheraton Delfina Santa Monica Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Sofitel Philadelphia [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Argonaut Hotel [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Westin Gaslamp Quarter [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	1
Minimum [Member] | Monaco Seattle [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Mondrian Los Angeles [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	3
Minimum [Member] | Viceroy Miami [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	1
Minimum [Member] | W Boston [Member]
Real Estate and Accumulated Depreciation [Line Items]
Depreciation Life	2

XML

Equity (Details 1) (USD $)	3 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011
7.875% Series A [Member]
Dividends on preferred shares/units
Dividend per Share/Unit	$ 0.49	$ 0.49	$ 0.49	$ 0.19
Record Date	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011
Payable Date	Jan. 16, 2012	Oct. 17, 2011	Jul. 15, 2011	Apr. 15, 2011
8.00% Series B [Member]
Dividends on preferred shares/units
Dividend per Share/Unit	$ 0.50	$ 0.13
Record Date	Dec. 31, 2011	Sep. 30, 2011
Payable Date	Jan. 16, 2012	Oct. 17, 2011

XML

Acquisition of Hotel Properties

12 Months Ended

Dec. 31, 2011

Acquisition of Hotel Properties [Abstract]

ACQUISITION OF HOTEL PROPERTIES

NOTE 3. ACQUISITION OF HOTEL PROPERTIES

On February 16, 2011, the Company acquired the 252-room Argonaut Hotel located in San Francisco, California for $84.0 million. The acquisition was funded with $42.0 million of available cash and the assumption of a $42.0 million first mortgage loan. The hotel is subject to a long-term ground lease agreement with the United States Department of the Interior that expires in 2059. The hotel is required to pay the greater of a base rent of $1.2 million, as adjusted for consumer price index "CPI" increases, or a percentage of rooms revenues, food and beverage revenues, and other department revenues in excess of certain thresholds, as defined in the agreement. The fee, as a percentage of rooms revenues, ranges from 8% to 12% in the initial years and 12% to 14% in the later years. The fee as a percentage of food and beverage and other department revenues is 4% over the term of the lease. The terms of the ground lease were evaluated and they were determined to approximate current market terms. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

On April 6, 2011, the Company acquired the 450-room Westin Gaslamp Quarter located in San Diego, California for $110.0 million. Prior to the acquisition, the hotel was undergoing a $25.0 million renovation project and, in addition to the purchase price, the Company reimbursed the seller approximately $8.6 million for the renovation costs incurred and paid by the seller through the date of closing. The remaining renovation costs were paid by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.

On April 7, 2011, the Company acquired the 189-room Hotel Monaco Seattle located in Seattle, Washington for $51.2 million. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

On May 3, 2011, the Company acquired the 237-room Mondrian Los Angeles located in West Hollywood, California for $137.0 million. The Company retained the Morgans Hotel Group to manage the hotel.

On May 26, 2011, the Company acquired the 148-room Viceroy Miami located in Miami, Florida for $36.5 million. The Company retained the Viceroy Hotel Group to manage the hotel and PHL received $3.0 million in key money from Viceroy Hotel Group to enter into the management agreement with Viceroy Hotel Group. The key money liability is amortized as a reduction of management fee expense over the ten-year term of the management agreement.

On June 8, 2011, the Company acquired the 235-room W Boston located in Boston, Massachusetts for $89.5 million. The Company retained Starwood Hotels and Resorts to manage the hotel.

The allocation of purchase price to the fair value of the acquired assets and liabilities is as follows (in thousands):

	Argonaut Hotel		Westin Gaslamp Quarter			Hotel Monaco Seattle			Mondrian Los Angeles		Viceroy Miami			W Boston			Total
Land	$	—	$	25,537		$	10,105		$	20,306	$	8,368		$	19,453		$	83,769
Buildings and improvements		79,492		86,113			38,888			110,283		24,246			63,893			402,915
Furniture, fixtures and equipment		4,247		6,826			2,073			6,091		3,723			5,887			28,847
In place lease assets		190		—			—			—		—			—			190
Inventory		71		78			84			75		163			267			738
Net working capital		193		(931	)		(251	)		74		(146	)		(1,263	)		(2,324	)
Net assets acquired	$	84,193	$	117,623		$	50,899		$	136,829	$	36,354		$	88,237		$	514,135

The results of operations of the Argonaut Hotel, Westin Gaslamp Quarter, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami, W Boston and the Manhattan Collection joint venture (defined in Note 5 below) are included in the consolidated statements of operations beginning on their acquisition dates. The following unaudited pro forma financial information presents the results of operations of the Company for the years ended December 31, 2011 and 2010 as if the hotels and joint venture interests acquired in 2011 and 2010 were acquired on January 1, 2010. The pro forma results below excluded acquisition costs of $3.4 million and $6.6 million for the years ended December 31, 2011 and 2010, respectively. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of either the results of operations that would have actually occurred had these transactions occurred on January 1, 2010 or the future results of operations (in thousands, except per-share data).

	For the Year Ended December 31,
	2011		2010
	(Unaudited)		(Unaudited)
Total revenues	$	330,215	$	306,354
Operating income		30,873		21,441
Net income attributable to common shareholders		6,230		16,074
Net income per share available to common shareholders—basic and diluted	$	0.12	$	0.34

XML

Real Estate and Accumulated Depreciation (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Reconciliation of Real Estate:
Beginning Balance	$ 605,382	$ 0
Acquisitions	515,531	602,075
Capital expenditures	42,639	3,307
Ending Balance	1,163,552	605,382
Reconciliation of Accumulated Depreciation:
Beginning Balance	5,668	0
Depreciation	30,400	5,668
Ending Balance	$ 36,068	$ 5,668

XML

Debt (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Future scheduled debt principal payments
2012	$ 134,738
2013	1,775
2014	1,869
2015	1,969
2016	111,188
Thereafter	0
Total debt	$ 251,539	$ 143,570

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Provision for income taxes

	For the Year Ended December 31,
	2011		2010			2009
Federal	$	—	$	—		$	—
Current		374		—			—
Deferred		70		(70	)		—
State and local							—
Current		110		—			—
Deferred		10		(10	)		—
Income tax expense (benefit)	$	564	$	(80	)	$	—

Reconciliation of the statutory federal tax benefit

	For the Year Ended December 31,
	2011		2010			2009
Statutory federal tax expense (benefit) at 34%	$	444	$	(70	)	$	—
State income tax expense (benefit)		120		(10	)		—
	$	564	$	(80	)	$	—

XML

Share-Based Compensation Plan (Tables)

12 Months Ended

Dec. 31, 2011

Share-Based Compensation Plan [Abstract]

Summary of restricted share activity

	Shares			Weighted-Average Grant Date Fair Value
Unvested at October 2, 2009 (inception)		—		$	—
Granted		15,000		$	20.00
Unvested at December 31, 2009		15,000		$	20.00
Granted		70,110		$	20.98
Vested		(4,170	)	$	20.00
Forfeited		(2,500	)	$	20.00
Unvested at December 31, 2010		78,440		$	20.88
Granted		79,330		$	22.03
Vested		(26,874	)	$	20.83
Forfeited		(2,232	)	$	21.58
Unvested at December 31, 2011		128,664		$	21.59

XML

Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011
Future minimum annual rental payments
2012	$ 1,380
2013	1,380
2014	1,380
2015	1,380
2016	1,380
Thereafter	59,223
Minimum future annual rental, total	$ 66,123

XML

Debt (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Debt (Textual) [Abstract]
Current borrowing capacity	$ 200.0
Increase in borrowing capacity	50.0
Credit facility maturity date	June 3, 2014
Credit facility maturity extension option	1 year
Maximum credit facility borrowings	400.0
Line of credit facility deferred amendment Fee	1.3
Outstanding borrowings under the credit facility	0	0
Unused commitment fees	0.9	0.4
Estimated fair value of debt	$ 251.2	$ 143.9
Minimum [Member]
Line of Credit Facility [Line Items]
Credit facility borrowings LIBOR rate	2.50%
Annual rate of unused commitment fee	0.35%
Maximum [Member]
Line of Credit Facility [Line Items]
Credit facility borrowings LIBOR rate	3.50%
Annual rate of unused commitment fee	0.50%

XML

Earnings per Share (Tables)

12 Months Ended

Dec. 31, 2011

Earnings per Share [Abstract]

Reconciliation of basic and diluted earnings per common share

	For the Year Ended December 31,
	2011			2010			2009
Numerator:
Net income (loss) attributable to common shareholders	$	4,443		$	(6,642	)	$	(147	)
Less: Dividends paid on unvested share-based compensation		(398	)		(9	)		—
Net income (loss) available to common shareholders	$	4,045		$	(6,651	)	$	(147	)
Denominator:
Weighted-average number of common shares—basic		47,921,200			28,669,851			4,011,198
Effect of dilutive share-based compensation		45,107			—			—
Weighted-average number of common shares—diluted		47,966,307			28,669,851			4,011,198
Net income (loss) per share available to common shareholders—basic	$	0.08		$	(0.23	)	$	(0.04	)
Net income (loss) per share available to common shareholders—diluted	$	0.08		$	(0.23	)	$	(0.04	)

XML

Commitment and Contingencies (Tables)

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

Schedule of minimum rental payments under lease

2012	$	1,380
2013		1,380
2014		1,380
2015		1,380
2016		1,380
Thereafter		59,223
	$	66,123

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

The Company's comprehensive income (loss) equals its net income (loss) available to common shareholders and the Company had no items classified in accumulated other comprehensive loss for the periods ended December 31, 2011 and 2010.

Use of Estimates

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

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company's financial position. Should any of the hotels experience a significant decline in operational performance, it may affect the Company's ability to make distributions to our shareholders and service debt or meet other financial obligations.

Fair Value Measurements

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses, and mortgage debt. Due to their short maturities, the carrying amounts of cash and cash equivalents, restricted cash, and accounts payable and accrued expenses approximate fair value.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. As of December 31, 2011, the carrying value and estimated fair value of the Company's debt was $251.5 million and $251.2 million, respectively. As of December 31, 2010, the carrying value and estimated fair value of the Company's debt was $143.6 million and $143.9 million, respectively.

The Company performs the fair value measurement on its interest rate cap using level 2 inputs on a recurring basis. The fair value of the derivative is inconsequential. Because there was no impairment indicated for any non-financial assets during the periods presented, no non-financial assets were subject to measurement on a non-recurring basis.

Investment in Hotel Properties

Upon acquisition of hotel properties, the Company allocates the purchase price based on 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 arrangement terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.

Acquisition costs are expensed as incurred.

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

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

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying 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 its hotel properties, the Company makes 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. The Company will adjust 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.

The Company will classify a hotel as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist, and the sale is expected to close within one year. If these criteria are met and if the fair value less costs to sell is lower than the carrying amount of the hotel, the Company will record an impairment loss and will cease recording depreciation expense. The Company will classify the loss, together with the related operating results, as discontinued operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.

.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property insurance.

Prepaid Expenses and Other Assets

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

Deferred Financing Costs

Financing costs are recorded at cost and consist of loan fees and other costs incurred in connection with obtaining debt. Amortization of deferred financing costs is computed using a method, which approximates the effective interest method over the remaining life of the debt, and is included in interest expense in the accompanying consolidated statements of operations.

Derivative Instruments

In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are 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, based on the applicable hedge accounting guidance. As of December 31, 2011 and 2010, the Company has an interest rate cap in connection with the mortgage debt assumed with its acquisition of the Sofitel Philadelphia hotel. This interest rate cap was not designated as a hedging instrument and as such, changes in the fair value of the instrument have been recorded in the Company's statement of operations. At December 31, 2011 and 2010, the estimated fair value of the interest rate cap was immaterial and the change in fair value was inconsequential to the periods presented.

Revenue Recognition

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary amenities. Revenue is recognized when rooms are occupied and services have been rendered. The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the statement of operations.

Income Taxes

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, PHL, which leases the Company's hotels from the Operating Partnership, is subject to federal and state income taxes.

The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2011 and 2010, the Company did not have any uncertain tax positions and had not incurred any interest or penalties on such positions during the periods presented. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating expenses.

Share-based Compensation

The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight line basis over the vesting period. The determination of fair value of these awards is subjective and involves significant estimates. The long-term incentive partnership ("LTIP") units were valued using a Monte Carlo simulation method model, which required a number of assumptions including expected volatility of the Company's stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units.

Non-controlling Interests of Common Units of Operating Partnership

Limited partner interests in the Operating Partnership other than those held by the Company, if any, are considered non-controlling interests. Generally, non-controlling interests are presented on the balance sheet as either shareholders equity or outside of shareholders equity depending upon specific provisions of the governing documents related to such an interest. The Operating Partnership may issue limited partnership interests as full or partial consideration to hotel sellers or to employees or other individuals for services performed. These limited partners will have redemption rights which will permit them to redeem their interests in exchange for cash or common shares, on a one-for-one basis, at the option of the Company. Because the Operating Partnership agreement permits the settlement of the redemption feature for unregistered common shares and because the Company will control the actions and events necessary to issue the number of shares that are required to be delivered at the redemption date, the non-controlling limited partner interests in the Operating Partnership are presented as a separate component of shareholder's equity on the balance sheet. The approximate redemption value of the non-controlling interests is equivalent to the units outstanding valued at the closing common share price at the end of the period, which we assume would be equal to the value provided to the limited partners upon liquidation of the Operating Partnership. The Company's revenues, expenses and net income or loss will include amounts attributable to both the controlling and non-controlling interests. Amounts attributable to non-controlling interests will be deducted from net income or loss to arrive at net income or loss attributable to common shareholders on the statement of operations.

Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available for common shareholders adjusted for dividends on unvested share-based compensation, by the weighted average number of common shares outstanding plus potentially dilutive securities. Any anti-dilutive securities are excluded from the diluted per share calculation.

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board ("IASB") (collectively the "Boards") issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"). ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

XML

Supplemental Information to Statements of Cash Flows (Tables)

12 Months Ended

Dec. 31, 2011

Supplemental Information to Statements of Cash Flows [Abstract]

Summary of Supplemental Information to Statements of Cash Flows

	Year Ended December 31, 2011		Year Ended December 31, 2010		From October  2, 2009 (inception) to December 31, 2009
	(In thousands)
Interest paid	$	11,366	$	956	$	—
Income taxes paid	$	586	$	—	$	—
Non-Cash Investing and Financing Activities:
Distributions payable to common shares/units	$	6,219	$	4,908	$	—
Distributions payable to preferred shares	$	3,813	$	—	$	—
Accrual of offering costs, including $8.1 million of underwriting discount	$	—	$	—	$	9,532
Mortgage loan assumed in connection with acquisition	$	42,000	$	91,070	$	—
Deposit applied to purchase price of acquisition	$	5,000	$	—	$	—
Issuance of common shares for board of trustees compensation	$	182	$	12	$	—
Accrued additions and improvements to hotel properties	$	2,171	$	—	$	—

XML

Investment in Unconsolidated Joint Ventures (Details) (USD $) In Thousands, unless otherwise specified	5 Months Ended	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2011
Summarized results of operations of investment in the Manhattan Collection joint venture
Revenues	$ 82,124
Total expenses	75,992
Net income	6,132
Company's 49% interest of net income	3,005	2,336
Basis adjustment	(669)
Equity in earnings in unconsolidated joint ventures	$ 2,336

XML

Income Taxes (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Income Tax (Textual) [Abstract]
Adjusted taxable income required to qualify as REIT	90.00%
Statutory federal tax benefit	34.00%
Deferred tax asset		$ 0.1

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Investment in hotel properties, net	$ 1,127,484	$ 599,714
Investment in unconsolidated joint ventures	171,765	0
Ground lease asset, net	10,502	10,721
Cash and cash equivalents	65,684	220,722
Restricted cash	9,469	4,485
Hotel receivables (net of allowance for doubtful accounts of $71 and $13 respectively)	11,312	3,924
Deferred financing costs, net	3,487	2,718
Prepaid expenses and other assets	16,929	13,231
Total assets	1,416,632	855,515
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior unsecured revolving credit facility	0	0
Mortgage debt	251,539	143,570
Accounts payable and accrued expenses	33,333	15,799
Advance deposits	4,380	2,482
Accrued interest	1,000	304
Distribution payable	10,032	4,908
Total liabilities	300,284	167,063
Shareholders' equity:
Preferred shares of beneficial interest, $.01 par value (liquidation preference of $225,000 at December 31, 2011), 100,000,000 shares authorized; 9,000,000 and 0 shares issued and outstanding at December 31, 2011 and at December 31, 2010, respectively	90	0
Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 50,769,024 issued and outstanding at December 31, 2011 and 39,814,760 issued and outstanding at December 31, 2010 respectively	508	398
Additional paid-in capital	1,142,905	698,100
Accumulated deficit and distributions	(30,252)	(11,586)
Total shareholders' equity	1,113,251	686,912
Non-controlling interests	3,097	1,540
Total equity	1,116,348	688,452
Total liabilities and equity	$ 1,416,632	$ 855,515

XML

Debt (Details Textual 1) (USD $)			12 Months Ended
	Dec. 31, 2011 Sofitel Philadelphia [Member]	Dec. 31, 2010 Sofitel Philadelphia [Member]	Dec. 31, 2011 Sofitel Philadelphia [Member] First Mortgage [Member]	Dec. 31, 2011 Argonaut Hotel [Member] First Mortgage [Member]	Dec. 31, 2011 Skamania Lodge [Member] First Mortgage [Member]	Dec. 31, 2011 Double Tree By Hilton Bethesda Washington D C [Member] First Mortgage [Member]
Mortgage Loans on Real Estate [Line Items]
Principal of mortgage loan				$ 42,000,000	$ 31,000,000	$ 36,000,000
Term of mortgage loan					5 years	5 years
Interest Rate				5.67%	5.44%	5.28%
Debt instrument, monthly principal and interest payments					$ 174,898	$ 199,407
Mortgage loan monthly payment beginning date						March 2012
Mortgage debt interest rate	1.57%	1.57%
Maturity date			Feb. 01, 2012	Mar. 01, 2012	Feb. 01, 2016	Feb. 01, 2016
LIBOR base rate plus	1.30%

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010
Operating activities:
Net income (loss)	$ (147)	$ 15,199	$ (6,642)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		30,945	5,776
Share-based compensation	79	2,654	2,042
Amortization of deferred financing costs		1,555	415
Amortization of ground lease		219	69
Equity in earnings of unconsolidated joint ventures		(2,336)
Other		225	80
Changes in assets and liabilities:
Restricted cash, net		(408)	(1,886)
Hotel receivables		(6,426)	(2,712)
Prepaid expenses and other assets	(284)	(4,481)	(4,192)
Accounts payable and accrued expenses	371	10,715	10,491
Advance deposits		215	13
Net cash provided by operating activities	19	48,076	3,454
Investing activities:
Acquisition of hotel properties		(467,135)	(518,730)
Improvements and additions to hotel properties		(40,468)	(3,307)
Contributions to joint ventures		(169,430)
Deposit on hotel property			(5,000)
Redemption (purchase) of certificates of deposits	(70,000)		70,000
Purchase of corporate office equipment, computer software, and furniture		(148)	(497)
Restricted cash, net		(4,576)	(2,600)
Net cash used in investing activities	(70,000)	(681,757)	(460,134)
Financing activities:
Gross proceeds from issuance of common shares	405,200	235,980	332,350
Gross proceeds from issuance of preferred shares		225,150
Payment of offering costs - common and preferred shares	(16,100)	(17,243)	(23,434)
Payment of deferred financing costs		(2,324)	(3,133)
Contributions from non-controlling interests		95
Borrowings under senior unsecured revolving credit facility		42,000
Repayments under senior unsecured revolving credit facility		(42,000)
Proceeds from mortgage debt		67,000	52,500
Repayments of mortgage debt		(1,031)
Repurchase of common shares		(140)
Distributions - common shares/units		(22,244)
Distributions - preferred shares		(6,600)
Net cash provided by financing activities	389,100	478,643	358,283
Net change in cash and cash equivalents	319,119	(155,038)	(98,397)
Cash and cash equivalents, beginning of year		220,722	319,119
Cash and cash equivalents, end of year	$ 319,119	$ 65,684	$ 220,722

XML

Subsequent Events (Details) (USD $)	12 Months Ended		1 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Feb. 29, 2012 Argonaut Hotel [Member]	Jan. 31, 2012 Argonaut Hotel [Member]	Jan. 31, 2012 Monaco Washington D C [Member]	Feb. 29, 2012 Sofitel Philadelphia [Member]	Feb. 29, 2012 Executive Officers [Member]	Feb. 29, 2012 Employees [Member]	Feb. 29, 2012 Minimum [Member]	Feb. 29, 2012 Maximum [Member]	Feb. 29, 2012 Issuance Of Equity [Member] Minimum [Member] Executive Officers [Member]	Feb. 29, 2012 Issuance Of Equity [Member] Maximum [Member] Executive Officers [Member]
Subsequent Events (Textual) [Abstract]
Total amount in which company acquired					$ 46,000,000
Mortgage debt	251,539,000	143,570,000			35,000,000
Interest Rate			4.25%		4.36%
Debt instrument, monthly principal and interest payments			0.30		0.20
Total amount repaid	1,031,000			42,000,000		56,100,000
Principal balance in mortgage loan			47,000,000
Repayment of loan from cash on hand				31,000,000
Repayment of loan from senior secured loan facility				$ 15,000,000
Restricted stock granted							52,509	52,509
Performance stock granted							72,056	72,056
Restricted stock vesting period									3 years	5 years
Stock issued during period to related parties percentage of target amount											0.00%	200.00%

XML

Summary of Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies (Textual) [Abstract]
Accumulated other comprehensive income (loss)	$ 0	$ 0
Carrying amount of fair value	251,539,000	143,570,000
Fair value estimated amount	251,200,000	143,900,000
Short-term liquid investments original maturity	three months or less
Percentage of adjusted taxable income to shareholders	90.00%
Liability for Uncertain Tax Positions, Current	0	0
Income Tax Examination, Penalties and Interest Expense	$ 0	$ 0
Land, Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life minimum	10
Estimated useful life maximum	40
Furniture, fixtures and equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life minimum	1
Estimated useful life maximum	10

XML

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

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

Certain reclassifications have been made to the prior period's financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

The Company's comprehensive income (loss) equals its net income (loss) available to common shareholders and the Company had no items classified in accumulated other comprehensive loss for the periods ended December 31, 2011 and 2010.

Use of Estimates

Use of Estimates

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

Risks and Uncertainties

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company's financial position. Should any of the hotels experience a significant decline in operational performance, it may affect the Company's ability to make distributions to our shareholders and service debt or meet other financial obligations.

Fair Value Measurements

Fair Value Measurements

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses, and mortgage debt. Due to their short maturities, the carrying amounts of cash and cash equivalents, restricted cash, and accounts payable and accrued expenses approximate fair value.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. As of December 31, 2011, the carrying value and estimated fair value of the Company's debt was $251.5 million and $251.2 million, respectively. As of December 31, 2010, the carrying value and estimated fair value of the Company's debt was $143.6 million and $143.9 million, respectively.

The Company performs the fair value measurement on its interest rate cap using level 2 inputs on a recurring basis. The fair value of the derivative is inconsequential. Because there was no impairment indicated for any non-financial assets during the periods presented, no non-financial assets were subject to measurement on a non-recurring basis.

Investment in Hotel Properties

Investment in Hotel Properties

Upon acquisition of hotel properties, the Company allocates the purchase price based on 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 arrangement terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.

Acquisition costs are expensed as incurred.

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

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

The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying 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 its hotel properties, the Company makes 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. The Company will adjust 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.

The Company will classify a hotel as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist, and the sale is expected to close within one year. If these criteria are met and if the fair value less costs to sell is lower than the carrying amount of the hotel, the Company will record an impairment loss and will cease recording depreciation expense. The Company will classify the loss, together with the related operating results, as discontinued operations on the statements of operations and classify the assets and related liabilities as held for sale on the balance sheet.

Cash and Cash Equivalents

Cash and Cash Equivalents

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

Restricted Cash

Restricted Cash

Restricted cash primarily consists of reserves for replacement of furniture and fixtures and cash held in escrow pursuant to lender requirements to pay for real estate taxes or property insurance.

Prepaid Expenses and Other Assets

Prepaid Expenses and Other Assets

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

Deferred Financing Costs

Deferred Financing Costs

Financing costs are recorded at cost and consist of loan fees and other costs incurred in connection with obtaining debt. Amortization of deferred financing costs is computed using a method, which approximates the effective interest method over the remaining life of the debt, and is included in interest expense in the accompanying consolidated statements of operations.

Derivative Instruments

Derivative Instruments

In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company may enter into derivative instruments including interest rate swaps, caps and collars to manage or hedge interest rate risk. Derivative instruments are 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, based on the applicable hedge accounting guidance. As of December 31, 2011 and 2010, the Company has an interest rate cap in connection with the mortgage debt assumed with its acquisition of the Sofitel Philadelphia hotel. This interest rate cap was not designated as a hedging instrument and as such, changes in the fair value of the instrument have been recorded in the Company's statement of operations. At December 31, 2011 and 2010, the estimated fair value of the interest rate cap was immaterial and the change in fair value was inconsequential to the periods presented.

Revenue Recognition

Revenue Recognition

Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary amenities. Revenue is recognized when rooms are occupied and services have been rendered. The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the statement of operations.

Income Taxes

Income Taxes

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, PHL, which leases the Company's hotels from the Operating Partnership, is subject to federal and state income taxes.

The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2011 and 2010, the Company did not have any uncertain tax positions and had not incurred any interest or penalties on such positions during the periods presented. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating expenses.

Share-based Compensation

Share-based Compensation

The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight line basis over the vesting period. The determination of fair value of these awards is subjective and involves significant estimates. The long-term incentive partnership ("LTIP") units were valued using a Monte Carlo simulation method model, which required a number of assumptions including expected volatility of the Company's stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units.

Non-controlling Interests of Common Units in Operating Partnership

Non-controlling Interests of Common Units of Operating Partnership

Limited partner interests in the Operating Partnership other than those held by the Company, if any, are considered non-controlling interests. Generally, non-controlling interests are presented on the balance sheet as either shareholders equity or outside of shareholders equity depending upon specific provisions of the governing documents related to such an interest. The Operating Partnership may issue limited partnership interests as full or partial consideration to hotel sellers or to employees or other individuals for services performed. These limited partners will have redemption rights which will permit them to redeem their interests in exchange for cash or common shares, on a one-for-one basis, at the option of the Company. Because the Operating Partnership agreement permits the settlement of the redemption feature for unregistered common shares and because the Company will control the actions and events necessary to issue the number of shares that are required to be delivered at the redemption date, the non-controlling limited partner interests in the Operating Partnership are presented as a separate component of shareholder's equity on the balance sheet. The approximate redemption value of the non-controlling interests is equivalent to the units outstanding valued at the closing common share price at the end of the period, which we assume would be equal to the value provided to the limited partners upon liquidation of the Operating Partnership. The Company's revenues, expenses and net income or loss will include amounts attributable to both the controlling and non-controlling interests. Amounts attributable to non-controlling interests will be deducted from net income or loss to arrive at net income or loss attributable to common shareholders on the statement of operations.

Earnings Per Share

Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available for common shareholders adjusted for dividends on unvested share-based compensation, by the weighted average number of common shares outstanding plus potentially dilutive securities. Any anti-dilutive securities are excluded from the diluted per share calculation.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board ("IASB") (collectively the "Boards") issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"). ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

XML

Acquisitions of Hotel Properties (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	$ 738
Net working capital	(2,324)
Net assets acquired	514,135
Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	83,769
Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	402,915
Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	28,847
In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	190
Argonaut Hotel [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	71
Net working capital	193
Net assets acquired	84,193
Argonaut Hotel [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	0
Argonaut Hotel [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	79,492
Argonaut Hotel [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	4,247
Argonaut Hotel [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	190
Westin Gaslamp Quarter [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	78
Net working capital	(931)
Net assets acquired	117,623
Westin Gaslamp Quarter [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	25,537
Westin Gaslamp Quarter [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	86,113
Westin Gaslamp Quarter [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	6,826
Westin Gaslamp Quarter [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	0
Monaco Seattle [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	84
Net working capital	(251)
Net assets acquired	50,899
Monaco Seattle [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	10,105
Monaco Seattle [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	38,888
Monaco Seattle [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	2,073
Monaco Seattle [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	0
Mondrian Los Angeles [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	75
Net working capital	74
Net assets acquired	136,829
Mondrian Los Angeles [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	20,306
Mondrian Los Angeles [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	110,283
Mondrian Los Angeles [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	6,091
Mondrian Los Angeles [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	0
Viceroy Miami [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	163
Net working capital	(146)
Net assets acquired	36,354
Viceroy Miami [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	8,368
Viceroy Miami [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	24,246
Viceroy Miami [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	3,723
Viceroy Miami [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	0
W Boston [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Inventory	267
Net working capital	(1,263)
Net assets acquired	88,237
W Boston [Member] | Land [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	19,453
W Boston [Member] | Building and improvements [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	63,893
W Boston [Member] | Furniture, fixtures and equipment [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	5,887
W Boston [Member] | In place lease assets [Member]
Summary of allocation of fair value to the acquired assets and liabilities
Business acquisition, purchase price allocation	$ 0

XML

Investment in Hotel Properties (Tables)

12 Months Ended

Dec. 31, 2011

Investment in Hotel Properties [Abstract]

Schedule of Investment in hotel properties

	December 31,
	2011			2010
Land	$	190,197		$	106,428
Buildings and improvements		887,217			460,988
Furniture, fixtures and equipment		86,138			37,966
Investment in hotel properties	$	1,163,552		$	605,382
Less: Accumulated depreciation		(36,068	)		(5,668	)
Investment in hotel properties, net	$	1,127,484		$	599,714

XML

Organization

12 Months Ended

Dec. 31, 2011

Organization [Abstract]

ORGANIZATION

NOTE 1. ORGANIZATION

Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust on October 2, 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major coastal markets. On December 14, 2009, the Company raised $379.6 million, net of underwriting discounts and offering costs, in an initial public offering and concurrent private placement of common shares of beneficial interest ("common shares"). The Company had no business activity prior to the initial public offering.

As of December 31, 2011, the Company owned interests in 20 hotels, including 14 wholly owned hotels, with a total of 3,812 guest rooms and a 49% joint venture interest in six hotels with 1,733 guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Bethesda, Maryland; Boston, Massachusetts; Miami, Florida; Minneapolis, Minnesota; New York, New York; Philadelphia, Pennsylvania; San Diego, California; San Francisco, California; Santa Monica, California; Seattle, Washington; Stevenson, Washington; Washington, D.C. and West Hollywood California.

Substantially all of the Company's assets are held by, and all of the operations are conducted through, Pebblebrook Hotel, L.P., (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At December 31, 2011 and 2010, the Company owned 98.2 percent and 100 percent, respectively, of the common limited partnership interests issued by the Operating Partnership ("common units"). The remaining 1.8 percent and zero percent of the common units issued by the Operating Partnership were owned by the other limited partners of the Operating Partnership at December 31, 2011 and 2010, respectively. For the Company to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code, it cannot operate the hotels it owns. Therefore, its Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively, "PHL"), the Company's taxable REIT subsidiary ("TRS"), which in turn engages third-party eligible independent contractors to manage the hotels. PHL is consolidated into the Company's financial statements.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Allowance for doubtful accounts	$ 71	$ 13
Preferred shares of beneficial interest, par value	$ 0.01	$ 0.01
Preferred shares of beneficial interest, liquidation preference value	$ 225,000	$ 0
Preferred shares of beneficial interest, shares authorized	100,000,000	100,000,000
Preferred shares of beneficial interest, shares issued	9,000,000	0
Preferred shares of beneficial interest, shares outstanding	9,000,000	0
Common shares of beneficial interest, par value	$ 0.01	$ 0.01
Common shares of beneficial interest, shares authorized	500,000,000	500,000,000
Common shares of beneficial interest, shares issued	50,769,024	39,814,760
Common shares of beneficial interest, shares outstanding	50,769,024	39,814,760

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11. COMMITMENTS AND CONTINGENCIES

Management Agreements

The Company's hotel properties operate pursuant to management agreements with various management companies. The initial term of these management agreements ranges from five years to 20 years not including renewals, and five years to 40 years including renewals. Many of the Company's management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to six times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company's management agreements are non-terminable except upon the manager's breach of a material representation or the manager's failure to meet performance thresholds as defined in the management agreement.

The management agreements require the payment of a base management fee generally between 2% and 4% of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceeds certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. For the years ended December 31, 2011, 2010 and 2009, base and incentive management fees were $8.1 million, $1.7 million and $0, respectively.

Reserve Funds

Certain of the Company's agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, typically 4.0% of hotel revenues, sufficient to cover the cost of (a) certain non- routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels' furniture, fixtures, and equipment.

Restricted Cash

At December 31, 2011 and 2010, the Company had $9.5 million and $4.5 million, respectively, in restricted cash, which consists of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or lender requirements.

Ground Lease

The Monaco Washington DC is subject to a long-term ground lease agreement on the land underlying the hotel. The ground lease expires in 2059. The hotel is required to pay the greater of an annual base rent of $0.2 million or a percentage of gross hotel revenues and gross food and beverage revenues in excess of certain thresholds, as defined in the agreement. The lease contains certain restrictions on modifications that can be made to the structure due to its status as a national historic landmark.

The Company assumed a long-term ground lease agreement in connection with its acquisition of the Argonaut Hotel. The ground lease expires in 2059. The hotel is required to pay the greater of an annual base rent of $1.2 million or a percentage of rooms revenues, food and beverage revenues and other department revenues in excess of certain thresholds, as defined in the agreement. The lease contains certain restrictions on modifications that can be made to the structure due to its status as a national historic landmark.

Future minimum annual rental payments under these leases, which assumes base rent for all periods and no assumptions for CPI adjustments, as of December 31, 2011 is as follows (in thousands):

2012	$	1,380
2013		1,380
2014		1,380
2015		1,380
2016		1,380
Thereafter		59,223
	$	66,123

Litigation

The nature of the operations of the hotels exposes the hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company may obtain insurance to cover potential material losses. The Company is not presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company.

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Feb. 15, 2012	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Pebblebrook Hotel Trust
Entity Central Index Key	0001474098
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 1,021,924,098
Entity Common Stock, Shares Outstanding		50,951,943

XML

Supplemental Information to Statements of Cash Flows

12 Months Ended

Dec. 31, 2011

Supplemental Information to Statements of Cash Flows [Abstract]

SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

NOTE 12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

	Year Ended December 31, 2011		Year Ended December 31, 2010		From October  2, 2009 (inception) to December 31, 2009
	(In thousands)
Interest paid	$	11,366	$	956	$	—
Income taxes paid	$	586	$	—	$	—
Non-Cash Investing and Financing Activities:
Distributions payable to common shares/units	$	6,219	$	4,908	$	—
Distributions payable to preferred shares	$	3,813	$	—	$	—
Accrual of offering costs, including $8.1 million of underwriting discount	$	—	$	—	$	9,532
Mortgage loan assumed in connection with acquisition	$	42,000	$	91,070	$	—
Deposit applied to purchase price of acquisition	$	5,000	$	—	$	—
Issuance of common shares for board of trustees compensation	$	182	$	12	$	—
Accrued additions and improvements to hotel properties	$	2,171	$	—	$	—

XML

Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010
Revenues:
Room		$ 177,479	$ 32,804
Food and beverage		92,898	21,984
Other operating department		17,610	2,973
Total revenues		287,987	57,761
Hotel operating expenses:
Room		47,570	9,718
Food and beverage		65,783	15,113
Other direct		8,353	1,288
Other indirect		79,648	16,724
Total hotel operating expenses		201,354	42,843
Depreciation and amortization		30,945	5,776
Real estate taxes, personal property taxes and property insurance		12,895	2,220
Ground rent		1,814	124
General and administrative	262	11,460	8,319
Hotel acquisition costs		3,392	6,581
Total operating expenses	262	261,860	65,863
Operating income (loss)	(262)	26,127	(8,102)
Interest income	115	868	3,020
Interest expense		(13,653)	(1,640)
Other		85
Equity in earnings of unconsolidated joint ventures		2,336
Income (loss) before income taxes	(147)	15,763	(6,722)
Income tax (expense) benefit		(564)	80
Net income (loss)	(147)	15,199	(6,642)
Net income (loss) attributable to non-controlling interests		343
Net income (loss) attributable to the Company	(147)	14,856	(6,642)
Distributions to preferred shareholders		(10,413)
Net income (loss) attributable to common shareholders	$ (147)	$ 4,443	$ (6,642)
Net income (loss) per share available to common shareholders - basic and diluted	$ (0.04)	$ 0.08	$ (0.23)
Weighted-average number of common shares, basic	4,011,198	47,921,200	28,669,851
Weighted-average number of common shares, diluted	4,011,198	47,966,307	28,669,851

XML

Debt

12 Months Ended

Dec. 31, 2011

Debt [Abstract]

DEBT

NOTE 6. DEBT

Senior Unsecured Revolving Credit Facility

On June 3, 2011, the Company amended and restated in its entirety the credit facility agreement that it had entered into in July 2010. The Company's credit facility is now unsecured and the borrowing capacity has been increased by $50.0 million to $200.0 million. The senior unsecured revolving credit facility matures on June 3, 2014, and the Company has a one-year extension option. The Company has the ability to increase the senior unsecured revolving credit facility borrowing capacity up to a maximum capacity of $400.0 million with lender approval. Borrowings on the senior unsecured revolving credit facility bear interest at LIBOR plus 2.5% to 3.5%, depending on the Company's leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.35% or 0.50% of the unused portion of the senior unsecured revolving credit facility, depending on the amount of borrowings outstanding. The senior unsecured revolving credit facility contains certain financial covenants, including a maximum leverage ratio, a maximum debt service coverage ratio, a minimum fixed charge coverage ratio and minimum net worth. The Company incurred approximately $1.3 million in fees in connection with this amendment which are amortized over the term of the credit facility. As of December 31, 2011 and 2010, the Company had no outstanding borrowings under the senior unsecured revolving credit facility. As of December 31, 2011, the Company was in compliance with the senior unsecured revolving credit facility debt covenants. For the years ended December 31, 2011 and 2010, the Company incurred unused commitment fees of $0.9 million and $0.4 million, respectively.

Mortgage Debt

As of December 31, 2011, each of the Company's mortgage loans was secured by a first-mortgage lien or by leasehold interests under the ground lease on the underlying property. The mortgages are non-recourse to the Company except for fraud or misapplication of funds. The mortgage loans contain certain property specific covenants and restrictions, including minimum debt service coverage ratios that may trigger "cash trap" provisions as well as restrictions on incurring additional property specific debt without lender consent. The Company is in compliance with all debt covenants as of December 31, 2011.

On January 6, 2011, the Company entered into a first-mortgage loan on the Skamania Lodge. The debt has a principal balance of $31.0 million, a term of five years, bears interest at 5.44% and requires monthly principal and interest payments of $174,898.

On January 21, 2011, the Company entered into a first-mortgage loan on the DoubleTree by Hilton Bethesda-Washington DC. The debt has a principal balance of $36.0 million, a term of five years, bears interest at 5.28% and requires interest-only payments for the first 12 months and, beginning in March 2012, will require monthly principal and interest payments of $199,407 through February 2016, the maturity date.

In conjunction with the Company's acquisition of the Argonaut Hotel, the Company assumed a $42.0 million interest-only first-mortgage loan. The debt matures in March 2012 and has a fixed annual interest rate of 5.67%.

Mortgage debt consisted of the following (in thousands):

				Balance Outstanding as of
	Interest Rate		Maturity Date	December 31, 2011		December 31, 2010
Sofitel Philadelphia		Floating(1)	February 2012	$	56,070	$	56,070
Monaco Washington DC		5.68%	March 2012		35,000		35,000
Argonaut Hotel		5.67%	March 2012		42,000		—
InterContinental Buckhead		4.88%	January 2016		51,805		52,500
Skamania Lodge		5.44%	February 2016		30,664		—
DoubleTree by Hilton Bethesda-Washington DC		5.28%	February 2016		36,000		—
				$	251,539	$	143,570

⁽¹⁾ Mortgage debt bears interest at LIBOR plus 1.3%. The interest rates as of December 31, 2011 and December 31, 2010 were both 1.57%.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity. The estimated fair value of the Company's debt as of December 31, 2011 and 2010 was $251.2 million and $143.9 million, respectively.

Future scheduled debt principal payments as of December 31, 2011 are as follows (in thousands):

2012	$	134,738
2013		1,775
2014		1,869
2015		1,969
2016		111,188
Thereafter		—
Total debt	$	251,539

XML

Investment in Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 2011

Investment in Unconsolidated Joint Ventures [Abstract]

Investment in Unconsolidated Joint Ventures

NOTE 5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

On July 29, 2011, the Company acquired a 49% interest in a joint venture (the "Manhattan Collection joint venture"), which owns six properties in New York, New York, for $152.6 million plus working capital. The transaction values the six hotels at approximately $908.0 million (subject to working capital and similar adjustments). The Company accounts for this investment using the equity method. The joint venture has approximately $549.0 million in total assets. The joint venture's total liabilities and members' deficit include approximately $581.0 million in existing first mortgage and mezzanine debt which matures in February 2013 and approximately $76.6 million of preferred capital which may be distributed after the later of 27 months from July 29, 2011 or the date on which the joint venture refinances, modifies, or extends its debt. The Company is not a guarantor of any existing debt of the joint venture except for limited customary carve-outs related to fraud or misapplication of funds.

At the time of the Company's investment, the estimated fair value of the hotel properties owned by the Manhattan Collection joint venture exceeded the carrying value. This basis difference between the Company's investment in the joint ventures and the Company's proportionate 49% interest in these depreciable assets held by the joint venture is amortized over the estimated life of the underlying assets and recognized as a component of equity in earnings of unconsolidated joint ventures (referred to as the basis adjustment in the table below).

The summarized results of operations of our investment in the Manhattan Collection joint venture from the acquisition date to December 31, 2011 are presented below (in thousands):

	For the Period from July 29, 2011 (date of investment) through December 31, 2011
Revenues	$	82,124
Total expenses		75,992
Net income		6,132
Company's 49% interest of net income		3,005
Basis adjustment		(669	)
Equity in earnings in unconsolidated joint ventures	$	2,336

XML

Acquisition of Hotel Properties (Tables)

12 Months Ended

Dec. 31, 2011

Acquisition of Hotel Properties [Abstract]

Summary of allocation of fair value to the acquired assets and liabilities

	Argonaut Hotel		Westin Gaslamp Quarter			Hotel Monaco Seattle			Mondrian Los Angeles		Viceroy Miami			W Boston			Total
Land	$	—	$	25,537		$	10,105		$	20,306	$	8,368		$	19,453		$	83,769
Buildings and improvements		79,492		86,113			38,888			110,283		24,246			63,893			402,915
Furniture, fixtures and equipment		4,247		6,826			2,073			6,091		3,723			5,887			28,847
In place lease assets		190		—			—			—		—			—			190
Inventory		71		78			84			75		163			267			738
Net working capital		193		(931	)		(251	)		74		(146	)		(1,263	)		(2,324	)
Net assets acquired	$	84,193	$	117,623		$	50,899		$	136,829	$	36,354		$	88,237		$	514,135

Acquisition of unaudited proforma information

	For the Year Ended December 31,
	2011		2010
	(Unaudited)		(Unaudited)
Total revenues	$	330,215	$	306,354
Operating income		30,873		21,441
Net income attributable to common shareholders		6,230		16,074
Net income per share available to common shareholders—basic and diluted	$	0.12	$	0.34

XML

Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 13. SUBSEQUENT EVENTS

In January 2012, the Company obtained a $46.0 million loan secured by the Company's leasehold interest under the ground lease on the Monaco Washington DC hotel. The proceeds from this loan were used to pay down the existing $35.0 million mortgage on this property and the remaining will be used for general corporate purpose. This loan has a fixed interest rate of 4.36 percent per annum and requires monthly principal and interest payments of $0.2 million through February 2017, the maturity date.

In January 2012, the Company repaid the $42.0 million loan on the Argonaut Hotel with $31.0 million from cash on hand and $15.0 million of borrowings from our senior unsecured credit facility. In February 2012, the Company obtained a new $47.0 million loan secured by this property. The proceeds from this loan were used to partially pay down the balance on the credit facility. This loan has a fixed interest rate of 4.25 percent per annum and requires monthly principal and interest payments of $0.3 million through March 2017, the maturity date.

In February 2012, the Company repaid the $56.1 million loan on the Sofitel Philadelphia hotel with borrowings from its senior unsecured revolving credit facility.

In February 2012, the Board of Trustees granted an aggregate of 52,509 restricted shares to executive officers and employees of the Company. These restricted shares will vest over approximately 3 or 5 years based on the terms of the award.

In February 2012, the Board of Trustees granted 72,056 performance-based share awards to executive officers and employees of the Company. The actual number of common shares issuable under the performance-based share awards will be based on certain performance goals stipulated in the agreements over the period from January 1, 2012 through December 31, 2014 and will be determined in early 2015. The actual shares issued may be less than or greater than the target number of share awards based upon performance level attained. The actual shares issued for executive officers can range from 0% to 200% of the target amount. There is no maximum number of actual shares issued to employees. None of the common shares issuable under the performance awards will be outstanding until issued in accordance with the award agreements. After the actual number of shares under the performance awards are determined, the shares will become issued and outstanding. In addition, once the number of performance shares is determined, the executive officers and employees will receive cash payments equal to the total amount of dividends paid on an equivalent number of common shares from February 8, 2012 until the determination date.

XML

Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

INCOME TAXES

NOTE 9. INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its shareholders. It is the Company's current intention to adhere to these requirements and maintain the Company's qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable-REIT subsidiaries is subject to federal, state and local income taxes. PHL is a TRS of the Company and as such is required to pay federal and state income taxes as a regular C Corporation.

The Company's provision (benefit) for income taxes for PHL, the Company's TRS, consists of the following (in thousands):

	For the Year Ended December 31,
	2011		2010			2009
Federal	$	—	$	—		$	—
Current		374		—			—
Deferred		70		(70	)		—
State and local							—
Current		110		—			—
Deferred		10		(10	)		—
Income tax expense (benefit)	$	564	$	(80	)	$	—

A reconciliation of the statutory federal tax expense (benefit) to the Company's income tax expense (benefit) for our TRS is as follows:

	For the Year Ended December 31,
	2011		2010			2009
Statutory federal tax expense (benefit) at 34%	$	444	$	(70	)	$	—
State income tax expense (benefit)		120		(10	)		—
	$	564	$	(80	)	$	—

For the year ended December 31, 2010, the Company had a deferred tax asset of $0.1 million associated with its net operating loss. This net operating loss was used to offset 2011 taxable income.

XML

Quarterly Operating Results (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended									12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010
Unaudited consolidated quarterly operating data
Total revenues	$ 84,409	$ 87,803	$ 73,110	$ 42,665	$ 33,908	$ 21,637	$ 2,216			$ 287,987	$ 57,761
Net income (loss)	8,106	5,838	4,299	(3,044)					(147)	15,199	(6,642)
Net income (loss) attributable to the Company	7,962	5,724	4,214	(3,044)	(1,921)	(308)	(3,814)	(599)	(147)	14,856	(6,642)
Net income (loss) attributable to common shareholders	$ 3,456	$ 2,825	$ 1,753	$ (3,591)	$ (1,921)	$ (308)	$ (3,814)	$ (599)	$ (147)	$ 4,443	$ (6,642)
Net income (loss) per share available to common shareholders - basic and diluted	$ 0.07	$ 0.05	$ 0.03	$ (0.09)	$ (0.05)	$ (0.01)	$ (0.19)	$ (0.03)	$ (0.04)	$ 0.08	$ (0.23)

XML

Equity

12 Months Ended

Dec. 31, 2011

Equity [Abstract]

EQUITY

NOTE 7. EQUITY

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest ("common shares"), $.01 par value per share. Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Holders of the Company's common shares are entitled to receive dividends when authorized by our board of trustees.

On December 14, 2009, the Company issued 20,260,000 common shares and raised $379.6 million, net of underwriting discounts and offering costs, in an initial public offering and concurrent private placement of common shares.

On July 28, 2010, the Company issued 19,550,000 common shares and raised $318.3 million, net of underwriting discounts and offering-related costs, in a follow-on offering of common shares.

On April 6, 2011, the Company issued 10,925,000 common shares and raised $226.5 million, net of underwriting discounts and offering costs, in a follow-on offering of common shares.

On April 13, 2011, the Company filed a shelf registration statement on Form S-3 with the SEC. Under this shelf registration statement, the Company may issue common shares, preferred shares, debt securities, warrants and units from time to time.

Common Dividends

The Company paid or will pay the following dividends on common shares/units for the year ended December 31, 2011:

Dividend per Share/Unit	For the quarter ended	Record Date	Payable Date
$0.12	March 31, 2011	March 31, 2011	April 15, 2011
$0.12	June 30, 2011	June 30, 2011	July 15, 2011
$0.12	September 30, 2011	September 30, 2011	October 17, 2011
$0.12	December 31, 2011	December 31, 2011	January 16, 2012

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share.

The Company had no preferred shares outstanding as of December 31, 2010. On March 11, 2011, the Company issued 5,000,000 shares of its 7.875% Series A Cumulative Redeemable Preferred Shares ("Series A Preferred Shares") at a public offering price of $25.00 per share, for a total of approximately $120.9 million of net proceeds, after deducting the underwriting discount and other offering-related costs.

On July 14, 2011, the Company issued 600,000 Series A Preferred Shares at a price of $25.25 per share for a total of approximately $15.1 million in net proceeds.

On September 14, 2011, the Company issued 3,400,000 shares of its 8.00% Series B Cumulative Redeemable Preferred Shares ("Series B Preferred Shares") at a public offering price of $25.00 per share, for a total of approximately $82.3 million of net proceeds, after deducting the underwriting discount and other offering-related costs.

The Series A Preferred Shares and the Series B Preferred Shares (collectively, the "Preferred Shares") rank senior to the common shares of beneficial interest and on parity with each other with respect to payment of distributions. The Preferred Shares are cumulative redeemable preferred shares. The outstanding Preferred Shares do not have any maturity date and are not subject to mandatory redemption. The Company may not optionally redeem the Series A Preferred Shares or Series B Preferred Shares prior to March 11, 2016 and September 21, 2016, respectively, except in limited circumstances relating to the Company's continuing qualification as a REIT or as discussed below. After those dates, the Company may, at its option, redeem the Preferred Shares, in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which the Company's common shares of beneficial interest and the common securities of the acquiring or surviving entity are not listed on the NYSE, NYSE Amex or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days after the change of control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of Preferred Shares have the right to convert some or all of their shares into a number of the Company's common shares of beneficial interest based on a defined formula subject to a share cap. The share cap on each Series A Preferred Share is 2.3234 common shares and the share cap on each Series B Preferred Share is 3.4483 common shares.

Preferred Dividends

The Company paid or will pay the following dividends on preferred shares for the year ended December 31, 2011:

Security Type	Dividend  per Share/Unit			For the quarter ended	Record Date	Payable Date
7.875% Series A	$	0.19	(1)	March 31, 2011	March 31, 2011	April 15, 2011
7.875% Series A	$	0.49		June 30, 2011	June 30, 2011	July 15, 2011
7.875% Series A	$	0.49		September 30, 2011	September 30, 2011	October 17, 2011
7.875% Series A	$	0.49		December 31, 2011	December 31, 2011	January 16, 2012
8.00% Series B	$	0.13	(1)	September 30, 2011	September 30, 2011	October 17, 2011
8.00% Series B	$	0.50		December 31, 2011	December 31, 2011	January 16, 2012

⁽¹⁾  Pro-rata payment for the partial quarter from the date of issuance.

Non-controlling Interest of Common Units of Operating Partnership

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

As of December 31, 2011 and 2010, the Operating Partnership had 929,099 long-term incentive partnership units ("LTIP units") outstanding, all of which are now equivalent to or have reached parity with common units in April 2011. As of December 31, 2011 and 2010, 362,170 and 185,820, respectively, of these LTIP units were vested. Only vested LTIP units may be converted to common units of the Operating Partnership which in turn can be redeemed for an equal number of common shares in the Company. No LTIP units were converted to common units during 2010 or 2011.

XML

Share-Based Compensation Plan

12 Months Ended

Dec. 31, 2011

Share-Based Compensation Plan [Abstract]

SHARE-BASED COMPENSATION PLAN

NOTE 8. SHARE-BASED COMPENSATION PLAN

The Company maintains the 2009 Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity based awards. As of December 31, 2011, there were 224,317 common shares available for issuance under the 2009 Equity Incentive Plan. Restricted share awards under this plan generally vest over three to five years. The Company pays dividends on unvested shares. Certain share awards may provide for accelerated vesting if there is a change in control. As of December 31, 2011, the Company has granted restricted share awards and LTIP units under the plan.

The following table provides a summary of restricted share activity:

	Shares			Weighted-Average Grant Date Fair Value
Unvested at October 2, 2009 (inception)		—		$	—
Granted		15,000		$	20.00
Unvested at December 31, 2009		15,000		$	20.00
Granted		70,110		$	20.98
Vested		(4,170	)	$	20.00
Forfeited		(2,500	)	$	20.00
Unvested at December 31, 2010		78,440		$	20.88
Granted		79,330		$	22.03
Vested		(26,874	)	$	20.83
Forfeited		(2,232	)	$	21.58
Unvested at December 31, 2011		128,664		$	21.59

The fair value of each restricted share award is determined based on the closing price of the Company's common shares on the grant date. As of December 31, 2011, there was $1.9 million of total unrecognized compensation expense related to unvested restricted shares and unrecognized compensation expense are expected to be recognized over a weighted-average of 1.8 years. For the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $1.1 million, $0.5 million and $5 thousand, respectively, in expense related to these restricted shares in the consolidated statement of operations.

Long-Term Incentive Partnership Units

LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Company's Operating Partnership and will receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. Prior to reaching parity with common units, LTIP units have a capital account balance of zero, do not receive an allocation of net income (loss) and do not have full parity with the common units with respect to liquidating distributions. If such parity is reached, vested LTIP units may be converted, at any time, into an equal number of common units and thereafter will possess all of the rights and interests of a common unit, including the right to redeem the common unit for a common share in the Company or cash, at the option of the Operating Partnership.

As of December 31, 2011, the Company had 929,099 LTIP units outstanding. Upon completion of the Company's equity offering of common shares on April 6, 2011, the Company determined that a revaluation event occurred, as defined in the Code, and the LTIP units achieved full parity with the common units with respect to liquidating distributions and all other purposes. These LTIP units are allocated their pro-rata share of the Operating Partnership's net income (loss).

All of the outstanding LTIP units were held by officers of the Company as of December 31, 2011. These LTIP units vest ratably on each of the first five anniversaries of their date of grant. The grant date fair value of the LTIP units was determined using a Monte Carlo simulation method model. The LTIP unit grants were valued at $8.50 per LTIP unit. As of December 31, 2011, 362,170 LTIP units have vested.

For the years ended December 31, 2011, 2010, and 2009, the Company recognized $1.6 million, $1.6 million and $0.1 million in share-based compensation expense related to the LTIP units, respectively. As of December 31, 2011 and 2010, there was $4.7 million and $6.2 million, respectively, of total unrecognized share-based compensation expense related to LTIP units. This unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of three years. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company's consolidated balance sheets.

XML

Earnings per Share

12 Months Ended

Dec. 31, 2011

Earnings per Share [Abstract]

EARNINGS PER SHARE

NOTE 10. EARNINGS PER SHARE

Earnings per share is computed by applying the provisions of the two-class method as the unvested restricted shares and LTIP units (unvested share-based compensation) are considered participating securities. The holders of these awards receive non-forfeitable dividends on their unvested shares and units. Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders adjusted for dividends on unvested share-based compensation by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders adjusted for dividends on unvested share-based compensation by the weighted-average number of common shares outstanding and potential common shares that are dilutive. The LTIP units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners' share of income (loss) would also be added or subtracted to derive at net income (loss) available to common shareholders.

The following is a reconciliation of the calculation of basic and diluted earnings (loss) per share (in thousands, except share and per-share data):

	For the Year Ended December 31,
	2011			2010			2009
Numerator:
Net income (loss) attributable to common shareholders	$	4,443		$	(6,642	)	$	(147	)
Less: Dividends paid on unvested share-based compensation		(398	)		(9	)		—
Net income (loss) available to common shareholders	$	4,045		$	(6,651	)	$	(147	)
Denominator:
Weighted-average number of common shares—basic		47,921,200			28,669,851			4,011,198
Effect of dilutive share-based compensation		45,107			—			—
Weighted-average number of common shares—diluted		47,966,307			28,669,851			4,011,198
Net income (loss) per share available to common shareholders—basic	$	0.08		$	(0.23	)	$	(0.04	)
Net income (loss) per share available to common shareholders—diluted	$	0.08		$	(0.23	)	$	(0.04	)

For the years ended December 31, 2010 and 2009, 78,440 and 15,000 of unvested restricted shares were excluded from diluted weighted-average common shares as their effect would have been anti-dilutive.

XML

Organization (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	1 Months Ended	0 Months Ended	3 Months Ended	12 Months Ended
	Apr. 06, 2011	Jul. 28, 2010	Dec. 14, 2009	Dec. 31, 2009	Dec. 31, 2011 properties	Dec. 31, 2010
Organization (Textual) [Abstract]
Common shares raised, net of underwriting discounts and offering costs	$ 226,500	$ 318,300	$ 379,600	$ 379,568	$ 443,888	$ 318,448
Number of hotels owned by the company					20
Number of wholly owned real estate properties					14
Total number of guest rooms					3,812
Percentage of joint venture interest in real estate properties					49.00%
Number of real estate properties in joint venture					6
Number of guest rooms in joint ventured real estate properties					1,733
Percentage of Operating Partnership units owned by company					98.20%	100.00%
Percentage of Operating Partnership units owned by other limited partners					1.80%	0.00%

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Federal
Current	$ 374
Deferred	70	(70)
State and local
Current	110
Deferred	10	(10)
Income Tax Expense (Benefit), Total	$ 564	$ (80)

XML

Real Estate and Accumulated Depreciation

12 Months Ended

Dec. 31, 2011

Real Estate and Accumulated Depreciation [Abstract]

Real Estate and Accumulated Depreciation

Pebblebrook Hotel Trust

Schedule III — Real Estate and Accumulated Depreciation

As of December 31, 2011

(In thousands)

			Initial Costs								Gross Amount at End of Year
Description	Encumbrances		Land		Building and Improvements		Furniture, Fixtures and Equipment		Cost Capitalized Subsequent to Acquisition		Land		Building and Improvements		Furniture, Fixtures and Equipment		Total		Accumulated Depreciation		Net Book Value		Year of Original Construction		Date of Acquisition		Depreciation Life
DoubleTree by Hilton Bethesda-Washington DC	$	36,000	$	10,065	$	53,000	$	4,035	$	5,739	$	10,065	$	56,822	$	5,952	$	72,839	$	3,408	$	69,431		1971		06/04/10		3-40 years
Sir Francis Drake Hotel		—		22,500		60,547		6,953		9,827		22,500		66,046		11,281		99,827		4,453		95,374		1928		06/22/10		1-40 years
InterContinental Buckhead Hotel		51,805		25,000		68,844		11,000		6,054		25,000		71,043		14,855		110,898		5,201		105,697		2004		07/01/10		3-40 years
Monaco Washington DC		35,000		—		60,630		2,441		1,476		—		61,838		2,709		64,547		2,470		62,077		1839		09/09/10		3-40 years
The Grand Hotel Minneapolis		—		4,950		26,616		300		5,908		4,950		29,339		3,485		37,774		1,805		35,969		1912		09/29/10		1-40 years
Skamania Lodge		30,664		7,129		44,987		3,523		1,500		7,129		46,052		3,958		57,139		1,994		55,145		1993		11/03/10		3-40 years
Sheraton Delfina Santa Monica Hotel		—		18,784		81,580		2,295		2,337		18,784		81,231		4,981		104,996		2,704		102,292		1972		11/19/10		3-40 years
Sofitel Philadelphia Hotel		56,070		18,000		64,256		4,639		479		18,000		64,628		4,746		87,374		2,460		84,914		2000		12/03/10		3-40 years
Argonaut Hotel		42,000		—		79,492		4,247		2,510		—		80,568		5,681		86,249		2,289		83,960		1907		02/16/11		3-40 years
Westin Gaslamp Quarter		—		25,537		86,089		6,850		6,636		25,537		91,426		8,149		125,112		3,338		121,774		1987		04/06/11		1-40 years
Monaco Seattle		—		10,105		38,888		2,073		1,722		10,105		39,321		3,362		52,788		986		51,802		1969		04/07/11		3-40 years
Mondrian Los Angeles		—		20,306		110,283		6,091		1,444		20,306		110,660		7,158		138,124		2,401		135,723		1959		05/03/11		3-40 years
Viceroy Miami		—		8,368		24,246		3,723		146		8,368		24,308		3,807		36,483		913		35,570		2009		05/26/11		1-40 years
W Boston		—		19,453		63,893		5,887		169		19,453		63,935		6,014		89,402		1,646		87,756		2009		06/08/11		2-40 years
	$	251,539	$	190,197	$	863,351	$	64,057	$	45,947	$	190,197	$	887,217	$	86,138	$	1,163,552	$	36,068	$	1,127,484

Reconciliation of Real Estate and Accumulated Depreciation:
Reconciliation of Real Estate:
Balance at December 31, 2009	$	—
Acquisitions		602,075
Capital expenditures		3,307
Balance at December 31, 2010	$	605,382
Acquisitions		515,531
Capital expenditures		42,639
Balance at December 31, 2011	$	1,163,552
Reconciliation of Accumulated Depreciation:
Balance at December 31, 2009	$	—
Depreciation		5,668
Balance at December 31, 2010	$	5,668
Depreciation		30,400
Balance at December 31, 2011	$	36,068

XML

Debt (Tables)

12 Months Ended

Dec. 31, 2011

Debt [Abstract]

Mortgage debt

				Balance Outstanding as of
	Interest Rate		Maturity Date	December 31, 2011		December 31, 2010
Sofitel Philadelphia		Floating(1)	February 2012	$	56,070	$	56,070
Monaco Washington DC		5.68%	March 2012		35,000		35,000
Argonaut Hotel		5.67%	March 2012		42,000		—
InterContinental Buckhead		4.88%	January 2016		51,805		52,500
Skamania Lodge		5.44%	February 2016		30,664		—
DoubleTree by Hilton Bethesda-Washington DC		5.28%	February 2016		36,000		—
				$	251,539	$	143,570

⁽¹⁾ Mortgage debt bears interest at LIBOR plus 1.3%. The interest rates as of December 31, 2011 and December 31, 2010 were both 1.57%.

Future scheduled debt principal payments

2012	$	134,738
2013		1,775
2014		1,869
2015		1,969
2016		111,188
Thereafter		—
Total debt	$	251,539

XML

Share-Based Compensation Plan (Details) (Restricted Stock [Member], USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2011	Dec. 31, 2010
Restricted Stock [Member]
Summary of restricted share activity
Unvested shares, Beginning balance	0	78,440	15,000
Unvested weighted average grant date fair value, beginning balance	$ 0.00	$ 20.88	$ 20.00
Unvested shares, Granted	15,000	79,330	70,110
Granted, weighted average grant date fair value	$ 20.00	$ 22.03	$ 20.98
Vested, shares		(26,874)	(4,170)
Vested, weighted average grant date fair value		$ 20.83	$ 20.00
Forfeited, shares		(2,232)	(2,500)
Forfeited, weighted average grant date fair value		$ 21.58	$ 20.00
Unvested shares, Ending balance	15,000	128,664	78,440
Unvested weighted average grant date fair value, ending balance	$ 20.00	$ 21.59	$ 20.88

XML

Investment in Unconsolidated Joint Ventures (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011 Manhattan Collection joint venture [Member]	Jul. 29, 2011 Manhattan Collection joint venture [Member] properties	Dec. 31, 2011 First Mortgage and Mezzanine Debt [Member] Manhattan Collection joint venture [Member]
Investment in Unconsolidated Joint Ventures (Textual) [Abstract]
Hotel acquisition costs	$ 3,392,000	$ 6,581,000
Equity interest issued in a joint venture				49.00%
Number of properties owned	20			6
Total amount in which company acquired				152,600,000
Transaction Value of the Hotels				908,000,000
Total assets of joint venture			549,000,000
Amount existing first mortgage and mezzanine debt					581,000,000
Preferred capital	$ 90,000	$ 0	$ 76,600,000

XML

Consolidated Statements of Shareholders' Equity (USD $) In Thousands, except Share data	Preferred Shares	Common Shares	Additional Paid-In Capital	Accumulated Deficit and Distributions	Total Shareholders' Equity	Non-Controlling Interest	Total
Beginning Balance at Oct. 02, 2009			$ 1		$ 1		$ 1
Beginning Balance, shares at Oct. 02, 2009		1,000
Repurchase of outstanding shares			(1)		(1)		(1)
Repurchase of outstanding shares, shares		(1,000)
Issuance of common shares, net of offering costs in connection with the follow-on offering		203	379,365		379,568		379,568
Issuance of common shares, net of offering costs in connection with the follow-on offering, shares		20,260,000
Share-based compensation			5		5	74	79
Net income (loss)				(147)	(147)		(147)
Ending Balance at Dec. 31, 2009		203	379,370	(147)	379,426	74	379,500
Ending Balance, shares at Dec. 31, 2009		20,260,000
Issuance of common shares, net of offering costs in connection with the follow-on offering		195	318,253		318,448		318,448
Issuance of common shares, net of offering costs in connection with the follow-on offering, shares		19,550,000
Issuance of common shares for Board of Trustee compensation			12		12		12
Issuance of common shares for Board of Trustee compensation, shares		590
Share-based compensation			465		465	1,577	2,042
Share-based compensation, shares		4,170
Distributions on common shares/units				(4,797)	(4,797)	(111)	(4,908)
Net income (loss)				(6,642)	(6,642)		(6,642)
Ending Balance at Dec. 31, 2010		398	698,100	(11,586)	686,912	1,540	688,452
Ending Balance, shares at Dec. 31, 2010		39,814,760					39,814,760
Issuance of common shares, net of offering costs in connection with the follow-on offering	90	110	443,688		443,888		443,888
Issuance of common shares, net of offering costs in connection with the follow-on offering, shares	9,000,000	10,925,000
Issuance of common shares for Board of Trustee compensation			182		182		182
Issuance of common shares for Board of Trustee compensation, shares		8,886
Repurchase of common shares			(140)		(140)		(140)
Repurchase of common shares, shares		(6,496)
Share-based compensation			1,075		1,075	1,579	2,654
Share-based compensation, shares		26,874
Distributions on common shares/units				(23,109)	(23,109)	(446)	(23,555)
Distributions on preferred shares				(10,413)	(10,413)	(14)	(10,427)
Net contribution from non-controlling interests						95	95
Net income (loss)				14,856	14,856	343	15,199
Ending Balance at Dec. 31, 2011	$ 90	$ 508	$ 1,142,905	$ (30,252)	$ 1,113,251	$ 3,097	$ 1,116,348
Ending Balance, shares at Dec. 31, 2011	9,000,000	50,769,024					50,769,024

XML

Investment in Hotel Properties

12 Months Ended

Dec. 31, 2011

Investment in Hotel Properties [Abstract]

INVESTMENT IN HOTEL PROPERTIES

NOTE 4. INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consisted of the following (in thousands):

	December 31,
	2011			2010
Land	$	190,197		$	106,428
Buildings and improvements		887,217			460,988
Furniture, fixtures and equipment		86,138			37,966
Investment in hotel properties	$	1,163,552		$	605,382
Less: Accumulated depreciation		(36,068	)		(5,668	)
Investment in hotel properties, net	$	1,127,484		$	599,714

XML

Supplemental Information to Statements of Cash Flows (Details) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Summary of Supplemental Information to Statements of Cash Flows
Interest paid	$ 11,366,000	$ 956,000
Income taxes paid	586,000
Non-Cash Investing and Financing Activities:
Accrual of offering costs, including $8.1 million of underwriting discount	0
Mortgage loan assumed in connection with acquisition	42,000,000	91,070,000
Deposit applied to purchase price of acquisition	5,000,000
Issuance of common shares for board of trustees compensation	182,000	12,000
Accrued additions and improvements to hotel properties	2,171,000
Supplemental Information to Statements of Cash Flows (Textual) [Abstract]
Accrued underwriting discount	8,100,000
Common Shares
Dividends Payable [Line Items]
Distributions payable to shares/units	6,219,000	4,908,000
Preferred Shares
Dividends Payable [Line Items]
Distributions payable to shares/units	$ 3,813,000

XML

Equity (Tables)

12 Months Ended

Dec. 31, 2011

Equity [Abstract]

Dividends on common shares/units

Dividend per Share/Unit	For the quarter ended	Record Date	Payable Date
$0.12	March 31, 2011	March 31, 2011	April 15, 2011
$0.12	June 30, 2011	June 30, 2011	July 15, 2011
$0.12	September 30, 2011	September 30, 2011	October 17, 2011
$0.12	December 31, 2011	December 31, 2011	January 16, 2012

Dividends on preferred shares/units

Security Type	Dividend  per Share/Unit			For the quarter ended	Record Date	Payable Date
7.875% Series A	$	0.19	(1)	March 31, 2011	March 31, 2011	April 15, 2011
7.875% Series A	$	0.49		June 30, 2011	June 30, 2011	July 15, 2011
7.875% Series A	$	0.49		September 30, 2011	September 30, 2011	October 17, 2011
7.875% Series A	$	0.49		December 31, 2011	December 31, 2011	January 16, 2012
8.00% Series B	$	0.13	(1)	September 30, 2011	September 30, 2011	October 17, 2011
8.00% Series B	$	0.50		December 31, 2011	December 31, 2011	January 16, 2012

⁽¹⁾  Pro-rata payment for the partial quarter from the date of issuance.

XML

Acquisitions of Hotel Properties (Details Textual) (USD $)	12 Months Ended		0 Months Ended	1 Months Ended			1 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Feb. 16, 2011 Argonaut Hotel [Member]	Apr. 06, 2011 Westin Gaslamp Quarter [Member]	Apr. 07, 2011 Monaco Seattle [Member]	May 03, 2011 Mondrian Los Angeles [Member]	May 26, 2011 Viceroy Miami [Member]	Jun. 08, 2011 W Boston [Member]	Feb. 16, 2011 Minimum [Member] Argonaut Hotel [Member]	Feb. 16, 2011 Maximum [Member] Argonaut Hotel [Member]
Acquisition of Hotel Properties (Textual) [Abstract]
Total amount in which company acquired			$ 84,000,000	$ 110,000,000	$ 51,200,000	$ 137,000,000	$ 36,500,000	$ 89,500,000
Total number of guest rooms	3,812		252	450	189	237	148	235
Amount of Investments in available cash for acquisition			42,000,000
Amount of which acquisition made in first mortgage loan	42,000,000	91,070,000	42,000,000
Ground lease Base Rent			1,200,000
Percentage of revenue in initial years									8.00%	12.00%
Percentage of revenue in later years									12.00%	14.00%
Percentage of food and beverage and other department revenue			4.00%
Renovation expenses incurred by seller				25,000,000
Reimbursement of renovation expenses incurred by seller				8,600,000
Key money liability							3,000,000
Period on which management fee expense term of the agreement							10 years
Acquisition of hotel properties (Textual) [Abstract]
Hotel acquisition costs	$ 3,392,000	$ 6,581,000

XML

Quarterly Operating Results (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Operating Results [Abstract]

QUARTERLY OPERATING RESULTS (UNAUDITED)

NOTE 14. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the years ended December 31, 2011 and 2010 (in thousands, except per-share data) follows. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly operating data for hotel properties are not indicative of results to be achieved in succeeding quarters or years.

	Year Ended December 31, 2011
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	42,665		$	73,110	$	87,803	$	84,409
Net income (loss)		(3,044	)		4,299		5,838		8,106
Net income (loss) attributable to the Company		(3,044	)		4,214		5,724		7,962
Net income (loss) attributable to common shareholders		(3,591	)		1,753		2,825		3,456
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.09	)	$	0.03	$	0.05	$	0.07

	Year Ended December 31, 2010
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenues	$	—		$	2,216		$	21,637		$	33,908
Net income (loss) attributable to the Company		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) attributable to common shareholders		(599	)		(3,814	)		(308	)		(1,921	)
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.03	)	$	(0.19	)	$	(0.01	)	$	(0.05	)