10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2012

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
	(Exact Name of Registrant as Specified in Its Charter)

Maryland	27-1055421
(State of Incorporation or Organization)	(I.R.S. 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, $0.01 par value per share	New York Stock Exchange
7.875% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	New York Stock Exchange
8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share	New York Stock Exchange

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

None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. R  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    R  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.    R  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    R  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	R	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    R  No

The aggregate market value of the 57,335,629 common shares of beneficial interest held by non-affiliates of the registrant was $1,336,493,512 based on the closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2012.

The number of common shares of beneficial interest outstanding as of February 18, 2013 was 61,419,586 .

___________________

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy Statement for its 2013 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission on or before April 30, 2013) 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
Item No.		Page
Forward Looking Statements		1
PART I
1.	Business	2
1A.	Risk Factors	5
1B.	Unresolved Staff Comments	23
2.	Properties	23
3.	Legal Proceedings	26
4.	Mine Safety Disclosures	26
PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	26
6.	Selected Financial Data	30
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
7A.	Quantitative and Qualitative Disclosures About Market Risk	41
8.	Financial Statements and Supplementary Data	41
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	42
9A.	Controls and Procedures	42
9B.	Other Information	42
PART III
10.	Trustees, Executive Officers and Corporate Governance	43
11.	Executive Compensation	43
12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	43
13.	Certain Relationships and Related Transactions, and Trustee Independence	43
14.	Principal Accountant Fees and Services	43
PART IV
15.	Exhibits and Financial Statement Schedules	43

FORWARD-LOOKING STATEMENTS

This report, together with other statements and information publicly disseminated by us, 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 or 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.

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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 United States cities, with an emphasis on major gateway coastal markets. As of December 31, 2012, the Company owned interests in 25 hotels, including 19 wholly owned hotels with a total of 4,615 guest rooms and a 49% interest in a joint venture that owns 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, 2012, we owned 99.4% of the common limited partnership units issued by our Operating Partnership (“common units”). The remaining 0.6% of the common units are owned by the other limited partners of our Operating Partnership. We operate as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") for federal income tax purposes.  For us to qualify as a REIT, we cannot operate the hotels we own. Therefore, our Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "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.

Business Objectives and Strategies

Acquisitions/Investments

We invest in hotel properties located primarily in major U.S. cities, including Atlanta, Boston, Chicago, Los Angeles, Miami, Minneapolis, New York, Philadelphia, Portland, Santa Monica, San Diego, San Francisco, Seattle, and Washington, D.C., 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 levels of customer service. 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 perform and 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 and 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;

• 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.

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We believe that 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 little 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 our 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 may engage in full or 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, generally 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 executives 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 through 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 our hotels' operations and performance.

Financing Strategies

Over time, we intend to finance our long-term growth with issuances of common and preferred equity securities and debt financings having staggered maturities. Our debt includes a senior unsecured credit facility, term loan, mortgage debt secured by our hotel properties or leasehold interests under the ground leases on our hotel properties and may include other 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

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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.

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 ESAs or other information indicates possible contamination or where our consultants recommend such procedures. However, these Phase I 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 properties.

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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 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 23 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.

The following discussion concerns some of the risks associated with our business and should be considered carefully. 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 our business operations, the value of our 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 “Forward-Looking Statements.”

Risks Related to Our Business and Properties

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

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We depend on the efforts and expertise of our Chairman, President and Chief Executive Officer, as well as our other officers, to execute our business strategy. The loss of their services, and our inability to quickly identify and hire suitable replacements, could have an adverse effect on our business activities, including, without limitation, relationships with shareholders, lenders, management companies, joint venture partners and other industry personnel.

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 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. 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.

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.

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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 five of the hotels owned by the joint venture and any default on such debt could adversely affect our equity investment in the joint venture. 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.

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, including reductions in business following negative publicity related to one of the brands or the general decline of a brand.

Maintenance of franchise licenses for branded hotel properties is subject to franchisors' operating standards and other terms and conditions including the requirement to make certain capital improvements. 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 canceled. If a franchise license is canceled 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.

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, financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

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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, and the terms of any refinancing will not be as favorable as the terms of the debt being refinanced.

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 may be required to sell or we will risk losing to foreclosure some or all of our pledged hotel properties. If we are required to sell one or more of our hotel properties to meet debt service obligations, we may have to accept unfavorable terms. 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.

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 retain earnings to fund acquisitions, redevelopment and development or other capital expenditures is and will continue to 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

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we will be able to obtain such financing on favorable terms or at all. Events in the financial markets have adversely impacted the credit markets, and they may do so in the future, and, as a result, credit can become significantly more expensive and difficult to obtain, if available at all. 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.

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.

The nature of the operations of our hotels exposes us to the risk of claims and litigation that may arise in the normal course of business.

 As owners of hotel properties, we face potential claims, litigation and threatened litigation from guests, visitors to our properties, contractors, sub-contractors and others.  These claims and proceedings are inherently uncertain and their costs and outcomes cannot be predicted with certainty. Regardless of their outcomes, such claims and legal proceedings can have an adverse impact on us because of the legal and other costs, diversion of management time and resources and other factors. Although we and our hotel management companies maintain insurance covering some of these matters, it is possible that one or more claims, suits or proceedings may not be covered by insurance and could result in substantial costs, judgments, fines and penalties that could adversely affect our business, consolidated financial position, results of operations or cash flows.

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.

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

Many 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. If these provisions are triggered, substantially all of the profit generated by the hotel will be deposited directly into a lockbox account and then swept into a cash management account for the benefit of the lender. In that event, cash would be 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.

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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 and term loan, 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 causing us to lose the property, a foreclosure may result in 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 then 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.

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 cannot predict the pace of the global economic recovery or the pace of the recovery in the lodging industry. 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. 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.

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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 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 over-building has the potential to 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.

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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;

• 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.

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, departmental profitability 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.

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

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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.

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.

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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

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.

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.

We have acquired hotels, and may acquire additional hotels in the future, 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.

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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.

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 are subject to income tax and other taxes 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.

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

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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 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.

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 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

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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 our 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 our 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.

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.

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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.

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, 2012, 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 will be limited to a maximum number

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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 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.

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:

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• 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 2013 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 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

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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 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 “qualified dividend income” payable to U.S. shareholders that are taxed at individual rates is 20 percent . Dividends payable by REITs, however, generally are not eligible for the reduced rates. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates 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 shares.

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

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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.

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.

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.

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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 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 shares or otherwise be in the best interest of the shareholders.

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, 2012, we had 19 wholly owned hotels with a total of 4,615 guest rooms and a 49% equity interest in six hotels with a total of 1,733 guest rooms.

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The following table sets forth certain information about the hotels we wholly owned as of December 31, 2012, 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. Hotel 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 Santa Monica	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, San Diego(1)	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	236
13. Viceroy Miami	May 26, 2011	Miami, FL	148
14. W Boston	June 8, 2011	Boston, MA	235
15. Hotel Zetta (formerly Hotel Milano)	April 4, 2012	San Francisco, CA	108
16. Hotel Vintage Park	July 9, 2012	Seattle, WA	125
17. Hotel Vintage Plaza	July 9, 2012	Portland, OR	117
18. W Los Angeles - Westwood	August 23, 2012	Los Angeles, CA	258
19. Hotel Palomar San Francisco(1)(3)	October 25, 2012	San Francisco, CA	196
Total number of guest rooms			4,615
(1) This property is subject to mortgage/debt at December 31, 2012.
(2) This property is subject to a long-term ground lease.
(3) This property is subject to a long-term hotel 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, 2012. Operating results for these hotels are included in our consolidated financial statements using the equity method.

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	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, 2012.

Hotel Managers and Hotel Management Agreements

We are a party to hotel management agreements with Davidson Hotels and Resorts, 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 and Viceroy Hotel Group.

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Our management agreements have the terms described below:

• Base Management Fees.  Our management agreements generally provide for the payment of base management fees between 1% and 4% 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% to 20% 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 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 4%) or held by us, as owner.

• Building Alterations, Improvements andRenewals.  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 the manager's reasonable judgment, to keep the hotels in a safe, competitive and efficient operating condition.

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• 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 Santa Monica. 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 Santa Monica hotels expire in June 2020 and November 2013, respectively.

Ground and Hotel Lease Agreements

The Hotel 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 their status as national historic landmarks. Both of these lease agreements expire in 2059.

The Hotel Palomar San Francisco is subject to a long-term hotel lease agreement that covers the hotel premises. The hotel lease agreement requires 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 agreement. This hotel lease agreement expires in 2097.

Item 3. Legal Proceedings.

The nature of the operations of our hotels exposes the hotels and us to the risk of claims and litigation in the normal course of business. We are not presently subject to any material litigation nor, to our knowledge, is any litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or our financial condition.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II. OTHER INFORMATION

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:

	2012						2011
	High		Low		Dividend		High		Low		Dividend
First Quarter	$	23.47	$	19.30	$	0.12	$	22.22	$	20.04	$	0.12
Second Quarter	$	24.11	$	20.73	$	0.12	$	21.90	$	19.24	$	0.12
Third Quarter	$	25.29	$	21.54	$	0.12	$	20.61	$	14.12	$	0.12
Fourth Quarter	$	23.43	$	19.37	$	0.12	$	19.63	$	14.41	$	0.12

The closing price per share of our common shares on December 31, 2012, as reported by the NYSE, was $23.10.

Shareholder Information

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On February 18, 2013, there were 24 holders of record of our common shares. However, because the vast majority 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.

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, 2012, 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”) for the same period. 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		Value of Investment at December 31, 2012
Pebblebrook Hotel Trust	$	100.00	$	107.63	$	99.94	$	96.80	$	119.04
Russell 2000 Index	$	100.00	$	104.72	$	132.85	$	127.30	$	148.11
FTSE NAREIT Equity Index	$	100.00	$	105.07	$	134.41	$	145.57	$	174.41

Distributions

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Distributions 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. Distributions in excess of current and accumulated earnings and profits generally will 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. Distributions 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 distributions 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 distributions requirements under the REIT provisions of the Code and such other factors as our board of trustees deems relevant.

For income tax purposes, distributions paid per share were characterized as follows:

	2012				2011				2010
	Amount		%		Amount		%		Amount		%
Common Shares:
Ordinary income	$	0.4391	91.49	%	$	0.4109	100.00	%	$	0.0691	100.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0409		8.51	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	0.4800	100.00	%	$	0.4109	100.00	%	$	0.0691	100.00	%
Series A Preferred Shares:
Ordinary income	$	1.7622	100.00	%	$	1.3769	100.00	%	$	0.0000	0.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	1.7622	100.00	%	$	1.3769	100.00	%	$	0.0000	0.00	%
Series B Preferred Shares
Ordinary income	$	1.7902	100.00	%	$	0.3431	100.00	%	$	0.0000	0.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	1.7902	100.00	%	$	0.3431	100.00	%	$	0.0000	0.00	%
The common and preferred share distribution declared on December 15, 2012 and paid on January 15, 2013 are treated as 2013 distributions for tax purposes.

Securities Authorized for Issuance Under Equity Compensation Plan

The following table sets forth information regarding securities authorized for issuance under our equity compensation plan, our 2009 Equity Incentive Plan, as amended and restated, as of December 31, 2012. 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	—	—	1,124,972
Equity compensation plans not approved by security holders	—	—	—
Total	—	—	1,124,972

⁽¹⁾  The amendment and restatement of our 2009 Equity Incentive Plan was approved by our shareholders at our 2012 Annual Meeting of Shareholders.

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During the year endedDecember 31, 2012, certain of our employees chose to have us withhold an aggregate of 15,706 common shares to pay taxes due upon vesting of restricted common shares. The average price paid by the Company for these shares was $20.43 per share.

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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, 2012			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	$	239,218		$	177,479		$	32,804		$	—
Food and beverage	117,752			92,898			21,984			—
Other operating	23,718			17,610			2,973			—
Total revenues	380,688			287,987			57,761			—
Expenses:
Hotel operating expenses:
Room	63,213			47,570			9,718			—
Food and beverage	86,369			65,783			15,113			—
Other direct	12,236			8,353			1,288			—
Other indirect	99,766			79,648			16,724			—
Total hotel operating expenses	261,584			201,354			42,843			—
Depreciation and amortization	42,794			30,945			5,776			—
Real estate taxes, personal property taxes and property insurance	17,576			12,895			2,220			—
Ground rent	2,611			1,814			124			—
General and administrative	16,777			11,460			8,319			262
Hotel acquisition costs	2,234			3,392			6,581			—
Total operating expenses	343,576			261,860			65,863			262
Operating income (loss)	37,112			26,127			(8,102		)	(262		)
Interest income	224			868			3,020			115
Interest expense	(14,932		)	(13,653		)	(1,640		)	—
Other	—			85			—			—
Equity in earnings (loss) of joint venture	5,970			2,336			—			—
Income (loss) before income taxes	28,374			15,763			(6,722		)	(147		)
Income tax (expense) benefit	(1,866		)	(564		)	80			—
Net income (loss)	26,508			15,199			(6,642		)	(147		)
Net income (loss) attributable to non-controlling interests	429			343			—			—
Net income (loss) attributable to the Company	26,079			14,856			(6,642		)	(147		)
Distributions to preferred shareholders	(17,825		)	(10,413		)	—			—
Net income (loss) attributable to common shareholders	$	8,254		$	4,443		$	(6,642	)	$	(147	)
Net income (loss) per share available to common shareholders, basic and diluted	$	0.14		$	0.08		$	(0.23	)	$	(0.04	)
Weighted-average number of common shares, basic	55,806,543			47,921,200			28,669,851			4,011,198
Weighted-average number of common shares, diluted	55,955,497			47,966,307			28,669,851			4,011,198

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	As of December 31,
	2012		2011		2010		2009
	(In thousands)
Balance Sheet Data:
Investment in hotel properties, net	$	1,417,229	$	1,127,484	$	599,714	$	—
Investment in joint venture	283,011		171,765		—		—
Cash and cash equivalents	85,900		65,684		220,722		319,119
Investments	—		—		—		70,000
Total assets	1,846,162		1,416,632		855,515		389,403
Senior unsecured revolving credit facility	—		—		—		—
Term loan	100,000		—		—		—
Mortgage debt	368,508		251,539		143,570		—
Total shareholders' equity	1,312,951		1,113,251		686,912		379,426

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

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

Overview

2012 was a strong year for the U.S. hotel industry. Growing demand from business travel, a healthy recovery in leisure travel and increased international travel, combined with very limited new supply, resulted in 6.8% RevPAR growth. The strongest urban markets in the U.S. were San Francisco, California, Santa Monica, California and Portland, Oregon. Our RevPar growth for 2012 of 8.1% exceeded the industry's, as we benefited from our strategy of investing primarily in urban markets in major gateway cities and we continued to see positive results from our property renovations and the asset management and best practice initiatives we have implemented throughout our portfolio. Although a great deal of uncertainty remains regarding the debt ceiling and the political process in Washington, we believe that the industry and the Company will continue to benefit in 2013 from strong underlying fundamentals.

Significant highlights of activities for the year ended December 31, 2012 are as follows:

• Acquisitions - We acquired five properties for purchase prices aggregating $275.8 million. The properties we acquired are: the Hotel Zetta (formerly Hotel Milano) (April 4, 2012), the Hotel Vintage Park and the Hotel Vintage Plaza (both July 9, 2012), the W Los Angeles - Westwood (August 23, 2012), and a leasehold interest in the Hotel Palomar San Francisco (October 25, 2012).

•Investment in joint venture - In conjunction with the refinancing of the Manhattan Collection joint venture debt in December 2012, we made an additional equity contribution of $54.9 million in the joint venture and also loaned the venture $50.0 million through a partner loan.

•Senior unsecured credit facility - We amended our senior unsecured credit facility to increase the borrowing capacity to $300.0 million, of which $200.0 million is a revolving credit facility and $100.0 million is a term loan. We also extended the maturity date to July 2016 while also reducing overall borrowing costs.

• Mortgage loans - We refinanced the loans securing the Hotel Monaco Washington DC, the Argonaut Hotel and the Sofitel Philadelphia, receiving net proceeds of $10.0 million. We also assumed a $27.2 million mortgage loan in conjunction with the acquisition of the Hotel Palomar San Francisco and received proceeds of $81.0 million from a new mortgage loan on the Westin Gaslamp Quarter, San Diego.

•Equity offerings - We issued 9.7 million common shares for proceeds of $214.9 million, net of commissions and other offering costs.

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•Renovations - We invested approximately $53.2 million to reposition our properties in 2012. 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 Quarter, San Diego, Argonaut Hotel and Hotel Monaco Seattle. In November 2012, we closed the Hotel Milano for a complete renovation and repositioning of the hotel, including all guestrooms, public areas and the restaurant. The renovation is expected to be completed in the first quarter of 2013 and the hotel will be renamed Hotel Zetta upon reopening.

Recent Developments

In January 2013, we acquired the 337-suite Embassy Suites San Diego Bay - Downtown located in San Diego, California for $112.5 million. The acquisition was funded with $45.7 million of available cash and the assumption of a $66.8 million first mortgage loan.

Results of Operations

Results of operations for the year endedDecember 31, 2012 include the operating activities of our investment in joint venture and our 19 wholly owned hotels, including five hotels acquired in 2012 since their respective acquisition dates. We owned 14 hotel properties at December 31, 2011, six of which were acquired during 2011. The operating results for the year ended December 31, 2011 include our investment in joint venture from the date of our investment, July 29, 2011, through December 31, 2011. Results of operations for the year endedDecember 31, 2011, include the operating activities of 14 hotels including the six hotels acquired in 2011 since their respective acquisition dates. Results of operations for the year endedDecember 31, 2010, include the operating activities of the 8 hotels acquired in 2010 since their respective acquisition dates.

Comparison of the year endedDecember 31, 2012 to the year endedDecember 31, 2011

Revenues — Total hotel revenues increased by $92.7 million. The eight hotels we owned throughout both periods contributed $13.9 million of the increase, which was a result of increases in occupancy and ADR from the same period in 2011. The Sir Francis Drake and InterContinental Buckhead hotels had significant increases in both occupancy and ADR and the Sofitel Philadelphia and Grand Minneapolis hotels had significant increase in occupancy. The remaining $78.8 million of the increase in revenue was generated from the hotels which were not owned throughout both periods.

Hotel operating expenses — Total hotel operating expenses increased by $60.2 million. The eight hotels we owned throughout both periods contributed $4.4 million of the increase, which is a result of higher occupancy and inflation offset by cost reduction initiatives. The remaining $55.8 million of the increase was generated from the hotels which were not owned throughout both periods.

Depreciation and amortization — Depreciation and amortization expense increased by approximately $11.8 million, primarily due to the additional depreciation for the hotels acquired in 2012.

Real estate taxes, personal property taxes and property insurance — Real estate taxes, personal property taxes and insurance increased by approximately $4.7 million, primarily due to the hotels acquired in 2012 and an increase in real estate taxes generally throughout the portfolio.

Ground rent — Ground rent expense increased by $0.8 million due to the acquisition in 2012 of the Hotel Palomar San Francisco which is subject to a hotel lease, and increases in percentage rent in 2012 at both the Hotel Monaco Washington DC and Argonaut Hotel as a result of increases in revenues at these hotels.

Corporate general and administrative — Corporate general and administrative expenses increased by approximately $5.3 million, primarily as a result of increased legal fees, state and local franchise taxes, staffing and other costs related to growth in our portfolio and the $1.1 million management contract termination expense associated with the DoubleTree by Hilton Bethesda-Washington DC hotel during 2012. Share-based compensation expense also increased in 2012 as a result of the performance shares that were granted in 2012. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance, state franchise taxes and other expenses.

Hotel acquisition costs — Hotel acquisition costs decreased by approximately $1.2 million, primarily due to the acquisition costs incurred with the investment in the Manhattan Collection joint venture in 2011 that were not incurred in 2012. Typically, hotel property acquisition costs consist of legal fees, other professional fees, transfer taxes and other direct costs associated with our pursuit of hotel investments. As a result, these costs vary with our level of ongoing acquisition activity.

Interest expense — Interest expense increased by approximately $1.3 million as a result of higher debt balances offset by a decrease in unused fees on our revolving credit facility.

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Equity in earnings (losses) of joint venture — Equity in earnings (losses) of joint venture increased by $3.6 million as a result of us owning the Manhattan Collection joint venture for all of 2012 as compared to a partial year in 2011.

Income tax (expense) benefit — Income tax expense increased by approximately $1.3 million as a result of an increase in the net income of our TRS.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP unit holders. The increase to non-controlling interest from 2011 to 2012 were due to the increase in net income during these periods.

Distributions to preferred shareholders — Distributions to preferred shareholders increased $7.4 million. The Series B Preferred Shares were issued on September 14, 2011 and dividends were paid for a partial year in 2011, whereas dividends were paid for the entire year during 2012.

Comparison of the year endedDecember 31, 2011 to the year endedDecember 31, 2010

Revenues — Total hotel revenues increased by $230.2 millionfrom 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 due to a full year of activity in 2011.

Hotel operating expenses — Total hotel operating expenses increased by $158.5 millionfrom 2010. The six hotels we acquired in 2011 contributed to approximately $69.1 million of this increase, and the balance was generated from the eight properties acquired in 2010 due to a full year of activity in 2011.

Depreciation and amortization — Depreciation and amortization expense increased by approximately $25.2 million, primarily due to the additional depreciation for the six hotels acquired in 2011.

Real estate taxes, personal property taxes and property insurance — Real estate taxes, personal property taxes and insurance increased by approximately $10.7 million, primarily due to the additional hotels acquired in 2011 and an increase in real estate taxes generally throughout the portfolio.

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

Corporate general and administrative — Corporate general and administrative expenses increased by approximately $3.1 million, primarily as a result of increased legal fees, state and local franchise taxes, staffing and other costs related to growth in our portfolio. Corporate general and administrative expenses consist of employee compensation costs, legal and professional fees, insurance, state franchise taxes and other expenses.

Hotel acquisition costs — Hotel acquisition costs decreased by approximately $3.2 million, primarily because we acquired fewer wholly owned hotel properties in 2011 compared to 2010. Hotel 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 vary with our level of 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 lower average cash balance as well as a decrease in the interest rate on cash deposits.

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

Equity in earnings (losses) of joint venture — 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) benefit — Income tax expense increased by approximately $0.6 million as a result of an increase in the 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 increased $10.4 million. We had no preferred shares outstanding in 2010.

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Hotel Operating Statistics

The following table represents the pro-forma key hotel operating statistics for our wholly owned hotels for the years endedDecember 31, 2012 and 2011. This is for informational purposes only.

	For the year ended December 31,
	2012	2011
Total Portfolio
Pro forma Occupancy	79.1%	76.1%
Pro forma ADR	$200.73	$192.21
Pro forma RevPAR	$158.88	$146.35
This schedule includes information from all of the hotels we owned as of December 31, 2012, except for the Hotel Vintage Park and the Hotel Vintage Plaza for the first and second quarters of both 2012 and 2011, the W Los Angeles - Westwood and Hotel Palomar San Francisco for the first, second, and third quarters of both 2012 and 2011 and Hotel Zetta (formerly Hotel Milano) and our 49% ownership interest in the Manhattan Collection joint venture for all of 2012 and 2011. These hotel results for the respective periods may include information reflecting operational performance prior to our ownership of the hotels. We expect to include historical hotel results for Hotel Zetta (formerly Hotel Milano) after we have owned the hotel for one year.

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 GAAP), excluding real estate related depreciation and amortization, gains (losses) from sales of real estate, impairments of real estate assets, the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of real estate related depreciation and amortization, including our share of the joint venture depreciation and amortization 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) to FFO and FFO available to common share and unit holders for the years endedDecember 31, 2012, 2011, and 2010 (in thousands):

	For the year ended December 31,
	2012			2011			2010
Net income (loss)	$	26,508		$	15,199		$	(6,642	)
Adjustments:
Depreciation and amortization	42,638			30,807			5,698
Depreciation and amortization from joint venture	9,856			3,931			—
FFO	$	79,002		$	49,937		$	(944	)
Distribution to preferred shareholders	(17,825		)	(10,413		)	—
FFO available to common share and unit holders	$	61,177		$	39,524		$	(944	)

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).

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The following table reconciles net income (loss) to EBITDA for the years endedDecember 31, 2012, 2011, and 2010 (in thousands):

	For the year ended December 31,
	2012		2011		2010
Net income (loss)	$	26,508	$	15,199	$	(6,642	)
Adjustments:
Interest expense	14,932		13,653		1,640
Interest expense from joint venture	13,160		5,680		—
Income tax expense (benefit)	1,866		564		(80		)
Depreciation and amortization	42,794		30,945		5,776
Depreciation and amortization from joint venture	9,856		3,931		—
EBITDA	$	109,116	$	69,972	$	694

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.

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.

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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

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

Investment in Joint Venture

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 variable interests that are not controllable through voting interests. Investments in joint ventures which we do not control but for 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 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 venture 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. Share based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds. We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the time of grant.

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Income Taxes

To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90 percent of our adjusted taxable income to our shareholders. As a REIT, we generally will not be subject to federal corporate income tax on that portion of our taxable income that is currently distributed to shareholders. We may be subject to certain state and local taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income. In addition, our wholly owned TRS, which leases our hotels from our 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.

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. We expect our existing cash balances and cash provided by operations will be adequate to fund operating requirements, service debt 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, property redevelopment, investments in existing or new joint ventures, and debt principal payments and debt maturities, through the net proceeds from additional issuances of common shares, additional 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 capital 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 Credit Facility

We have a $300.0 million senior unsecured credit facility to fund acquisitions, property redevelopments, return on investment initiatives and general business needs. The senior unsecured credit facility consists of a $200.0 million revolver and a $100.0 million term loan. As of December 31, 2012, we had no outstanding borrowings under the revolver and we had $100.0 million outstanding under the term loan. We have the ability to increase the aggregate borrowing capacity under the credit agreement up to $600.0 million, subject to lender approval. 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.

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.

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Debt Summary

Debt as of December 31, 2012 and 2011 consisted of the following (in thousands):

				Balance outstanding as of
Debt	Interest Rate		Maturity Date	December 31, 2012		December 31, 2011
Senior unsecured revolving credit facility	Floating(1)		July 2016	$	—	$	—
Term loan	Floating(2)		July 2017	100,000		—
Mortgage loans
InterContinental Buckhead	4.88	%	January 2016	51,022		51,805
Skamania Lodge	5.44	%	February 2016	30,252		30,664
DoubleTree by Hilton Bethesda-Washington DC	5.28	%	February 2016	35,602		36,000
Hotel Monaco Washington DC	4.36	%	February 2017	45,368		35,000
Argonaut Hotel	4.25	%	March 2017	46,223		42,000
Sofitel Philadelphia	3.90	%	June 2017	49,419		56,070
Hotel Palomar San Francisco	5.94	%	September 2017	27,124		—
Westin Gaslamp Quarter, San Diego	3.69	%	January 2020	81,000		—
Mortgage loans at stated value				366,010		251,539
Mortgage loan premium (3)				2,498		—
Total mortgage loans				368,508		251,539
Total debt				$	468,508	$	251,539
____________________
(1) Borrowings bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the senior unsecured credit agreement) plus an applicable margin. We have a one-year extension option.
(2) Borrowings bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate plus an applicable margin. We entered into interest rate swaps to effectively fix the interest rate for the full five-year term at 2.55%, based on our current leverage ratio.
(3) Includes a premium on the leasehold mortgage loan on the Hotel Palomar San Francisco which was a result of recording the mortgage at fair value in conjunction with our acquisition.

Issuance of Common Shares

On September 28, 2012, we and the Operating Partnership entered into equity distribution agreements (collectively, the “Equity Distribution Agreements”) with each of Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (collectively, the “Sales Agents”), providing for our sale of our common shares having an aggregate offering price of up to $170.0 million from time to time through any of the Sales Agents, acting as sales agent and/or principal (the "ATM Offering Program").

Upon entering into the Equity Distribution Agreements, we simultaneously terminated the equity distribution agreements we entered into with the same parties in connection with a prior “at the market” offering program established in May 2011.

The $170.0 million of common shares issuable pursuant to the ATM Offering Program are registered with the Securities and Exchange Commission on our Registration Statement on Form S-3 (No. 333-173468). We filed a prospectus supplement, dated September 28, 2012, to the prospectus, dated April 13, 2011, with the Securities and Exchange Commission in connection with the offer and sale of the shares pursuant to the ATM Offering Program.

Before terminating the prior ATM program established in May 2011, we sold 4,519,087 shares under that program at an average price of $23.72 per share, raising $105.6 million, net of commissions.

On June 19, 2012, we issued in an underwritten public offering 5,175,000 common shares at a price of $22.10 per share, raising $109.8 million, net of the underwriting discount.

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We used the net proceeds of these issuances to repay debt outstanding on our senior unsecured revolving credit facility, to repay mortgage debt, to acquire hotel properties and for general corporate purposes.

Sources and Uses of Cash

Our principal sources of cash are cash from operations, borrowings under mortgage financings, draws on our credit facility and the proceeds from offerings of our equity securities. Our principal uses of cash are asset acquisitions, debt service, capital investments, operating costs, corporate expenses and dividends.

Cash provided by Operations. Our cash provided by operating activities was $77.2 million for the year endedDecember 31, 2012. Our cash from operations includes the operating activities of our 19 wholly owned hotels. Our cash provided by operating activities for the year endedDecember 31, 2011 was $48.1 million and relates principally to the 14 hotels we owned at December 31, 2011.

Cash used in Investing Activities. Our cash used in investing activities was $407.9 million for the year endedDecember 31, 2012. During the year endedDecember 31, 2012, we purchased five hotels for an aggregate of $248.0 million, invested $53.2 million in improvements to our hotel properties, made net investments in the Manhattan Collection joint venture of $105.3 million, placed a deposit of $4.0 million on one property under contract for purchase and had a decrease in restricted cash of $2.6 million. During the year endedDecember 31, 2011, we used $681.8 million of cash, of which we used $467.1 million to acquire six properties, invested $40.5 million in improvements to hotel properties, invested $169.4 million in the Manhattan Collection joint venture and had an increase in restricted cash of $4.6 million.

Cash provided by Financing Activities. Our cash provided by financing activities was $350.9 million for the year endedDecember 31, 2012. We received net proceeds of $214.9 million from the issuance of 9.7 million common shares. We also received $100.0 million in proceeds from the term loan, received $224.0 million in proceeds from mortgage debt financings, repaid $136.7 million of mortgage debt, borrowed and repaid $120.0 million under our senior unsecured revolving credit facility, paid $44.8 million in distributions and paid $6.4 million in other transactions. For the year endedDecember 31, 2011, cash flows provided by financing activities were $478.6 million, which consisted of $443.9 million in net proceeds received from our issuance and sale of 10.9 million common shares and Series A and Series B Preferred Shares. We received $67.0 million of proceeds received from the mortgage debt placed on the Skamania Lodge and DoubleTree by Hilton Bethesda-Washington DC hotels, repaid $1.0 million in mortgage debt, borrowed and repaid $42.0 million under our senior unsecured revolving credit facility, paid $28.8 million in distributions and paid $2.4 million in other transactions.

Capital Investments

We maintain and intend to maintain all of our hotels, including each hotel that we acquire in the future, in good repair and condition and in conformity with applicable laws and regulations and when applicable, 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 restaurants, in order to better compete with other hotels in our markets. In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if there is one, 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 renovations and improvements with available cash, borrowings under our credit facility, or proceeds from new mortgage debt or equity offerings.

In 2012, we invested $53.2 million in capital investments to reposition and improve the properties we own. We expect to invest approximately $45.0 million to $55.0 million in capital investments in 2013. In November 2012, we closed the Hotel Milano for a complete renovation and repositioning of the hotel, including all guestrooms, public areas and the restaurant. During the year ended December 31, 2012, we invested approximately $6.4 million in the Hotel Milano. We expect to invest approximately $12.5 million for the entire renovation. We expect to complete the renovation of the Hotel Milano in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.

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Contractual Obligations and Off-Balance Sheet Arrangements

The table below summarizes our contractual obligations as of December 31, 2012 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 loans (1)	$	435,563	$	22,853	$	47,362	$	289,254	$	76,094
Term loan (2)	111,850		2,585		5,171		104,094		—
Ground and hotel leases (3)	435,507		3,071		6,245		6,386		419,805
Purchase commitments (4)	6,126		6,126		—		—		—
Corporate office lease	529		283		246		—		—
Total	$	989,575	$	34,918	$	59,024	$	399,734	$	495,899

 ____________________

⁽¹⁾  Amounts include principal and interest.

⁽²⁾  Amounts include principal and interest. Loan bears interest at a floating rate equal to LIBOR plus an applicable margin. We entered into separate interest rate swap agreements for the full five-year term, resulting in an effective fixed interest rate of 2.55% at our current leverage ratio (as defined in the credit agreement). It is assumed that the outstanding debt will be repaid upon maturity with fixed interest-only payments until then.

⁽³⁾  The long-term ground leases on the Hotel Monaco Washington DC and the Argonaut Hotel provide for the greater of base or percentage rent, adjusted for CPI increases. The long-term hotel lease on the Hotel Palomar San Francisco provides for base rent plus percentage rent, adjusted for CPI increases with a minimum 2% per annum but no more than 4% per annum. The table reflects only minimum base rent for all periods presented and does not include assumptions for CPI adjustments or percentage rent.

⁽⁴⁾  These represent purchase orders and contracts that have been executed for renovation projects at the properties. We are committed to these purchase orders and contracts and anticipate making similar arrangements in the future with the existing properties or any future properties that we may acquire.

Off-Balance Sheet Arrangements – Joint Venture Indebtedness

We have a 49% equity interest in the Manhattan Collection joint venture, 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, the joint venture and therefore account for our investment in the joint venture using the equity method of accounting.

On December 27, 2012, the joint venture refinanced its existing loans totaling approximately $553.2 million with a new single $410.0 million loan, secured by five of the properties owned by the joint venture. The new loan bears interest at an annual fixed interest rate of 3.67% and requires interest only payments through maturity on January 5, 2018. In conjunction with the refinancing, we provided the joint venture a $50.0 million unsecured special loan which matures at the earlier of July 4, 2018, the closing of any refinancing of the secured loan or the closing date of a portfolio sale (as defined in the loan agreement). The unsecured special loan bears a fixed interest rate of 9.75% and requires interest-only payments through maturity. The unsecured special loan is pre-payable by the joint venture at any time. The balance of the capital for the refinancing and closing costs was provided by us and our joint venture partner with our pro-rata equity contribution of $54.9 million.

The joint venture was in compliance with all debt covenants as of December 31, 2012. We are not guarantors of the joint venture debt except for limited customary carve-outs related to fraud or misapplication of funds.

Inflation

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

Seasonality

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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.

Derivative Instruments

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

Effective August 13, 2012, we entered into three interest rate swap agreements with an aggregate notional amount of $100.0 million for the term loan's full five-year term, resulting in an effective fixed interest rate of 2.55% at our current leverage ratio (as defined in the credit agreement). We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges. As of December 31, 2012, our derivative instruments are in a liability position, with an aggregate fair value of $0.3 million, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. As of December 31, 2012, there was $0.3 million in unrealized loss included in accumulated other comprehensive loss.

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

Interest Rate Sensitivity

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

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

	2013			2014			2015			2016			2017			Thereafter			Total
Liabilities
Fixed rate debt	$	6,813		$	7,444		$	7,779		$	117,313		$	155,901		$	70,760		$	366,010
Average interest rate	3.69		%	3.70		%	3.70		%	5.05		%	3.34		%	3.69		%	3.98		%
Variable rate debt	$	—		$	—		$	—		$	—		$	100,000		$	—		$	100,000
Average interest rate (1)	—		%	—		%	—		%	—		%	2.55		%	—		%	2.55		%
Total	$	6,813		$	7,444		$	7,779		$	117,313		$	255,901		$	70,760		$	466,010
____________
(1) We entered into interest rate swaps to effectively fix the interest rate for the full five-year term at 2.55%, based on our current leverage ratio.

This table reflects indebtedness outstanding as of December 31, 2012 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, 2012, the estimated fair value of our fixed rate mortgage debt was $372.3 million.

As of December 31, 2012, we have no debt outstanding that is subject to variable interest rates. The $100.0 million term loan was swapped to a fixed interest rate, therefore a change in the LIBOR rate on the term loan would have a corresponding offsetting change on the interest rate swap.

Item 8. Consolidated Financial Statements and Supplementary Data.

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

Item 9. Changes in and Disagreements with Accountants on Accounting 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 InternalControl - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

We acquired the Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood and Hotel Palomar San Francisco during 2012 and have excluded these properties from our assessment of effectiveness of internal control over financial reporting as of December 31, 2012 the internal controls over financial reporting of these hotels, which had an aggregate of hotel level assets and liabilities of $296.9 million and $42.8 million, respectively, and hotel revenues and expenses of $29.1 million and $20.7 million, respectively, as of and for the year ended December 31, 2012.

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, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Additional Material Federal Income Tax Considerations

The following is a summary of additional material federal income tax considerations with respect to the ownership of our shares. This summary supplements and should be read together with the discussion under “Material Federal Income Tax Considerations” in the prospectus dated April 13, 2011 and filed as part of our Registration Statement on Form S-3 (No. 333-173468).

Recent Legislation

Pursuant to recently enacted legislation, as of January 1, 2013, (1) the maximum tax rate on “qualified dividend income” received by U.S. shareholders taxed at individual rates is 20%, (2) the maximum tax rate on long-term capital gain applicable to U.S. shareholders taxed at individual rates is 20%, and (3) the highest marginal individual income tax rate is 39.6%. Pursuant to such legislation, the backup withholding rate remains at 28%. We urge you to consult your tax advisors regarding the impact of this legislation on the purchase, ownership and sale of our shares.

Taxation of Taxable U.S. Shareholders

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For payments after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our shares received by U.S. shareholders who own their shares through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed on proceeds from the sale of our shares received after December 31, 2016 by U.S. shareholders who own their shares through foreign accounts or foreign intermediaries. We will not pay any additional amounts in respect of any amounts withheld.

Taxation of Non-U.S. Shareholders

Whether or not non-U.S. shareholders are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes, for payments after December 31, 2013, a U.S. withholding tax at a 30% rate will be imposed on dividends paid on our shares received by certain non-U.S. shareholders if they held our shares through foreign entities that fail to meet certain disclosure requirements related to U.S. persons that either have accounts with such entities or own equity interests in such entities. In addition, if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed on proceeds from the sale of our shares received after December 31, 2016 by certain non-U.S. shareholders. If payment of withholding taxes is required, non-U.S. shareholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such dividends and proceeds will be required to seek a refund from the Internal Revenue Service to obtain the benefit or such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld.

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 2013 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 2013 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 2013 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 2013 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 2013 Annual Meeting of Shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

1. Financial Statements

Included herein on pages F-1 through F-25.

2. Financial Statement Schedules

43

The following financial statement schedule is included herein on 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 or furnished, as the case may be, 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 (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on February 21, 2012 (File No. 001-34571)).
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 (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K filed on February 21, 2012 (File No. 001-34571)).
10.1*	Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on August 2, 2012 (File No. 001-34571)).
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)).
10.10*	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*	Form of Share Award Agreement (Performance Vesting) for executive officers (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012 (File No. 001-34571)).
10.12*	Form of LTIP Unit Vesting Agreement (supersedes Exhibits 10.11, 10.12, and 10.13 to the Registrant's Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012).
10.13*	Form of Share Award Agreement for executive officers (supersedes 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) and Exhibits 10.1, 10.2, and 10.3 to the Registrant's Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012 (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)).

44

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	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)).
10.17	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)).
10.18	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)).
10.19	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)).
10.20	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)).
10.21	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)) (This agreement was amended and restated in July 2012; See Exhibit 10.22 below).
10.22	Amended and Restated Credit Agreement, dated as of July 13, 2012, 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)) (This agreement supersedes Exhibit 10.21 above).
10.23	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)).
10.24	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)).
10.25	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)).
10.26†	Amendment to Second Amended and Restated Operating Agreement of DP Fee Holding Co., LLC, dated December 27, 2012.
10.27	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)).
10.28†	Loan Agreement, dated as of December 27, 2012, between Goldman Sachs Mortgage Company and 371 Seventh Avenue Co. LLC, 125 East 50th Street Co. LLC, 215 East 64th Street Co. LLC, 155 East 50th Street Co. LLC and 303 Lexington Avenue Co. LLC.
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.

45

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.

** Furnished 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.

(b) See Exhibit Index attached to this Annual Report on Form 10-K.

(c) The financial statements required by Rule 3-09 of Regulation S-X are filed as Exhibit 99.1 to this Annual Report on Form 10-K.

46

SIGNATURES

Pursuant to the requirements 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
Date:	February 21, 2013	/s/ JON E. BORTZ
		Jon E. Bortz
		Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed 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	Chairman, President and Chief Executive Officer (principal executive officer)	February 21, 2013
Jon E. Bortz
/s/ RAYMOND D. MARTZ	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)	February 21, 2013
Raymond D. Martz
/s/ CYDNEY C. DONNELL	Trustee	February 21, 2013
Cydney C. Donnell
/s/ RON E. JACKSON	Trustee	February 21, 2013
Ron E. Jackson
/s/ PHILLIP M. MILLER	Trustee	February 21, 2013
Phillip M. Miller
/s/ MICHAEL J. SCHALL	Trustee	February 21, 2013
Michael J. Schall
/s/ EARL E. WEBB	Trustee	February 21, 2013
Earl E. Webb
/s/ LAURA H. WRIGHT	Trustee	February 21, 2013
Laura H. Wright

47

PEBBLEBROOK HOTEL TRUST

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations and Comprehensive Income	F-5
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, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012. 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, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, 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 Trust's internal control over financial reporting as of December 31, 2012, 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, 2013, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

McLean, Virginia

February 21, 2013

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, 2012, 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, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

During 2012, Pebblebrook acquired five hotel assets in separate transactions. Management has excluded from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2012, the internal control over financial reporting for the operations of five of their hotels (acquisition dates April 4, 2012, July 9, 2012, August 23, 2012 and October 25, 2012) comprising hotel level assets and liabilities of $296.9 million and $42.8 million, respectively, and hotel revenues and expenses of $29.1 million and $20.7 million, respectively, included in the consolidated balance sheet and statement of operations as of and for the year ended December 31, 2012. Our audit of internal control over financial reporting of Pebblebrook also excluded an evaluation of the internal control over financial reporting for these hotel level assets, liabilities, revenues, and expenses.

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, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 21, 2013, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

McLean, Virginia

February 21, 2013

F-3

Pebblebrook Hotel Trust Consolidated Balance Sheets (In thousands, except share data)
	December 31, 2012			December 31, 2011
ASSETS
Investment in hotel properties, net	$	1,417,229		$	1,127,484
Investment in joint venture	283,011			171,765
Ground lease asset, net	10,283			10,502
Cash and cash equivalents	85,900			65,684
Restricted cash	12,034			9,469
Hotel receivables (net of allowance for doubtful accounts of $28 and $71, respectively)	13,463			11,312
Deferred financing costs, net	5,753			3,487
Prepaid expenses and other assets	18,489			16,929
Total assets	$	1,846,162		$	1,416,632
LIABILITIES AND EQUITY
Senior unsecured revolving credit facility	$	—		$	—
Term loan	100,000			—
Mortgage debt (including mortgage loan premium of $2,498 and $0, respectively)	368,508			251,539
Accounts payable and accrued expenses	47,364			33,333
Advance deposits	4,596			4,380
Accrued interest	1,328			1,000
Distribution payable	11,274			10,032
Total liabilities	533,070			300,284
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred shares of beneficial interest, $.01 par value (liquidation preference of $225,000 at December 31, 2012 and December 31, 2011), 100,000,000 shares authorized; 9,000,000 shares issued and outstanding at December 31, 2012 and at December 31, 2011	90			90
Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 60,955,090 issued and outstanding at December 31, 2012 and 50,769,024 issued and outstanding at December 31, 2011	610			508
Additional paid-in capital	1,362,349			1,142,905
Accumulated other comprehensive income (loss)	(300		)	—
Distributions in excess of retained earnings	(49,798		)	(30,252		)
Total shareholders’ equity	1,312,951			1,113,251
Non-controlling interests	141			3,097
Total equity	1,313,092			1,116,348
Total liabilities and equity	$	1,846,162		$	1,416,632

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

F-4

Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income (In thousands, except share and per-share data)
	For the year ended December 31,
	2012			2011			2010
Revenues:
Room	$	239,218		$	177,479		$	32,804
Food and beverage	117,752			92,898			21,984
Other operating	23,718			17,610			2,973
Total revenues	380,688			287,987			57,761
Expenses:
Hotel operating expenses:
Room	63,213			47,570			9,718
Food and beverage	86,369			65,783			15,113
Other direct	12,236			8,353			1,288
Other indirect	99,766			79,648			16,724
Total hotel operating expenses	261,584			201,354			42,843
Depreciation and amortization	42,794			30,945			5,776
Real estate taxes, personal property taxes and property insurance	17,576			12,895			2,220
Ground rent	2,611			1,814			124
General and administrative	16,777			11,460			8,319
Hotel acquisition costs	2,234			3,392			6,581
Total operating expenses	343,576			261,860			65,863
Operating income (loss)	37,112			26,127			(8,102		)
Interest income	224			868			3,020
Interest expense	(14,932		)	(13,653		)	(1,640		)
Other	—			85			—
Equity in earnings (loss) of joint venture	5,970			2,336			—
Income (loss) before income taxes	28,374			15,763			(6,722		)
Income tax (expense) benefit	(1,866		)	(564		)	80
Net income (loss)	26,508			15,199			(6,642		)
Net income (loss) attributable to non-controlling interests	429			343			—
Net income (loss) attributable to the Company	26,079			14,856			(6,642		)
Distributions to preferred shareholders	(17,825		)	(10,413		)	—
Net income (loss) attributable to common shareholders	$	8,254		$	4,443		$	(6,642	)
Net income (loss) per share available to common shareholders, basic and diluted	$	0.14		$	0.08		$	(0.23	)
Weighted-average number of common shares, basic	55,806,543			47,921,200			28,669,851
Weighted-average number of common shares, diluted	55,955,497			47,966,307			28,669,851

F-5

Pebblebrook Hotel Trust Consolidated Statements of Operations and Comprehensive Income - Continued (In thousands, except share and per-share data)
	For the year ended December 31,
	2012			2011		2010
Comprehensive Income:
Net income (loss)	$	26,508		$	15,199	$	(6,642	)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	(300		)	—		—
Comprehensive income (loss)	26,208			15,199		(6,642		)
Comprehensive income (loss) attributable to non-controlling interests	427			—		—
Comprehensive income (loss) attributable to the Company	$	25,781		$	15,199	$	(6,642	)

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

F-6

Pebblebrook Hotel Trust

Consolidated Statements of Shareholders' Equity

(In thousands, except share data)

	Preferred Shares			Common Shares				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Retained Earnings			Total Shareholders' Equity			Non-Controlling Interests			Total Equity
	Shares	Amount		Shares		Amount
Balance at December 31, 2009	—	$	—	20,260,000		$	203	$	379,370		$	—		$	(147	)	$	379,426		$	74		$	379,500
Issuance of shares, net of offering costs	—	—		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 income (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 (loss)	—	—		—		—		—			—			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
Issuance of shares, net of offering costs	—	—		9,694,087		97		214,774			—			—			214,871			—			214,871
Issuance of common shares for Board of Trustee compensation	—	—		10,361		—		199			—			—			199			—			199
Repurchase of common shares	—	—		(15,706	)	—		(321		)	—			—			(321		)	—			(321		)
Share-based compensation	—	—		52,789		1		2,635			—			—			2,636			1,579			4,215
Distributions on common shares/units	—	—		—		—		—			—			(27,800		)	(27,800		)	(446		)	(28,246		)
Distributions on preferred shares	—	—		—		—		—			—			(17,825		)	(17,825		)	(15		)	(17,840		)
Redemption of non-controlling interests	—	—		444,535		4		2,157			—			—			2,161			(4,503		)	(2,342		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	—	—		—		—		—			(300		)	—			(300		)	—			(300		)
Net income (loss)	—	—		—		—		—			—			26,079			26,079			429			26,508
Balance at December 31, 2012	9,000,000	$	90	60,955,090		$	610	$	1,362,349		$	(300	)	$	(49,798	)	$	1,312,951		$	141		$	1,313,092

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

F-7

Pebblebrook Hotel Trust Consolidated Statements of Cash Flows (In thousands)
	For the year ended December 31,
	2012			2011			2010
Operating activities:
Net income (loss)	$	26,508		$	15,199		$	(6,642	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	42,794			30,945			5,776
Share-based compensation	4,215			2,654			2,042
Amortization of deferred financing costs and mortgage loan premium	1,400			1,555			415
Amortization of ground lease	219			219			69
Equity in (earnings) loss from joint venture	(5,970		)	(2,336		)	—
Other	240			225			80
Changes in assets and liabilities:
Restricted cash, net	(1,547		)	(408		)	(1,886		)
Hotel receivables	(1,321		)	(6,426		)	(2,712		)
Prepaid expenses and other assets	2,679			(4,481		)	(4,192		)
Accounts payable and accrued expenses	7,740			10,715			10,491
Advance deposits	216			215			13
Net cash provided by (used in) operating activities	77,173			48,076			3,454
Investing activities:
Acquisition of hotel properties	(247,971		)	(467,135		)	(518,730		)
Improvements and additions to hotel properties	(53,156		)	(40,468		)	(3,307		)
Investment in joint venture	(105,277		)	(169,430		)	—
Deposit on hotel properties	(4,000		)	—			(5,000		)
Redemption of certificates of deposits	—			—			70,000
Purchase of corporate office equipment, software, and furniture	(47		)	(148		)	(497		)
Restricted cash, net	2,582			(4,576		)	(2,600		)
Net cash provided by (used in) investing activities	(407,869		)	(681,757		)	(460,134		)
Financing activities:
Gross proceeds from issuance of common shares	221,579			235,980			332,350
Gross proceeds from issuance of preferred shares	—			225,150			—
Payment of offering costs — common and preferred shares	(6,708		)	(17,243		)	(23,434		)
Payment of deferred financing costs	(3,765		)	(2,324		)	(3,133		)
Contributions from non-controlling interest	—			95			—
Borrowings under senior credit facility	120,000			42,000			—
Repayments under senior credit facility	(120,000		)	(42,000		)	—
Proceeds from term loan	100,000			—			—
Proceeds from mortgage debt	224,000			67,000			52,500
Repayments of mortgage debt	(136,704		)	(1,031		)	—
Repurchase of common shares	(321		)	(140		)	—
Redemption of non-controlling interests	(2,342		)	—			—
Distributions — common shares/units	(27,002		)	(22,244		)	—
Distributions — preferred shares	(17,825		)	(6,600		)	—
Net cash provided by (used in) financing activities	350,912			478,643			358,283
Net change in cash and cash equivalents	20,216			(155,038		)	(98,397		)
Cash and cash equivalents, beginning of year	65,684			220,722			319,119
Cash and cash equivalents, end of period	$	85,900		$	65,684		$	220,722

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 in October 2009, to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.

As of December 31, 2012, the Company owned interests in 25 hotels, including 19 wholly owned hotels with a total of 4,615 guest rooms and a 49% interest in a joint venture that owns six hotels with 1,733 guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Bethesda, Maryland; Boston, Massachusetts; Los Angeles, California; Miami, Florida; Minneapolis, Minnesota; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; 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, 2012, the Company owned 99.4% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.6% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, “PHL”), 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 (“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.

Use of Estimates

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

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, 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

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

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

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

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

F-9

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

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 6 for disclosures on the fair value of debt and derivative instruments.

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, assumed liabilities and leasehold interests, as applicable. 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 recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.

Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 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 value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss 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 its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

The Company will classify a hotel as held for sale when a binding agreement to sell 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 value 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

F-10

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 recorded at fair value on the balance sheet date. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense.

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 for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, 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. 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, 2012 and 2011, 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. Share-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

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

F-11

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) attributable to common shareholders as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.

Comprehensive Income

The purpose of reporting comprehensive income is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.  Comprehensive income consists of all components of income, including other comprehensive income, which is excluded from net income.  For the years ended December 31, 2012, 2011 and 2010, comprehensive income (loss) was $26.2 million, $15.2 million and $(6.6) million, respectively. As of December 31, 2012 and 2011, the Company's accumulated other comprehensive income (loss) was $(0.3) million and $0, respectively.  

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted ASU 2011-05 as of January 1, 2012 and disclosed comprehensive income in our consolidated statements of operations and comprehensive income. ASU 2011-05 affects financial statement presentation and has no impact on the Company's results of consolidated financial statements.

NOTE 3. ACQUISITION OF HOTEL PROPERTIES

On April 4, 2012, the Company acquired the 108-room Hotel Milano located in San Francisco, California for $29.8 million. The Company selected Viceroy Hotel Group as manager for the hotel. In November 2012, the Hotel Milano was closed for a complete renovation and repositioning of the hotel. The Company expects to complete the renovation of the Hotel Milano in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.

On July 9, 2012, the Company acquired, in a single transaction, the 125-room Hotel Vintage Park located in Seattle, Washington and the 117-room Hotel Vintage Plaza located in Portland, Oregon for $63.0 million. Both of these hotels will continue to be managed by Kimpton Hotels and Restaurants.

On August 23, 2012, the Company acquired the 258-room W Los Angeles - Westwood hotel located in Los Angeles, California for $125.0 million. At the time of the acquisition, the hotel had certain capital improvement plans which the seller agreed to fund, therefore, at closing the seller contributed $3.6 million into an escrow account which will be used to fund these capital improvements as they are completed by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.

On October 25, 2012, the Company acquired a leasehold interest in the 196-room Hotel Palomar San Francisco located in San Francisco, California for $58.0 million. The acquisition was funded with $30.8 million of available cash and the assumption of a $27.2 million first mortgage loan. The hotel is subject to a long-term hotel lease agreement with an unaffiliated third party that expires in 2097. The hotel is required to pay the greater of an annual fixed rent (base plus basement rent) or a percentage of food and beverage revenues and gross hotel revenues excluding parking and food and beverage revenues in excess of certain thresholds, as defined in the agreement. The annual fixed rent is approximately $1.6 million, as adjusted for consumer price index "CPI" increases but in no event by less than 2% or more than 4% per year. The percentage rent based on food and beverage revenues ranges from 0% to 12% of food and beverage revenues and the percentage rent based

F-12

on gross revenues ranges from 12% to 18% of gross revenues. The hotel will continue to be managed by Kimpton Hotels and Restaurants.

The Hotel Palomar San Francisco is subject to a long term lease of certain floors of the building. The rent due under the lease was determined to be above market, and, at acquisition, the Company recorded an above market rent lease liability of approximately $6.6 million that is amortized as a reduction to ground rent expense over the term of the lease. The Hotel Palomar San Francisco is also subject to a fixed rate mortgage that was determined to be above the current market interest rate. The Company recorded a $2.6 million mortgage loan premium for the above market interest that is amortized as a reduction in interest expense through the maturity date of the loan.

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

	Hotel Zetta (formerly Hotel Milano)		Hotel Vintage Park		Hotel Vintage Plaza		W Los Angeles - Westwood			Hotel Palomar San Francisco			Total
Land	$	7,294	$	8,170	$	6,222	$	24,403		$	—		$	46,089
Buildings and improvements	22,166		23,557		23,012		93,203			63,430			225,368
Furniture, fixtures and equipment	290		706		1,093		3,600			3,780			9,469
Above market rate contracts	—		—		—		—			(9,170		)	(9,170		)
Capital improvement reserve	—		—		—		3,600			—			3,600
Mortgage debt	—		—		—		—			(27,175		)	(27,175		)
Net working capital	7		118		123		(193		)	(265		)	(210		)
Net assets acquired	$	29,757	$	32,551	$	30,450	$	124,613		$	30,600		$	247,971

The results of operations of Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood and Hotel Palomar San Francisco 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 endedDecember 31, 2012 and 2011 as if the hotels and the interest in the joint venture acquired in 2012 and 2011 were acquired on January 1, 2011 and 2010, respectively. The following hotels pro forma results are included in the pro forma table below: Argonaut Hotel, Westin Gaslamp Quarter, San Diego, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami, W Boston, Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood, and Hotel Palomar San Francisco. The pro forma results below exclude acquisition costs of $2.2 million and $3.4 million for the years endedDecember 31, 2012 and 2011, respectively. Purchase accounting for the Embassy Suites San Diego Bay-Downtown, which was acquired on January 29, 2013, is not complete and therefore the Company is currently unable to estimate the pro forma effects of this acquisition. 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, 2011 or 2010 or the future results of operations (in thousands, except per-share data).

	For the year ended December 31,
	2012		2011
	(Unaudited)
Total revenues	$	426,869	$	401,044
Operating income (loss)	43,686		36,334
Net income (loss) attributable to common shareholders	12,954		9,486
Net income (loss) per share available to common shareholders — basic and diluted	$	0.23	$	0.16

F-13

NOTE 4. INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of December 31, 2012 and 2011 consisted of the following (in thousands):

	December 31, 2012			December 31, 2011
Land	$	236,287		$	190,197
Buildings and improvements	1,141,347			887,217
Furniture, fixtures and equipment	107,938			86,138
Construction in progress	9,595			—
Investment in hotel properties	$	1,495,167		$	1,163,552
Less: Accumulated depreciation	(77,938		)	(36,068		)
Investment in hotel properties, net	$	1,417,229		$	1,127,484

In November 2012, the Company closed the Hotel Milano for a complete renovation and repositioning of the hotel, including all guestrooms, public areas and the restaurant. The Company expects to complete the renovation of the hotel in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.

NOTE 5. INVESTMENT IN JOINT VENTURE

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. The transaction valued 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.

On December 27, 2012, the joint venture refinanced its existing loans totaling approximately $553.2 million with a new single $410.0 million loan, secured by five of the properties owned by the joint venture. The new loan bears interest at an annual fixed interest rate of 3.67% and requires interest-only payments through maturity on January 5, 2018. In conjunction with the refinancing, the Company provided the joint venture a $50.0 million unsecured special loan which matures at the earlier of July 4, 2018, the closing of any refinancing of the secured loan or the closing date of a portfolio sale (as defined in the loan agreement). The unsecured special loan bears a fixed interest rate of 9.75% and requires interest-only payments through maturity. The unsecured special loan is pre-payable by the joint venture at any time. The balance of the capital for the refinancing and closing costs was provided by the Company and the joint venture partner with the Company's pro-rata equity contribution of $54.9 million. The Company's investment in the unsecured special loan to the joint venture is included in the investment in joint venture on the consolidated balance sheets. Interest income is recorded on the accrual basis and the Company's 49% pro-rata portion of the loan and related interest income is eliminated in consolidation.

As of December 31, 2012, the joint venture reported approximately $486.0 million in total assets, which represents the basis of the hotels prior to our investment. The joint venture's total liabilities and members' deficit include approximately $410.0 million in existing first mortgage debt, a $50 million unsecured special loan, and approximately $18.8 million of preferred capital which may be distributed to the Company's joint venture partner after October 29, 2013. 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 in 2011, 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 venture 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 (loss) of joint venture (referred to as the basis adjustment in the table below).

F-14

The summarized results of operations of the Company’s investment in the Manhattan Collection joint venture for the years endedDecember 31, 2012 and 2011 are presented below (in thousands):

	For the year ended December 31,
	2012			2011
Revenues	$	174,718		$	82,124
Total expenses	158,394			75,992
Net income (loss)	$	16,324		$	6,132
Company’s 49% interest of net income (loss)	7,999			3,005
Basis adjustment	(2,062		)	(669		)
Interest income elimination	33			—
Equity in earnings (loss) in joint venture	$	5,970		$	2,336

NOTE 6. DEBT

Senior Unsecured Credit Facility

On July 13, 2012, the Company amended and restated the credit agreement that governs the Company's senior unsecured credit facility and the Company's unsecured term loan to increase the aggregate borrowing capacity to $300.0 million. The credit agreement provides for a $200.0 million unsecured revolving credit facility and a $100.0 million unsecured term loan. The revolving credit facility matures in July 2016, and the Company has a one-year extension option. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement up to $600.0 million, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.75% to 2.50%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.25% or 0.35% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a maximum debt service coverage ratio, a minimum fixed charge coverage ratio, and a minimum net worth. As of December 31, 2012 and 2011, the Company had no outstanding borrowings under the revolving credit facility. As of December 31, 2012, the Company was in compliance with the credit agreement debt covenants. For the years endedDecember 31, 2012 and 2011, the Company incurred unused commitment fees of $0.9 million and $0.9 million, respectively.

Term Loan

On August 13, 2012, the Company drew the entire $100.0 million unsecured term loan provided for under its amended senior unsecured credit facility. The five-year term loan matures in July 2017 and bears interest at a variable rate, but was swapped to an effective fixed interest rate for the full five-year term (see “Derivative and Hedging Activities” below). As of December 31, 2012, the Company was in compliance with the credit agreement debt covenants.

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. Effective August 13, 2012, the Company entered into three interest rate swap agreements with an aggregate notional amount of $100.0 million for the term loan's full five-year term, resulting in an effective fixed interest rate of 2.55% at the Company's current leverage ratio (as defined in the agreement). The Company has designated its pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

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

As of December 31, 2012, the Company's interest rate swap derivative instruments were in a liability position, with an aggregate fair value of $0.3 million which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. As of December 31, 2012, there was $0.3 million in unrealized loss included in accumulated

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other comprehensive loss. During the year endedDecember 31, 2012, the Company reclassified $0.2 million from accumulated other comprehensive income to interest expense. The Company had an interest rate cap associated with the mortgage debt on the Sofitel Philadelphia at December 31, 2011. The estimated fair value of the interest rate cap was immaterial. The Sofitel Philadelphia mortgage was repaid during 2012 and the interest rate cap was terminated.

Mortgage Debt

Each of the Company’s mortgage loans is secured by a first mortgage lien or by leasehold interests under a ground or hotel lease on the underlying property. The mortgages are non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.

On January 11, 2012, the Company obtained a $46.0 million first mortgage loan secured by the Company's leasehold interest under the ground lease on the Monaco Washington DC. A portion of the proceeds from this loan was used to repay the existing $35.0 million mortgage on this property. The loan has a term of five years, bears interest at 4.36% and requires monthly principal and interest payments of $0.2 million.

On January 11, 2012, the Company repaid the $42.0 million loan on the Argonaut Hotel with cash on hand and borrowings from the Company's senior unsecured revolving credit facility. On February 15, 2012, the Company obtained a $47.0 million first-mortgage loan secured by the Company's leasehold interest under the ground lease on the Argonaut Hotel. The loan has a term of five years, bears interest at 4.25% and requires monthly principal and interest payments of $0.3 million.

On February 1, 2012, the Company repaid the $56.1 million first mortgage loan on the Sofitel Philadelphia. On May 18, 2012, the Company obtained a $50.0 million first mortgage loan on the Sofitel Philadelphia. The loan has a term of five years, bears interest at 3.90% and requires monthly principal and interest payments of $0.3 million.

In conjunction with the Company's acquisition of the Hotel Palomar San Francisco on October 25, 2012, the Company assumed a $27.2 million first mortgage loan. The loan has a remaining term of five years, bears interest at 5.94% and requires monthly principal and interest payments of $0.2 million. As the loan's interest rate is above market for loans with comparable terms, the Company recorded a loan premium of $2.6 million, which is amortized to interest expense over the remaining term of the loan.

On December 27, 2012, the Company obtained a $81.0 million first mortgage loan secured by the Westin Gaslamp Quarter, San Diego. The loan has a term of seven years, bears interest at 3.69% and requires monthly principal and interest payments of $0.4 million.

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Debt Summary

Debt as of December 31, 2012 and 2011 consisted of the following (dollars in thousands):

			Balance Outstanding as of
	Interest Rate	Maturity Date	December 31, 2012		December 31, 2011
Senior unsecured revolving credit facility	Floating	July 2016	$	—	$	—
Term loan	Floating (1)	July 2017	100,000		—
Mortgage loans
InterContinental Buckhead	4.88%	January 2016	51,022		51,805
Skamania Lodge	5.44%	February 2016	30,252		30,664
DoubleTree by Hilton Bethesda-Washington DC	5.28%	February 2016	35,602		36,000
Hotel Monaco Washington DC	4.36%	February 2017	45,368		35,000
Argonaut Hotel	4.25%	March 2017	46,223		42,000
Sofitel Philadelphia	3.90%	June 2017	49,419		56,070
Hotel Palomar San Francisco	5.94%	September 2017	27,124		—
Westin Gaslamp Quarter, San Diego	3.69%	January 1, 2020	81,000		—
Mortgage loans at stated value			366,010		251,539
Mortgage loan premium			2,498		—
Total mortgage loans			$	368,508	$	251,539
Total debt			$	468,508	$	251,539
(1) We entered into interest rate swaps to effectively fix the interest rate for the full five-year term.

 The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within level 2 of the fair value hierarchy. The estimated fair value of the Company’s mortgage loans as of December 31, 2012 and 2011 was $372.3 million and $251.2 million, respectively.

The Company was in compliance with all debt covenants as of December 31, 2012.

Future scheduled debt principal payments for the Company's mortgage debt and term loan as of December 31, 2012 are as follows (in thousands):

2013	$	6,813
2014	7,444
2015	7,779
2016	117,313
2017	255,901
Thereafter	70,760
Total debt principal payments	466,010
Premium on mortgage loan	2,498
Total debt	$	468,508

NOTE 7. EQUITY

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $.01 par value per share (“common shares”). Each outstanding common share entitles the holder to one vote on each matter submitted to a vote of

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shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company’s board of trustees.

During the year endedDecember 31, 2012, the Company issued 4,519,087 common shares at an average price of $23.72 per share under its $125.0 million at-the-market ("ATM") offering program and raised $105.6 million, net of commissions. On September 28, 2012, the Company filed a prospectus supplement with the SEC to sell up to $170.0 million in common shares under a new $170.0 million ATM program. At the same time, the Company terminated the $125.0 million ATM program which had $17.8 million in common shares remaining available for issuance. As of December 31, 2012, $170.0 million of common shares remained available for issuance under the $170.0 million ATM program.

On June 19, 2012, the Company issued 5,175,000 common shares at a price of $22.10 per share in an underwritten public offering and raised $109.8 million, net of the underwriting discount.

Common Dividends

The Company declared the following dividends on common shares/units for the year endedDecember 31, 2012:

Dividend per Share/Unit		For the Quarter Ended	Record Date	Payable Date
$	0.12	March 31, 2012	March 30, 2012	April 16, 2012
$	0.12	June 30, 2012	June 29, 2012	July 16, 2012
$	0.12	September 30, 2012	September 28, 2012	October 15, 2012
$	0.12	December 31, 2012	December 31, 2012	January 15, 2013

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares of beneficial interest, $.01 par value per share (“preferred shares”).

As of December 31, 2012 and 2011, the Company had 5,600,000 shares of its 7.875% Series A Cumulative Redeemable Preferred Shares ("Series A Preferred Shares") and 3,400,000 shares of its 8.00% Series B Cumulative Redeemable Preferred Shares ("Series B Preferred Shares") outstanding.

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 and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares 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.

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Preferred Dividends

The Company declared the following dividends on preferred shares for the year endedDecember 31, 2012:

Security Type	Dividend  per Share/Unit		For the quarter Ended	Record Date	Payable Date
7.875% Series A	$	0.49	March 31, 2012	March 30, 2012	April 16, 2012
7.875% Series A	$	0.49	June 30, 2012	June 29, 2012	July 16, 2012
7.875% Series A	$	0.49	September 30, 2012	September 28, 2012	October 15, 2012
7.875% Series A	$	0.49	December 31, 2012	December 31, 2012	January 15, 2013
8.00% Series B	$	0.50	March 31, 2012	March 30, 2012	April 16, 2012
8.00% Series B	$	0.50	June 30, 2012	June 29, 2012	July 16, 2012
8.00% Series B	$	0.50	September 30, 2012	September 28, 2012	October 15, 2012
8.00% Series B	$	0.50	December 31, 2012	December 31, 2012	January 15, 2013

Non-controlling Interest of Common Units in 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, 2012 and 2011, the Operating Partnership had 381,109 and 929,099 long-term incentive partnership units (“LTIP units”) outstanding, respectively, all of which have reached parity with other common Operating Partnership units. As of December 31, 2012, 547,990 of these LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above. On December 31, 2012, 444,535 LTIP units were redeemed for the same number of common shares and 103,455 LTIP units were redeemed for $2.3 million in cash.

NOTE 8. SHARE-BASED COMPENSATION PLAN

The Company maintains the 2009 Equity Incentive Plan, as amended (the "Plan") to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan generally vest over three to five years. The Company pays dividends on unvested shares. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. On July 10, 2012, the Company's shareholders approved an amendment and restatement of the Plan to increase the number of shares available to be issued under the Plan from 1,322,625 shares to 2,422,625 shares and extend the term of the Plan from December 6, 2019 to February 8, 2022. As of December 31, 2012, there were 1,124,972 common shares available for issuance under the Plan.

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Service Condition Share Awards

The following table provides a summary of service condition restricted share activity as of December 31, 2012:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2010	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
Granted	52,545		$	23.15
Vested	(52,587	)	$	21.43
Forfeited	—		$	—
Unvested at December 31, 2012	128,622		$	22.19

The fair value of each service condition restricted share award is determined based on the closing price of the Company’s common shares on the grant date. For the years endedDecember 31, 2012, 2011 and 2010 the Company recognized approximately $1.5 million, $1.1 million and $0.5 million, respectively, of share-based compensation expense related to these restricted shares in the consolidated statements of operations. As of December 31, 2012, there was $1.6 million of total unrecognized share-based compensation expense related to unvested restricted shares. The unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.6 years.

Performance-Based Equity Awards

Performance-based equity awarded to officers and employees cliff vest after three years if certain performance measurements are met. These awards also require continued employment and are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. The actual number of common shares that ultimately vest will be determined in 2015 based on certain share price and operating performance metrics for the period from January 1, 2012 through December 31, 2014. Performance-based equity awards granted to certain officers are subject to a maximum award cap; however, there is no maximum or cap of the number of shares which may vest on the employee awards.

The performance measurements include share price and operating metrics which consist of: (1) the Company's total shareholder return relative to the total shareholder return of seven companies in a designated peer group ("Relative TSR"); (2) the Company's total shareholder return to established total shareholder return thresholds ("Absolute TSR"); and (3) the change in the gap between the Company's hotel-level earnings before interest, taxes, depreciation and amortization ("Hotel EBITDA") margin compared to that of a peer company. Dividends accumulate over the vesting period and are paid to the grantee once the number of vested shares is determined.

The Relative TSR and Absolute TSR measurements each represent 30 percent of the award and the Hotel EBITDA margin measurement represents 40 percent of the award. The Relative TSR and Absolute TSR measurements are market conditions and the Hotel EBITDA measurement is a performance condition as market and performance conditions are defined in ASC Topic 718.

On February 8, 2012, the Board of Trustees approved a grant of up to a maximum of 120,016 performance-based equity awards to certain officers of the Company (“officer awards”) and approved a target award of 12,102 performance-based equity awards to employees of the Company (“employee awards”). The fair values of the market conditions were determined using a Monte Carlo simulation method performed by a third-party valuation firm. The assumptions for determining the fair value of the Relative TSR and Absolute TSR components included: risk-free interest rate of 0.34%, dividend yield of 2.2%, and expected volatility of 33%. The simulations also considered the actual TSR performance of the Company's shares and the share performance of the peer group. The total grant date fair value per share of the market conditions for the officer awards and employee awards was $8.62 and $17.23, respectively. The grant date fair value of the performance condition was determined based on the closing share price on the date of grant times the target number of shares for this component of the award. The

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grant date fair value per share of the performance condition for both the officer awards and employee awards was $23.15. Compensation expense on the Hotel EBITDA component will be reassessed at each reporting date to determine whether and at what level the achievement of the target performance condition is probable, and the accrual of compensation expense will be adjusted as appropriate.

At December 31, 2012, the Company assessed the probable achievement of the performance condition and adjusted compensation expense to reflect the expected level of achievement. As of December 31, 2012, there was approximately $2.4 million of unrecognized compensation expense related to these awards, which is expected to be recognized over 2 years. For the year endedDecember 31, 2012, the Company recognized $1.1 million in expense related to these awards.

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 Operating Partnership units with respect to liquidating distributions. If such parity is reached, vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership.

On December 14, 2009, concurrent with the Company's initial public offering, the Company granted 929,099 LTIP units to executives and employees of the Company. These LTIP units vest ratably on each of the first five anniversaries of their dates of grant. All LTIP units will vest upon a change in control. The LTIP units were valued using a Monte Carlo simulation method model. The LTIP unit grants were valued at $8.50 per LTIP unit. 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 Internal Revenue Code, and all the LTIP units achieved full parity with the common Operating Partnership units with respect to liquidating distributions and all other purposes. These LTIP units are allocated their pro-rata share of the Company’s net income (loss).

As of December 31, 2012, the Company had 381,109 LTIP units outstanding, all of which have reached parity with common units but none have vested. All of the LTIP units were held by officers of the Company as of December 31, 2012. On December 31, 2012, the Company was notified that the LTIP unit holders had elected to redeem 547,990 vested LTIP units effective December 31, 2012. At the Company's election, on December 31, 2012, 444,535 vested LTIP units were redeemed for common shares and 103,455 vested LTIP units were redeemed for cash.

The Company recognized $1.6 million in share-based compensation expense related to the LTIP units for each of the years endedDecember 31, 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011 there was $3.1 million and $4.7 million, respectively, of total unrecognized share-based compensation expense related to LTIP units. The unrecognized share-based compensation expense at December 31, 2012 is expected to be recognized over the weighted-average remaining vesting period of 2 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.

For the years ended December 31, 2012, 2011 and 2010, the Company's Operating Partnership income tax expense was $0.4 million, $0 and $0, respectively.

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

	For the year ended December 31,
	2012		2011		2010
Federal
Current	$	1,048	$	374	$	—
Deferred	—		70		(70		)
State and local
Current	412		110		—
Deferred	—		10		(10		)
Income tax expense (benefit)	$	1,460	$	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 (in thousands):

	For the year ended December 31,
	2012		2011		2010
Statutory federal tax expense (benefit)	$	1,048	$	444	$	(70	)
State income tax expense (benefit)	412		120		(10		)
Income tax expense (benefit)	$	1,460	$	564	$	(80	)

For the year endedDecember 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.

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.

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

	For the year ended December 31,
	2012			2011			2010
Numerator:
Net income (loss) attributable to common shareholders	$	8,254		$	4,443		$	(6,642	)
Less: dividends paid on unvested share-based compensation	(310		)	(398		)	(9		)
Undistributed earnings attributable to share-based compensation	—			—			—
Net income (loss) available to common shareholders	$	7,944		$	4,045		$	(6,651	)
Denominator:
Weighted-average number of common shares — basic	55,806,543			47,921,200			28,669,851
Effect of dilutive share-based compensation	148,954			45,107			—
Weighted-average number of common shares — diluted	55,955,497			47,966,307			28,669,851
Net income (loss) per share available to common shareholders — basic	$	0.14		$	0.08		$	(0.23	)
Net income (loss) per share available to common shareholders — diluted	$	0.14		$	0.08		$	(0.23	)

For the year ended December 31, 2010, 78,440 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 are operated pursuant to management agreements with various management companies. The terms of these management agreements range 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 1% 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, exceed 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 endedDecember 31, 2012, 2011 and 2010, base and incentive management fees were $11.5 million, $8.1 million and $1.7 million, 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, 2012 and 2011, the Company had $12.0 million and $9.5 million, respectively, in restricted cash, which consisted 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 and Hotel Leases

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The Hotel 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 Argonaut Hotel 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 $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.

The Hotel Palomar San Francisco is subject to a long-term hotel lease for the right to use certain floors of the building. The hotel lease expires in 2097. The hotel is required to pay an annual fixed rent and percentage rent based on gross hotel and gross food and beverage revenues in excess of certain thresholds, as defined in the agreement.

Future minimum annual rental payments under operating leases, which assumes base or fixed rent for all periods and no assumptions for CPI adjustments, as of December 31, 2012 is as follows (in thousands):

2013	$	3,071
2014	3,105
2015	3,140
2016	3,175
2017	3,211
Thereafter	419,805
Total	$	435,507

Litigation

The nature of the operations of hotels exposes the Company's 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 certain 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

	For the year ended December 31,
	2012		2011		2010
	(in thousands)
Interest paid, net of capitalized interest	$	13,440	$	11,366	$	956
Interest capitalized	$	236	$	—	$	—
Income taxes paid	$	1,877	$	586	$	—
Non-Cash Investing and Financing Activities:
Distributions payable on common shares/units	$	7,461	$	6,219	$	4,908
Distributions payable on preferred shares	$	3,813	$	3,813	$	—
Issuance of common shares for board of trustees compensation	$	199	$	182	$	12
Mortgage loan assumed in connection with acquisition	$	27,175	$	42,000	$	91,070
Above market rate contracts	$	9,170	$	—	$	—
Deposit applied to purchase price of acquisition	$	—	$	5,000	$	—
Accrued additions and improvements to hotel properties	$	1,203	$	2,171	$	—

NOTE 13. SUBSEQUENT EVENTS

F-24

On January 29, 2013, the Company acquired the 337-suite Embassy Suites San Diego Bay-Downtown located in San Diego, California for $112.5 million. The acquisition was funded with $45.7 million of available cash and the assumption of a $66.8 million first mortgage loan.

On January 30, 2013, the Board of Trustees granted an aggregate of 59,245 service condition restricted share awards to executive officers and employees of the Company. These service condition restricted shares will vest over approximately 3 to 5 years based on the terms of the award.

On January 30, 2013, the Board of Trustees granted 72,118 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, 2013 through December 31, 2015 and will be determined in early 2016.

NOTE 14. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the years endedDecember 31, 2012 and 2011 (in thousands, except per-share data) is below. 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, 2012
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	77,474		$	94,167	$	104,305	$	104,742
Net income (loss)	(2,837		)	10,027		12,105		7,213
Net income (loss) attributable to the Company	(2,791		)	9,864		11,918		7,088
Net income (loss) attributable to common shareholders	(7,247		)	5,407		7,462		2,632
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.14	)	$	0.10	$	0.13	$	0.04
	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

F-25

Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation As of December 31, 2012 (In thousands)
			Initial Costs								Gross Amount at End of Year
Description	Encumb-rances		Land		Building and Improvements		Furniture, Fixtures and Equipment		Costs 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	$	35,602	$	10,065	$	53,000	$	4,035	$	6,624	$	10,065	$	57,225	$	6,434	$	73,724	$	5,858	$	67,866	1971	6/4/2010	3-40 years
Sir Francis Drake	—		22,500		60,547		6,953		13,798		22,500		68,802		12,496		103,798		8,084		95,714		1928	6/22/2010	1-40 years
InterContinental Buckhead	51,022		25,000		68,844		11,000		8,212		25,000		72,110		15,946		113,056		9,416		103,640		2004	7/1/2010	3-40 years
Hotel Monaco Washington DC	45,368		—		60,630		2,441		3,625		—		63,118		3,578		66,696		4,518		62,178		1839	9/9/2010	3-40 years
The Grand Hotel Minneapolis	—		4,950		26,616		300		7,673		4,950		30,629		3,960		39,539		3,200		36,339		1912	9/29/2010	1-40 years
Skamania Lodge	30,252		7,129		44,987		3,523		3,173		7,130		46,868		4,814		58,812		3,906		54,906		1993	11/3/2010	3-40 years
Sheraton Delfina Santa Monica	—		18,784		81,580		2,295		8,139		18,784		85,239		6,775		110,798		5,776		105,022		1972	11/19/2010	3-40 years
Sofitel Philadelphia	49,419		18,000		64,256		4,639		2,944		18,000		65,532		6,307		89,839		4,872		84,967		2000	12/3/2010	3-40 years
Argonaut Hotel	46,223		—		79,492		4,247		4,178		—		81,550		6,367		87,917		5,263		82,654		1907	2/16/2011	3-40 years
Westin Gaslamp Quarter, San Diego	81,000		25,537		86,089		6,850		16,929		25,537		100,471		9,397		135,405		7,771		127,634		1987	4/6/2011	1-40 years
Hotel Monaco Seattle	—		10,105		38,888		2,073		5,526		10,105		41,484		5,003		56,592		2,761		53,831		1969	4/7/2011	3-40 years
Mondrian Los Angeles	—		20,306		110,283		6,091		6,219		20,306		113,632		8,961		142,899		6,212		136,687		1959	5/3/2011	3-40 years
Viceroy Miami	—		8,368		24,246		3,723		1,376		8,368		24,702		4,643		37,713		2,472		35,241		2009	5/26/2011	1-40 years
W Boston	—		19,453		63,893		5,887		1,526		19,453		64,566		6,740		90,759		4,599		86,160		2009	6/8/2011	2-40 years
Hotel Zetta (formerly Hotel Milano)	—		7,294		22,166		290		6,448		7,294		25,728		3,176		36,198		718		35,480		1913	4/4/2012	1-40 years
Hotel Vintage Park	—		8,170		23,557		706		74		8,170		23,561		776		32,507		511		31,996		1922	7/9/2012	3-40 years
Hotel Vintage Plaza	—		6,222		23,012		1,093		—		6,222		23,012		1,093		30,327		451		29,876		1894	7/9/2012	3-40 years
W Los Angeles - Westwood	—		24,403		93,203		3,600		172		24,403		93,203		3,772		121,378		1,108		120,270		1969	8/23/2012	3-40 years
Hotel Palomar San Francisco (1)	27,124		—		63,430		3,780		—		—		63,430		3,780		67,210		442		66,768		1907	10/25/2012	3-40 years
	$	366,010	$	236,286	$	1,088,719	$	73,526	$	96,636	$	236,287	$	1,144,862	$	114,018	$	1,495,167	$	77,938	$	1,417,229

⁽¹⁾ Encumbrance on the Hotel Palomar San Francisco is presented at face value, which excludes loan premium of $2,498 at December 31, 2012.

F-26

Pebblebrook Hotel Trust

Schedule III--Real Estate and Accumulated Depreciation-Continued

As of December 31, 2012

(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
Acquisitions	280,927
Capital Expenditures	50,688
Balance at December 31, 2012	$	1,495,167
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
Depreciation	41,870
Balance at December 31, 2012	$	77,938

F-27

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1	Declaration of Trust, as amended and supplemented, of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on February 21, 2012 (File No. 001-34571)).
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 (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K filed on February 21, 2012 (File No. 001-34571)).
10.1*	Pebblebrook Hotel Trust 2009 Equity Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on August 2, 2012 (File No. 001-34571)).
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)).
10.10*	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*	Form of Share Award Agreement (Performance Vesting) for executive officers (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012 (File No. 001-34571)).
10.12*	Form of LTIP Unit Vesting Agreement (supersedes Exhibits 10.11, 10.12, and 10.13 to the Registrant's Annual Report on Form 10-K filed on March 24, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012).
10.13*	Form of Share Award Agreement for executive officers (supersedes 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) and Exhibits 10.1, 10.2, and 10.3 to the Registrant's Current Report on Form 8-K filed on March 16, 2010 (File No. 001-34571)) (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on April 26, 2012 (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	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)).
10.17	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)).

10.18	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)).
10.19	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)).
10.20	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)).
10.21	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)) (This agreement was amended and restated in July 2012; See Exhibit 10.22 below).
10.22	Amended and Restated Credit Agreement, dated as of July 13, 2012, 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)) (This agreement supersedes Exhibit 10.21 above).
10.23	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)).
10.24	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)).
10.25	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)).
10.26†	Amendment to Second Amended and Restated Operating Agreement of DP Fee Holding Co., LLC, dated December 27, 2012.
10.27	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)).
10.28†	Loan Agreement, dated as of December 27, 2012, between Goldman Sachs Mortgage Company and 371 Seventh Avenue Co. LLC, 125 East 50th Street Co. LLC, 215 East 64th Street Co. LLC, 155 East 50th Street Co. LLC and 303 Lexington Avenue Co. LLC.
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.

** Furnished 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-10.26

EXHIBIT 10.26

AMENDMENT TO SECOND AMENDED AND RESTATED

OPERATING AGREEMENT

This Amendment (the “Amendment”) to Second Amended and Restated Operating Agreement (the “Existing Agreement”), of DP FEE HOLDING CO., LLC (formerly known as Denihan Mezz IV Holding Company, LLC), a Delaware limited liability company (the “Company”) entered into and adopted on the 27th day of December, 2012, by DENIHAN OWNERSHIP COMPANY, LLC, a New York limited liability company (the “Denihan Member”), and CARDINALS OWNER LLC, a Delaware limited liability company (the “PB Member”), and is agreed to and adopted by each other Person who becomes a Member in the Company pursuant to the terms of the Existing Agreement.

RECITALS

WHEREAS, the Company wishes to secure a loan in the principal amount of $50,000,000.00 (the “Special Loan”) from the PB Member to be used solely for the purposes described in Section 5 herein, and the PB Member wishes to extend the Special Loan to the Company subject to the terms and conditions set forth herein, with interest on the unpaid principal balance of the Special Loan at the Interest Rate (as defined below), all in accordance with the following terms and provisions;

WHEREAS, simultaneously herewith, certain Affiliates of the Company (described below collectively, as the borrower) are entering into a loan, dated December 27, 2012 by and among Goldman Sachs Mortgage Company, a New York limited partnership, as lender, and 371 Seventh Avenue Co. LLC, 125 East 50^th Street Co. LLC, 215 East 64^th Street Co. LLC, 155 East 50^th Street Co. LLC and 303 Lexington Avenue Co. LLC, each a Delaware limited liability company, collectively, as borrower(the “Senior Loan”);

WHEREAS, the Denihan Member and the PB Member desire to enter into this Amendment which amends the Existing Agreement, in order to, among other things, memorialize the transactions described above;

WHEREAS, the Denihan Member and the PB Member understand and agree that this Amendment constitutes a personal services agreement, and the identity of the parties hereto is critical to the nature of the agreements contained herein, such that neither of them would have contracted on the same terms with anyone else;

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used herein, but not otherwise defined shall have the meanings ascribed to such terms in the Existing Agreement.

2.Commitment. Simultaneously with the execution hereof, and subject to the terms and conditions set forth herein, the PB Member is making the Special Loan to the Company. The Special Loan is evidenced by that certain Note (the “Special Loan Note”), given by the Company, as borrower, to the PB Member, as lender, the form of which is attached hereto as Exhibit A.

3.Payment Terms.

The Special Loan is payable as follows:

a.     Interest only shall be payable in lawful money of the United States of America by wire transfer in federal or other immediately available funds to the account specified in writing or by electronic transmission, from time to time by the PB Member on the first (1^st) day of each calendar month (each, a “Payment Date”) in arrears, provided, however, if Operating Cash Flow or any Extraordinary Cash Flow is not sufficient to pay the interest due hereunder on any given Payment Date, then interest shall accrue to the extent of any deficiency and shall be payable on the next Payment Date, subject to the provisions of subparagraph (d) below. No such insufficiency shall constitute a default or Special Loan Event of Default hereunder.

b.    Initially, interest on the outstanding principal balance of the Special Loan shall accrue daily at an interest rate (as such rate is determined for the applicable time period, the “Interest Rate”) equal to nine and three-quarters percent (9.75%) per annum. From and after February 4, 2018, the Interest Rate shall increase by one hundred (100) basis points (to ten and three-quarters percent (10.75%) per annum), and shall thereafter further increase by 100 basis points at the end of each successive thirty (30) day period, until the earlier of (x) such time as a maximum Interest Rate of thirteen and one-half percent (13.5%) is achieved (the “Maximum Interest Rate”), or (y) the Special Loan, including all accrued and unpaid interest earned thereon, as well as any other sums due and owing in connection with the Special Loan, is repaid in full.

c.    Interest shall be calculated on the basis of a 365 day year for the actual number of days elapsed.

d.    If any amount is due and payable under the Special Loan Note, including, without limitation, any interest accrued thereon, but excluding interest accrued and not yet payable in accordance with the terms hereof, then notwithstanding anything to the contrary contained in the Existing Agreement, the Company shall not make any distributions of Operating Cash Flow and/or Extraordinary Cash Flow to its Members unless and until such time as the Company has either (i) made sufficient payments to pay any and all outstanding accrued and unpaid interest on the Special Loan, or (ii) received written notice from the PB Member that it may make a distribution of Operating Cash Flow and/or Extraordinary Cash Flow.    

e.    If not sooner paid pursuant to Section 4 of this Amendment, the entire outstanding principal balance of the Special Loan, plus all unpaid accrued interest thereon, shall be due and payable in full, in a single payment due July 4, 2018 (the “Maturity Date”).

4.    Prepayment. The Special Loan may be prepaid at any time, in whole or in part, without premium or penalty, at the Company’s option, provided that any such prepayment shall be accompanied with a payment of unpaid accrued interest on the amount being so prepaid through the date of prepayment. Notwithstanding the foregoing, prepayments shall not be permitted in an amount less than Five Hundred Thousand ($500,000.00) and 00/100 Dollars. Unless otherwise required by the Senior Loan, the Company shall not be obligated to prepay the Senior Loan pro-rata in connection with a prepayment hereunder.

5.    Use of Proceeds. The proceeds of the Special Loan shall be used by the Company for general business purposes, including, without limitation, refinancing the Existing Credit Facility.    

6.    Special Rights Upon Event of Default.

a.    It is currently anticipated that the Company will seek to refinance the Senior Loan prior to the Maturity Date. Upon the closing of any such refinance of the Senior Loan, the Company shall be obligated to apply the net proceeds of any such refinancing (the “Refinance Funds”) (i) first, to the repayment of the Senior Loan and (ii) second, to the repayment of the Special Loan. For the avoidance of doubt, the Members understand and agree that the Special Loan is required to be prepaid upon such refinance only to the extent of the Refinance Funds available, but no distributions of Ordinary Cash Flow or Extraordinary Cash Flow, following the closing of a refinance of the Senior Loan, shall be made to the Members unless or until the Special Loan, together with any unpaid and accrued interest earned thereon, has been paid in full.

b.    Notwithstanding the foregoing, if the Denihan Member reasonably believes that the Refinance Funds will not be sufficient to fully satisfy the Special Loan, then beginning on the date that is six (6) months prior to the maturity date of the Senior Loan, and without limiting the rights of any Member to institute a Hotel Sale pursuant to the Existing Agreement, the Denihan Member shall have the right to elect, by delivering to the PB Member a Sale Notice not later than ninety (90) days prior to the Maturity Date, to cause the Company to institute a Hotel Sale of one or more Hotels, as determined by the Denihan Member in its sole and absolute discretion, in accordance with the terms and conditions of Section 9.1 and Section 9.2 of the Existing Agreement, at a Sale Price, which, for the purposes of this Section 6 only, shall be an amount equal to the fair market value of such Hotel or Hotels, such fair market value as mutually determined by the Members. The proceeds of any such Hotel Sale shall be applied by the Company (i) first toward the defeasance of the Senior Loan in an amount of the release price set forth in the Senior Loan documents, (ii) second (net of transaction costs), to repay the Special Loan, together with any and all unpaid and accrued interest thereon, and thereafter, and (iii) third (provided the Special Loan, together with any and all unpaid and accrued interest thereon, has been paid in full) as a distribution of Extraordinary Cash Flow to the Members. If the Members cannot agree on a Sale Price, then after thirty (30) days of reasonable good faith negotiations, either party may request in writing a third party opinion of valuation (“Valuation”) by a Qualified Arbitrator (as hereinafter defined). After

such a request, each Member shall select and notify the other of the selection and identity of a Qualified Arbitrator within ten (10) business Days after its receipt of such request for a Valuation. Each Qualified Arbitrator thus selected shall report its Valuation in writing simultaneously to both Members within thirty (30) days after such Qualified Arbitrator is retained. If the lower of the two Valuations is equal to or greater than 90% of the higher of the two Valuations, the average of the two Valuations shall be the Sale Price. If the lower of the two Valuations is less than 90% of the higher of the two Valuations, the two Qualified Arbitrators shall, within five (5) business days after the submission of their reports, select (and notify both Members of the selection and identity of) a third Qualified Arbitrator who shall within thirty (30) days of its appointment select the Valuation of one of the first two Qualified Arbitrators as the final and binding Valuation. Each Valuation shall assume a sale on an all-cash sale basis in an arms’ length transaction without reduction for any lien or encumbrance against the assets of the Company. Where two Qualified Arbitrators select a third, the two Qualified Arbitrators shall share with the third Qualified Arbitrator all documents, research and other information acquired by them with respect to the assets of the Company, comparable sales and other relevant information. Each party shall bear the fees and expenses of the Qualified Arbitrator it selects. The fees and expenses of any third Qualified Arbitrator shall be borne equally by the Members. If a Member fails to notify the other Member of the first Member’s Qualified Arbitrator within the time required, or if a Member’s Qualified Arbitrator fails to submit its Valuation when required by this Section 6, the Valuation of the Sale Price made by the Qualified Arbitrator selected in a timely fashion by the second Member, or submitted in a timely fashion, shall be the Sale Price for all purposes. For the purposes of this Section 6(b), “Qualified Arbitrator” shall mean: any Person that is both (i) an MAI appraiser with at least 10 years’ experience in valuing hotel properties, and (ii) an investment banking or similar firm with at least 10 years’ experience in valuing illiquid equity interests in real estate ventures; provided, however, that in the event the valuation assignment for which the Qualified Arbitrator has been retained involves either the valuation of real estate only or the valuation of equity interests in real estate ventures only, such Person need only have the qualifications relevant to such assignment. In no event shall any Person that has performed appraisal or other work for the Company (excluding Persons who have been retained by a lender or other financial institution on behalf of the Company), any Subsidiary or either Member or their respective Affiliates during the two year period prior to the date of its selection be a Qualified Arbitrator.

c.    If (i) the Denihan Member fails to give notice of its election under subparagraph 6(b) above, or (ii) notwithstanding the Denihan Member’s election to proceed pursuant to subparagraph 6(b) above, the Hotel Sale has not closed at least thirty (30) days prior to the Maturity Date or the proceeds of any Hotel Sale are not sufficient to satisfy the Special Loan, then either Member shall have the option to call capital pursuant to Section 4.1.4 of Existing Agreement in an amount required to satisfy the Special Loan, including all principal and any and all unpaid and accrued interest thereon, (the “Special Loan Shortfall”), in which case, either Member shall give written notice (a “Special Loan Shortfall Cash Needs Notice”) to the other of the amount of the Special Loan Shortfall which Special Loan Shortfall Cash Needs Notice shall set forth a date on which the Special Loan Shortfall must be delivered to the Company (the “Special Loan Cash Needs Date”) and shall set forth each Member’s share of the Special Loan Shortfall based upon the Percentage Interests of the Members at the time of the Special Loan Shortfall Cash Needs Notice. If either Member shall exercise such right, the amount required to be contributed by the PB Member

shall, as of the Special Loan Cash Needs Date, automatically be deemed to have been contributed on the Special Loan Cash Needs Date by offset against the Special Loan, (i.e., the PB Member shall not be required to contribute cash in order to satisfy its share of the Special Loan Shortfall, but instead shall be deemed to have made such contribution by reducing the amount of the Special Loan by the amount the PB Member would be required to contribute pursuant to this Section 6). For the purposes of this Section 6 only, if the Denihan Member fails to make one hundred percent (100%) of its share of the Special Loan Shortfall by the Special Loan Shortfall Cash Needs Date (such unfunded portion, the “Denihan Shortfall Loan Unfunded Amount”), the Denihan Member shall be a Non-Contributing Member and the PB Member shall be a Contributing Member and shall be deemed to have made an additional contribution in the amount of the Denihan Shortfall Loan Unfunded Amount and the Percentage Interest of each Member shall be adjusted as follows: For purposes of the calculation of adjusted Percentage Interests in this Section 6(c) only each Member shall be assigned a “Notional Amount”. The Denihan Member shall have a Notional Amount equal to its then Percentage Interest of the fair market value of the Portfolio (determined net of the Senior Loan and Special Loan), and the PB Member shall have a Notional Amount equal to its then Percentage Interest of the fair market value of the Portfolio (determined net of the Senior Loan and Special Loan). For such purposes, the fair market value of the Portfolio shall be mutually determined by the Members, failing agreement by the Members on which shall be determined in accordance with the process for Valuation set forth in Section 6(b) above (except that Valuation shall be determinative of the fair market value of the Portfolio rather than the Sale Price). Each Member’s Percentage Interest shall be adjusted to equal a fraction, represented as a percentage, the numerator of which is the sum of (1) such Member’s Notional Amount, plus (2) in the case of the PB Member, (a) one hundred twenty-five percent (125%) of the Capital Contribution that PB Member shall be deemed to have made on account of the Denihan Shortfall Unfunded Amount plus (b) the amount of the Capital Contribution that the PB Member is deemed to have made pursuant to the Special Loan Shortfall Cash Needs Notice, plus (3) in the case of the Denihan Member, the amount of the Capital Contribution it has made pursuant to the Special Loan Shortfall Cash Needs Notice pursuant to this Section 6 (with respect to the Special Loan Shortfall Cash Needs Notice), minus (4) in the case of the Denihan Member twenty-five percent (25%) of the Denihan Shortfall Loan Unfunded Amount (or applicable portion thereof that was deemed to be contributed by the PB Member by offset against the Special Loan); and the denominator of which is the sum of (1) the Notional Amounts of both Members, plus (2) the Special Loan Shortfall. Any funds contributed to the Company as a Capital Contribution or deemed Capital Contribution pursuant to this Section 6(c) shall be paid to the PB Member to satisfy the Special Loan, together with all unpaid and accrued interest thereon, in full.

d.    Notwithstanding anything to the contrary set forth in Section 6(c), in the event that the Denihan Member fails to contribute one hundred percent (100%) of its share of the Special Loan Shortfall by the Special Loan Cash Needs Date, then the PB Member shall have the right (but not the obligation), exercisable by written notice within ten (10) Business Days of the Special Loan Cash Needs Date to rescind and withdraw the Special Loan Shortfall Cash Needs Notice as if and to the same effect as if the same had never been delivered, in which event, neither Member shall have the right nor the obligation to make a capital call or any capital contribution with respect to the Special Loan and the provisions of Section 7 hereof shall apply.    

7.    Default.

a.    Notwithstanding anything to the contrary contained herein, if the Company fails to fully repay all amounts due and owing under the Note on the Maturity Date, it shall be a “Special Loan Event of Default”. Upon the occurrence of a Special Loan Event of Default, (i) the entire unpaid principal balance of the Special Loan, plus all unpaid accrued interest and any and all other amounts payable hereunder, shall become immediately due and payable at the option of the PB Member, without presentment, demand, protest or notice, all of which are expressly waived, and (ii) notwithstanding anything to the contrary in the Existing Agreement, the Company shall not make any distributions of Operating Cash Flow and/or Extraordinary Cash Flow to its Members unless and until such time as the Special Loan Event of Default is cured or the Special Loan, including all unpaid accrued interest thereon and any and all other amounts payable hereunder is repaid in full. Upon the occurrence of a Special Loan Event of Default, the PB Member may proceed to protect and enforce its rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provisions contained herein or in the Note, or in any document or instrument delivered pursuant to this Amendment. For the avoidance of doubt, except as expressly set forth in this Section 7, no other act or omission by any party hereto shall constitute a default or Special Loan Event of Default hereunder.

b.    During a Special Loan Event of Default, interest shall accrue at a default interest rate of seventeen percent (17%) compounded monthly (the “Default Interest Rate”), provided, however, that such rate shall not exceed the maximum permitted by applicable state or federal law.

8.    Assignment.    

a.    The Company may not sell, assign or otherwise transfer any interest in the Special Loan or any portion thereof (including the Company’s rights, title, interests, remedies, powers and duties hereunder and thereunder).

b.    Nothing in this Section 8 shall be construed to limit any of the PB Member’s rights pursuant to Section 8.1 of the Existing Agreement, except if same shall be in violation of any terms and conditions of the Senior Loan.

9.    Portfolio Sale/Hotel Sale.     Notwithstanding anything to the contrary contained in the Existing Agreement, in the event of a Portfolio Sale, the entire outstanding principal balance of the Special Loan, plus all unpaid accrued interest thereon, shall be due and payable in full in a single payment on the Portfolio Sale closing date. In addition to the foregoing, and notwithstanding anything to the contrary contained in the Existing Agreement, the Company shall not make distributions of Extraordinary Cash Flow to the Members following a Portfolio Sale or Hotel Sale prior to applying net proceeds of such Portfolio Sale or Hotel Sale to repayment of the Special Loan hereunder and unless and until the Special Loan, together with any unpaid and accrued interest thereon, is repaid in full.

10.    Bankruptcy.    Notwithstanding anything to the contrary contained in the Existing Agreement or otherwise, the Company shall not, without the express consent and approval of all of its Members, file a petition in bankruptcy under Chapter 11 or any other comparable insolvency proceeding.

11.    Further Assurances. The Members agree to execute, acknowledge, deliver, file, record and publish, and to cause the Company to execute, acknowledge, deliver, file, record and publish such further certificates, instruments, agreements and other documents, reasonably acceptable to the PB Member, and to take all such further action as may be required under the Act or other Applicable Law, or deemed necessary, appropriate or advisable to further memorialize the transactions contemplated in this Amendment, at such time or times as the PB Member shall reasonably request.

12.    Collection Costs and Expenses. The Company shall pay all reasonable costs, fees and expenses, including, without limitation, any and all court or collection costs and reasonable attorneys’ fees whether suit be brought or not, incurred in collection of sums due under the Note or this Amendment, or in defending any third-party claim arising out of the execution of this Amendment or obligations evidenced hereby, or otherwise involving the employment by the PB Member of attorneys with respect to this Amendment and the obligations it evidences. The remedies provided in this Amendment are cumulative and not exclusive of any remedies now or hereafter existing at law, in equity, by statute or otherwise, and may be exercised separately or in any combination.

13.    Priority; Unsecured Loan; No Cross-Default. Denihan Member and PB Member acknowledge and agree that (i) the Special Loan shall at all times be subject and subordinate to all amounts payable with respect to the Senior Loan, all reserves required with respect to the Senior Loan and all amounts required for the borrowers and operating lessees under the Senior Loan to operate the Properties , (ii) the Special Loan is not secured by, and does not create a lien on, any of the assets of the Denihan Member, the PB Member, the Company or any of their respective affiliates and (iii) no default under the Existing Agreement, as amended hereby, shall constitute a default under the Special Loan or the Note.

14.    Severability and Amendments. Any provision of this Amendment that is deemed to be prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment. No amendment, modification, termination, or waiver of any provision of this Amendment, nor consent to any departure by the Company from any term of this Amendment, shall in any event be effective unless it is in writing and signed by the PB Member, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given.

15.    Captions. The captions in this Amendment are used for means of reference only and shall not affect in any way the interpretation or construction of this Amendment.

16.     Governing Law. THIS AMENDMENT AND ALL DISPUTES BETWEEN THE PARTIES UNDER OR RELATING TO THIS AMENDMENT OR THE FACTS AND

CIRCUMSTANCES LEADING TO ITS EXECUTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT OF LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AMENDMENT TO THE LAW OF ANOTHER JURISDICTION.

17.    Controlling Agreement. Except as otherwise expressly provided herein, in the event of any conflict between the provisions of this Amendment and the provisions of the Existing Agreement, the provisions of this Amendment shall govern and control. Except as otherwise provided in this Amendment, nothing contained herein shall be deemed to have amended any of the other terms and conditions set forth in the Existing Agreement and the Members acknowledge and agree that in all events, the Existing Agreement shall remain in full force and effect.

18.    Cost and Expenses. Each party hereto shall bear its own costs and expenses, including, without limitation, any and all attorneys fees and/or other fees incurred in connection with the execution and delivery of the Note and this Amendment.

19.    Counterparts. This Amendment may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.

20.    Waiver of Trial by Jury. Each party hereto waives the right to trial by jury in any action, suit, proceeding or counterclaim of any kind arising out of or related to this Amendment. In the event of litigation, this Amendment, may be filed as a written consent to a trial by the court.

21.    Entire Agreement.    This Amendment contains the entire agreement of the parties with respect to the subject matters hereof, and except as otherwise expressly stated herein, supersedes all prior agreements between them, whether oral or written, of any nature whatsoever with respect to the subject matter hereof. The parties agree that the Special Loan is a “Permitted Member Loan” as defined in the loan agreement related to the Senior Loan and that any ambiguity in the construction of this Amendment or the Note shall be resolved in a manner such that this Amendment and the Note are in conformity with such loan agreement.

[Signatures on following page]

IN WITNESS WHEREOF, the Members have duly executed this Amendment as of the date first set forth above.

THE DENIHAN MEMBER:

DENIHAN OWNERSHIP COMPANY, LLC, a New York limited liability company

By:    /s/ Thomas A. Felderman    

Name: Thomas A. Felderman    

Title: Vice President    

THE PB MEMBER:

CARDINALS OWNER LLC, a Delaware limited liability company

By:    /s/ Raymond D. Martz    

Name: Raymond D. Martz    

Title: President    

EXHIBIT A

Form of Note

PROMISSORY NOTE

New York, New York

U.S. $50,000,000.00    December __, 2012

FOR VALUE RECEIVED, the undersigned, DP FEE HOLDING CO., LLC, a Delaware limited liability company, having an address at 551 Fifth Avenue, New York, New York 10176 (“Maker”), promises to pay to the order of CARDINALS OWNER LLC, a Delaware limited liability company, having an address at c/o PB REIT, 2 Bethesda Metro Center, Suite 1530, Bethesda, Maryland 20814 (“Holder”), the principal sum of Fifty Million and 00/100 ($50,000,000.00) Dollars (the “Loan”), together with interest on the principal balance outstanding from time to time, as hereinafter provided, in lawful money of the United States of America in accordance with this Note.

By its execution and delivery of this Note, Maker covenants and agrees as follows:

1.    Interest Rate and Payments.

(a)    The balance of principal outstanding from time to time under this Note shall bear interest at the rate (as such rate is determined for the applicable time period, the “Interest Rate”), accruing daily, of nine and three quarters percent (9.75%) per annum (the “Original Interest Rate”). From and after February 4, 2018 (the “Initial Interest Increase Date”), the Original Interest Rate shall increase by one hundred (100) basis points (to ten and three-quarters percent (10.75%) per annum), and shall thereafter further increase by 100 basis points at the end of each successive thirty (30) day period, until the earlier of (x) such time as a maximum Interest Rate of thirteen and one-half percent (13.5%) is achieved (the “Maximum Interest Rate”), or (y) the Loan, including all accrued and unpaid interest earned thereon, as well as any other sums due and owing in connection with the Loan, is repaid in full.

(b)    Interest shall be calculated on the basis of a 365 day year for the actual number of days elapsed.

(c)    Interest only on this Note shall be payable in arrears on the first (1^st) day of each calendar month (each, a “Payment Date”), in lawful money of the United States of America, by wire transfer in federal or other immediately available funds to the account specified in writing or by electronic transmission, from time to time by Holder, provided, however, if Operating Cash Flow or Extraordinary Cash Flow is not sufficient to pay interest due hereunder, on any given Payment Date, then interest shall accrue to the extent of any deficiency and shall be payable on the next Payment Date, subject to Section 1(d) below.

(d)    The entire outstanding principal balance, and all other amounts due under this Note, together with all accrued and unpaid interest thereon, shall be due and payable in full, in a single payment on the earlier to occur of (i) July 4, 2018, (ii) the closing date of any refinance of the Senior Loan or (iii) the closing date of a Portfolio Sale (the earliest such date, the “Maturity Date”).

2.    Prepayment. Maker shall have the right to prepay the Loan at any time, in whole or in part, without premium or penalty, at Maker’s option, provided all accrued but unpaid interest thereon is paid as of the date of prepayment, provided that Maker gives not less than ten (10) days’ prior written notice to Holder of Maker’s election to prepay this Note. Notwithstanding the foregoing, prepayments shall not be permitted in an amount less than Five Hundred Thousand and 00/100 ($500,000.00) Dollars. Any notice of prepayment delivered by Maker to Holder under this Section 2 may be revoked by delivery of written notice to Holder of such revocation at least ten (10) Business Days prior to the date of such prepayment.

3.    Payments. Whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or public holiday or the equivalent for banks generally under the laws of the State of New York (any other day being a “Business Day”), such payment may be made on the next succeeding Business Day.

4.    Event of Default. If Maker fails to fully repay all amounts due and owing under this Note, including, without limitation any interest or principal or any other amount under this Note, on the Maturity Date, it will constitute an event of default (an “Event of Default”) hereunder. Upon the occurrence of an Event of Default (i) all amounts and due and owing under this Note, including, without limitation any interest or principal or any other amount under this Note shall become immediately due and payable at the option of Holder, without presentment, demand, protest or notice, all of which are expressly waived, and (ii) Holder may proceed to protect and enforce its rights and remedies under (x) this Note, (y) that certain Second Amended and Restated Operating Agreement of Maker, dated as of July 29, 2011, as amended (the "Operating Agreement”), or (z) any other document or instrument delivered in connection therewith, either by suit in equity or by action at law, or both, whether for specific performance of any covenant, agreement or other provisions contained herein, or in any document or instrument delivered in connection with this Note. For the avoidance of doubt, except as expressly set forth in this Section 4, no other act or omission by any party hereto shall constitute a default or Event of Default hereunder.

5.    Default Rate. Notwithstanding anything to the contrary contained herein, the entire balance of principal, interest, and any other sums due under this Note that have not been repaid on the Maturity Date, shall bear interest from the date due until paid at a rate of seventeen percent (17%) per annum, compounded monthly (the “Default Rate”); provided, however, that such rate shall not exceed the maximum permitted by applicable state or federal law.

6.    Application of Payments. For so long as any Event of Default is continuing, Holder shall have the continuing exclusive right to apply any payments received by Holder, from or on behalf of Maker, as Holder may elect against the then due and owing obligations of Maker under this Note in such order of priority or in such allocations as Holder may deem advisable in its sole and absolute discretion.

7.    Immediately Available Funds. All payments under this Note shall be payable in immediately available funds without setoff, counterclaim or deduction of any kind, and shall be made by electronic funds transfer from a bank account established and maintained by Maker for such purpose.

8.    Cost and Expenses. Each party hereto shall bear its own costs and expenses, including, without limitation, any and all attorneys fees and/or other fees incurred in connection herewith.

9.    Defined Terms. Capitalized terms used herein, but not otherwise defined shall have the meanings ascribed to such terms in the Operating Agreement.

10.    Captions. The captions in this Note are used for means of reference only and shall not affect in any way the interpretation or construction of this Note.

11.    Conditions Precedent. Maker hereby certifies and declares that all acts, conditions and things required to be done or performed or to have happened precedent to the creation and issuance of this Note, and in order to constitute this Note the legal, valid and binding obligation of Maker, enforceable in accordance with the terms hereof, have been done or performed or have happened in due and strict compliance with all applicable laws or have been expressly waived in writing by Holder.

12.    Revival. To the extent that Maker makes a payment or Holder receives any payment or proceeds for Maker's benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under the Bankruptcy Code or any other bankruptcy law, common law or equitable cause, then, to such extent, the obligations of Maker hereunder intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Holder.

13.    Certain Waivers and Consents. Maker and all parties now or hereafter liable for the payment hereof, primarily or secondarily, directly or indirectly, and whether as endorser, guarantor, surety, or otherwise, hereby severally (a) waive presentment, demand, protest, notice of protest and/or dishonor, and all other demands or notices of any sort whatever with respect to this Note, (b) consent to impairment or release of collateral, extensions of time for payment, and acceptance of partial payments before, at, or after maturity, (c) waive any right to require Holder to proceed against any security for this Note before proceeding hereunder, (d) waive diligence in the collection of this Note or in filing suit on this Note and (e) agree to pay all costs and expenses, including, without limitation, reasonable attorneys’ fees, which may be incurred in the collection of this Note or any part thereof or in preserving, securing possession of and realizing upon any security for this Note.

14.    Usury Savings Clause. The provisions of this Note and of all agreements between Maker and Holder are, whether now existing or hereinafter made, hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity hereof, prepayment, demand for payment or otherwise, shall the amount paid, or agreed to be paid, to Holder for the use, forbearance or detention of the principal hereof or interest hereon, which remains unpaid from time to time, exceed the maximum amount permissible under applicable law. In particular, it is the intention of the parties hereto to conform strictly to New York and Federal law, whichever is applicable. If as a result of any circumstance whatsoever, the performance or fulfillment of any provision hereof or of any other agreement between Maker and Holder pertaining to the subject matter hereof shall, at the time performance or fulfillment of such

provision is due, involve or purport to require any payment in excess of the limits then prescribed by applicable law, then the obligation to be performed or fulfilled shall hereby be reduced to such limit as to be valid under such applicable law, and if as a result of any circumstance whatsoever, Holder should receive as interest under this Note an amount which would exceed the then highest lawful rate, the amount by which such interest payment would exceed such highest lawful rate shall be applied to the reduction of the principal balance owing hereunder without prepayment or penalty (or, at Holder’s option, be paid to Maker) and in no event shall be counted as interest. To the fullest extent permitted by then applicable law, the determination of the legal maximum amount of interest shall at any and all times be made by amortizing, prorating, allocating and spreading in equal parts over the period of the full stated term of this Note, all interest at any time contracted for, charged or received from Maker in connection with this Note and all other agreements between Maker and Holder pertaining to the subject matter hereof, so that the actual rate of interest on account of the indebtedness represented by this Note is uniform throughout the term hereof and complies with all applicable law.

15.    Severability. If any provision hereof or of any other document securing or otherwise related to the indebtedness evidenced hereby is, for any reason and to any extent, deemed invalid or unenforceable in any jurisdiction or with respect to any person, entity or circumstances, then neither the remainder of the document in which such provision is contained, nor the application of such provision in respect of other persons, entities, or circumstances, nor any other document referred to herein, shall be affected by such invalidity or lack of enforceability, but, instead, shall be enforceable to the maximum extent permitted by law.

16.    Governing Law. Regardless of the place of its execution, this Note shall be construed and enforced in accordance with the substantive laws of the State of New York.

17.    Remedies Cumulative. The remedies provided to Holder in this Note are cumulative and concurrent and may be exercised singly, successively or jointly against Maker at the sole and absolute discretion of Holder.

18.    No Waiver. Holder shall not by any act or omission be deemed to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Holder and then only to the extent specifically set forth therein. A waiver of one event shall not be construed as continuing or as a bar to or waiver of any right or remedy granted to Holder hereunder in connection with a subsequent event.

19.    WAIVER OF JURY TRIAL. MAKER AND BY ITS ACCEPTANCE HEREOF HOLDER KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAKER OR HOLDER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR MAKER AND HOLDER TO ENTER INTO THE LOAN TRANSACTION EVIDENCED BY THIS NOTE.

20.    Bankruptcy. Maker hereby agrees that it will not, without the express consent and approval of all of its Members, file a petition in bankruptcy under Chapter 11 or any other comparable insolvency proceeding.

21.    Counterparts.    This Promissory Note may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.

22.    Personal Services Agreement. Maker and Holder understand and agree that this Note is made pursuant to a personal services agreement, and the identity of the parties hereto is critical to the nature of the agreements contained herein, such that neither of them would have contracted on the same terms with anyone else.

[END OF TEXT]

IN WITNESS WHEREOF and intending to be legally bound, Maker has duly executed this Note as of the date first above written.

MAKER:

DP FEE HOLDING CO., LLC

a Delaware limited liability company

By:     DENIHAN OWNERSHIP COMPANY, LLC, a     New York limited liability company

By:     __________________________

Name: Thomas Felderman

    Title:     Vice-President

By:     CARDINALS OWNER LLC, a Delaware limited         liability company

By:     __________________________

Name: Raymond D. Martz

Title: President

EX-10.28

Exhibit 10.28

LOAN AGREEMENT

Dated as of December 27, 2012

between

THE BORROWERS NAMED HEREIN

as Borrower,

and

GOLDMAN SACHS MORTGAGE COMPANY
as Lender

TABLE OF CONTENTS
		Page
ARTICLE I
GENERAL TERMS
Section 1.1	The Loan	32
Section 1.2	Interest and Principal	33
Section 1.3	Method and Place of Payment	34
Section 1.4	Taxes; Regulatory Change	35
Section 1.5	Release	36
ARTICLE II
DEFEASANCE AND ASSUMPTION
Section 2.1	Defeasance	36
Section 2.2	Assumption	38
Section 2.3	Transfers of Equity Interest in Borrower	40
Section 2.4	Release of Benjamin Property	41
ARTICLE III
ACCOUNTS
Section 3.1	Cash Management Account	42
Section 3.2	Distributions from Cash Management Account	43
Section 3.3	Loss Proceeds Account	45
Section 3.4	Basic Carrying Costs Escrow Account	45
Section 3.5	Debt Service Reserve	47
Section 3.6	FF&E Reserve Account	47
Section 3.7	Deferred Maintenance and Environmental Escrow Account	48
Section 3.8	Affinia Gardens Reserve Account	49
Section 3.9	Excess Cash Flow Reserve Account	50
Section 3.10	Account Collateral	51
Section 3.11	Bankruptcy	51
ARTICLE IV
REPRESENTATIONS
Section 4.1	Organization	52
Section 4.2	Authorization	52
Section 4.3	No Conflicts	52
Section 4.4	Consents	52
Section 4.5	Enforceable Obligations	53
Section 4.6	No Default	53
Section 4.7	Payment of Taxes	53
Section 4.8	Compliance with Law	53

Section 4.9	ERISA	54
Section 4.10	Investment Company Act	54
Section 4.11	No Bankruptcy Filing	54
Section 4.12	Other Debt	54
Section 4.13	Litigation	54
Section 4.14	Leases; Material Agreements	54
Section 4.15	Full and Accurate Disclosure	55
Section 4.16	Financial Condition	55
Section 4.17	Single-Purpose Requirements	55
Section 4.18	Use of Loan Proceeds	56
Section 4.19	Not Foreign Person	56
Section 4.20	Labor Matters	56
Section 4.21	Title	56
Section 4.22	No Encroachments	57
Section 4.23	Physical Condition	57
Section 4.24	Fraudulent Conveyance	57
Section 4.25	Management	58
Section 4.26	Condemnation	58
Section 4.27	Utilities and Public Access	58
Section 4.28	Environmental Matters	58
Section 4.29	Assessments	59
Section 4.30	No Joint Assessment	59
Section 4.31	Separate Lots	59
Section 4.32	Permits; Certificate of Occupancy	59
Section 4.33	Flood Zone	59
Section 4.34	Security Deposits	59
Section 4.35	Acquisition Documents	59
Section 4.36	Insurance	59
Section 4.37	No Dealings	60
Section 4.38	Estoppel Certificates	60
Section 4.39	Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws	60
Section 4.40	Survival	60
Section 4.41	Capital Plan	61
Section 4.42	ADA Compliance	61
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1	Existence	61
Section 5.2	Maintenance of Properties	61
Section 5.3	Compliance with Legal Requirements	62
Section 5.4	Impositions and Other Claims	62
Section 5.5	Access to Properties	62

Section 5.6	Cooperate in Legal Proceedings	63
Section 5.7	Leases	63
Section 5.8	Plan Assets, etc	65
Section 5.9	Further Assurances	65
Section 5.10	Management of Collateral	66
Section 5.11	Notice of Material Event	67
Section 5.12	Annual Financial Statements	67
Section 5.13	Quarterly Financial Statements	68
Section 5.14	Monthly Financial Statements; Non-Delivery of Financial Statements	69
Section 5.15	Insurance	69
Section 5.16	Casualty and Condemnation	74
Section 5.17	Annual Budget	77
Section 5.18	Nonbinding Consultation	78
Section 5.19	Compliance with Encumbrances and Material Agreements	78
Section 5.20	Prohibited Persons	79
Section 5.21	Operating Lease	79
Section 5.22	Capital Plan	80
Section 5.23	Sponsor Financial Covenant	81
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1	Liens on the Collateral	81
Section 6.2	Ownership	81
Section 6.3	Transfer;Change of Control	81
Section 6.4	Debt	82
Section 6.5	Dissolution;Merger or Consolidation	82
Section 6.6	Change in Business	82
Section 6.7	Debt Cancellation	82
Section 6.8	Affiliate Transactions	82
Section 6.9	Misapplication of Funds	82
Section 6.10	Jurisdiction of Formation; Name	82
Section 6.11	Modifications and Waivers	82
Section 6.12	ERISA	83
Section 6.13	Alterations and Expansions	83
Section 6.14	Advances and Investments	83
Section 6.15	Single-Purpose Entity	83
Section 6.16	Zoning and Uses	83
Section 6.17	Waste	84
ARTICLE VII
DEFAULTS
Section 7.1	Event of Default	84

Section 7.2	Remedies	87
Section 7.3	No Waiver	89
Section 7.4	Application of Payments after an Event of Default	89
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1	Conditions Precedent to Closing	89
ARTICLE IX
MISCELLANEOUS
Section 9.1	Successors	92
Section 9.2	Governing Law	92
Section 9.3	Modification, Waiver in Writing	93
Section 9.4	Notices	93
Section 9.5	Trial by Jury	95
Section 9.6	Headings	95
Section 9.7	Assignment and Participation	95
Section 9.8	Severability	96
Section 9.9	Preferences; Waiver of Marshalling Assets	96
Section 9.10	Remedies of Borrower	97
Section 9.11	Offsets, Counterclaims and Defenses	97
Section 9.12	No Joint Venture	98
Section 9.13	Conflict;Construction of Documents	98
Section 9.14	Brokers and Financial Advisors	98
Section 9.15	Counterparts	98
Section 9.16	Estoppel Certificates	98
Section 9.17	General Indemnity; Payment of Expenses; Mortgage Recording Taxes	99
Section 9.18	No Third-Party Beneficiaries	101
Section 9.19	Recourse	101
Section 9.20	Right of Set-Off	104
Section 9.21	Exculpation of Lender	105
Section 9.22	Servicer	105
Section 9.23	No Fiduciary Duty	105
Section 9.24	Borrower Information	106
Section 9.25	Patriot Act Records	107
Section 9.26	Prior Agreements	107
Section 9.27	Publicity	107
Section 9.28	Delay Not a Waiver	108
Section 9.29	Schedules and Exhibits Incorporated	108
Section 9.30	Independence of Covenants	108
Section 9.31	Joint and Several Liability	108

Exhibits

A    Organizational Chart

B    Form of Tenant Notice
C    Form of Uniform System of Accounts

Schedules

A    Properties
B    Exception Report

C    Deferred Maintenance Conditions
D    Reserved
E    Material Agreements

F-1    Capital Plan – A-50 Capital Plan

F-2    Capital Plan – Energy Efficiency Plan

F-3    Capital Plan – Affinia Manhattan Capital Plan

F-4    Capital Plan – Affinia Gardens Capital Plan

F-5    Capital Plan – Other Capital Improvements

G    Allocated Loan Amounts

H    Individual Property Closing Date NOI

I    Leases

J    Life Safety Exceptions

LOAN AGREEMENT

This Loan Agreement (this “Agreement”) is dated December 27, 2012 and is between GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership, as lender (together with its successors and assigns, including any lawful holder of any portion of the Indebtedness, as hereinafter defined, “Lender”), and 371 SEVENTH AVENUE CO. LLC, 125 EAST 50^th STREET CO. LLC, 215 EAST 64^th STREET CO. LLC, 155 EAST 50^th STREET CO. LLC and 303 LEXINGTON AVENUE CO. LLC, each a Delaware limited liability company, as borrower (collectively, jointly and severally, together with their respective permitted successors and assigns, “Borrower”).

RECITALS

Borrower desires to obtain from Lender the Loan (as hereinafter defined) in connection with the financing of the Properties (as hereinafter defined).

Lender is willing to make the Loan on the terms and conditions set forth in this Agreement if Borrower joins in the execution and delivery of this Agreement, issues the Note and executes and delivers the other Loan Documents.

Operating Lessee has joined this Agreement, solely for the purposes set forth in the joinder hereto.

In consideration of the premises and the agreements, provisions and covenants contained herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, Lender and Borrower agree as follows:

DEFINITIONS

(a)    When used in this Agreement, the following capitalized terms have the following meanings:

“A-50 Capital Plan” means the capital plan to renovate the Affinia 50 Property set forth on Schedule F-1.

“Account Collateral” means, collectively, the Collateral Accounts and all sums at any time held, deposited or invested therein, together with any interest or other earnings thereon, and all securities and investment property credited thereto and allproceeds thereof (including proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities.

“Affiliate” means, with respect to any Person, any other Person (i) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; or (ii) that, directly or indirectly, beneficially owns or holds 51% or more of any class of stock or any other direct or indirect beneficial ownership interest in such Person; or (iii) that is a member of the family (as defined in Section 267(c)(4) of the IRC) of

such Person or that is a trust or estate, the beneficial owners of which are members of the family (as defined in Section 267(c)(4) of the IRC) of such Person.

“Affinia 50 Property” means the Property located at 155 East 50^th Street in New York, New York.

“Affinia Gardens Property” means the Property located at 215 East 64^th Street in New York, New York.

“Affinia Gardens Reserve Account” has the meaning set forth in Section 3.8(a).

“Affinia Gardens Reserve Amount” means $3,500,000.

“Affinia Gardens Capital Plan” means the capital plan set forth on Schedule F-4 with respect to the Property known as Affinia Gardens located at 215 East 64^th Street in New York City.

“Affinia Manhattan Capital Plan” means the capital plan set forth on Schedule F-3 with respect to the Affinia Manhattan Property.

“Affinia Manhattan Property” means the Property located at 371 Seventh Avenue in New York, New York.

“Affinia Shelburne Property” means the Property located at 303 Lexington Avenue in New York, New York.

“Agreement” means this Loan Agreement, as the same may from time to time hereafter be amended, restated, replaced, supplemented or otherwise modified.

“Allocated Loan Amount” means, with respect to each Property, the portion of the Loan Amount allocated thereto as set forth in Schedule G.

“ALTA” means the American Land Title Association, or any successor thereto.

“Alteration” means any demolition, alteration, installation, improvement or expansion of or to any of the Properties or any portion thereof.

“Annual Budget” means, collectively, the Approved Operating Projection as defined in each Approved Management Agreement, which budgets shall include, without limitation, an operating plan, sales and marketing plan and a capital budget.

“Appraisal” means, with respect to each Property, an as-is appraisal of such Property that is prepared by a member of the Appraisal Institute selected by Lender, meets the minimum appraisal standards for national banks promulgated by the Comptroller of the Currency pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (FIRREA) and complies with the Uniform Standards of Professional Appraisal Practice (USPAP).

“Approved Annual Budget” means (i) so long as no Event of Default or Trigger Period shall be continuing, the Annual Budget and (ii) during the continuance of an Event of Default and/or Trigger Period, the Annual Budget in effect immediately prior to such Event of Default and/or Trigger Period, with such changes as have been approved by Lender in accordance with Section 5.17.

“Approved Management Agreement” means, individually or collectively, as the context may require, that certain Amended and Restated Management Agreement dated July 29, 2011 by and between DHG Management Company, LLC and 371 Seventh Avenue Co., Lessee LLC, that certain Amended and Restated Management Agreement dated July 29, 2011 by and between DHG Management Company, LLC and 125 East 50th Street Co., Lessee LLC, that certain Amended and Restated Management Agreement dated July 29, 2011 by and between DHG Management Company, LLC and 215 East 64th Street Co., Lessee LLC, that certain Amended and Restated Management Agreement dated July 29, 2011 by and between DHG Management Company, LLC and 155 East 50th Street Co., Lessee LLC and that certain Amended and Restated Management Agreement dated July 29, 2011 by and between DHG Management Company, LLC and 303 Lexington Avenue Co., Lessee, as the same may be amended, restated, replaced, supplemented or otherwise modified in accordance herewith with the consent of Lender, and any other management agreement that is approved by Lender (such approval not to be unreasonably withheld, conditioned or delayed) and with respect to which the Rating Condition is satisfied, as the same may be amended, restated, replaced, supplemented or otherwise modified in accordance herewith with the consent of Lender.

“Approved Property Manager” means DHG Management Company LLC, or any other management company approved by Lender and with respect to which the Rating Condition is satisfied, in each case unless and until Lender requests the termination of that management company pursuant to Section 5.10(e).

“Assignment” has the meaning set forth in Section 9.7(b).

“Assumption” has the meaning set forth in Section 2.2.

“Bankruptcy Code” has the meaning set forth in Section 7.1(d).

“Basic Carrying Costs Escrow Account” has the meaning set forth in Section 3.4(a).

“Benjamin Property” means the Property located at 125 East 50^th Street in New York, New York.

“Blocked Account” has the meaning set forth in Section 3.1(b).

“Blocked Account Agreement” has the meaning set forth in Section 3.1(b).

“Blocked Account Bank” means an Eligible Institution at which a Blocked Account is maintained.

“Borrower or Borrowers” has the meaning set forth in the first paragraph of this Agreement.

“Borrower FF&E Account” has the meaning set forth in Section 3.6(d).

“Borrower FF&E Account Control Agreement” means an account control agreement satisfactory to Lender which shall permit Borrower to have free access to the amounts contained therein for the purposes permitted under the Approved Management Agreement and the Loan Documents, provided that, during the continuance of a Trigger Period or Event of Default all amounts contained therein shall be remitted to the FF&E Reserve Account and shall be administered in accordance with Section 3.6 (in the case of a Trigger Period) or Section 3.10(c) (in the case of an Event of Default).

“Budgeted Operating Expenses” means, with respect to any calendar month and with respect to any Property, (i) an amount equal to the Operating Expenses for such calendar month in the then-applicable Approved Annual Budget for such Property, or (ii) such greater amount as shall equal Borrower’s and/or Operating Lessee’s actual Operating Expenses for such month for such Property, exceptthat during the continuance of a Trigger Period such greater amount may in no event exceed 105% of the amount specified in clause (i), with no individual budget line item (as shown on Exhibit C) exceeding 110% of the amount set forth in the then-applicable Approved Annual Budget with respect to such line item for such month, in each case without the prior written consent of Lender, not to be unreasonably withheld or delayed.

“Business Day” means any day other than (i) a Saturday and a Sunday and (ii) a day on which federally insured depository institutions in the State of New York or the state in which the offices of Lender, its trustee, its Servicer or its Servicer’s collection account are located are authorized or obligated by law, governmental decree or executive order to be closed.

“Capital Expenditure” means, with respect to any Property, hard and soft costs incurred by Borrower (or Operating Lessee) with respect to replacements and capital repairs made to such Property (including repairs to, and replacements of, structural components, roofs, building systems, parking garages and parking lots, but excluding expenditures on FF&E), in each case to the extent capitalized in accordance with GAAP.

“Capital Plan” means, collectively, (i) the A-50 Capital Plan, (ii) the Energy Efficiency Plan (iii) the Affinia Manhattan Capital Plan, (iv) the Affinia Gardens Capital Plan and (v) the plan by which Borrower shall complete the capital improvements described on Schedule F-5 hereto, together with such other capital improvement expenditures undertaken by Borrower as a part thereof.

“Capital Plan Monthly Report” means a reasonably detailed report, accompanied by an Officer’s Certificate (which Officer’s Certificate, for the avoidance of doubt, may be the same Officer’s Certificate contemplated in the introductory paragraph of Section 5.14 of this Agreement) of Borrower’s progress on the Capital Plan, including (i) a narrative description of the work conducted on the Capital Plan during the previous calendar month, (ii) information regarding whether any target date set forth in Section 5.22(b) falling during such calendar month

was met, (iii) if requested by Lender, copies of all invoices and canceled checks (or other proof of expenditure acceptable to Lender) related to Capital Plan expenditures during the previous calendar month and (iv) a certification of the total aggregate amount of the Capital Plan expenditures made as of the end of the previous calendar month, including a breakout for each of the capital plans set forth on Schedule F-1 through F-5.

“Cash Management Account” has the meaning set forth in Section 3.1(a).

“Cash Management Agreement” has the meaning set forth in Section 3.1(a).

“Cash Management Bank” means a depository institution selected by Borrower and reasonably approved by Lender in which Eligible Accounts may be maintained. The initial Cash Management Bank shall be JP Morgan Chase Bank, National Association.

“Casualty” means a fire, explosion, flood, collapse, earthquake or other casualty affecting all or any portion of any Property.

“Cause” means, with respect to an Independent Director, (i) acts or omissions by such Independent Director that constitute systematic and persistent or willful disregard of such Independent Director’s duties, (ii) such Independent Director has been indicted or convicted for any crime or crimes of moral turpitude or dishonesty or for any violation of any Legal Requirements, (iii) such Independent Director no longer satisfies the requirements set forth in the definition of “Independent Director”, (iv) the fees charged for the services of such Independent Director are materially in excess of the fees charged by the other providers of Independent Directors listed in the definition of “Independent Director “ or (v) any other reason for which the prior written consent of Lender shall have been obtained .

“Certificates” means, collectively, any senior and/or subordinate notes, debentures or pass-through certificates, or other evidence of indebtedness, or debt or equity securities, or any combination of the foregoing, representing a direct or beneficial interest, in whole or in part, in the Loan.

“Change of Control” means the occurrence of any of the following: (i) the failure of Borrower to be Controlled by one or more Qualified Equityholders, (ii) the failure of Operating Lessee to be Controlled by the same Qualified Equityholders that Control Borrower or (iii) the failure of any Single-Purpose Equityholder (if any) to be Controlled by the same Qualified Equityholders that Control Borrower.

“Closing Date” means the date of this Agreement.

“Closing Date Debt Yield” means 10.96%.

“Closing Date NOI” means, as of the date of any determination thereof, (x) $44,936,091.31, less (y) the sum of the Individual Property Closing Date NOI’s of each Property that has theretofore been released from the Lien of the Mortgage pursuant to the terms hereof.

“Code” means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Collateral” means (i) all assets owned from time to time by Borrower and Operating Lessee including the Properties, the FF&E, the Revenues and all other tangible and intangible property (including any Defeasance Collateral and all of Borrower’s and Operating Lessee’s respective right, title and interest in and to the Operating Lease and the Approved Management Agreement) in respect of which Lender is granted a Lien under the Loan Documents, and all proceeds thereof and (ii) the Operating Lessee Pledged Collateral.

“Collateral Accounts” means, collectively, the Cash Management Account, any Blocked Account, the Loss Proceeds Account, the Basic Carrying Costs Escrow Account, the FF&E Reserve Account, the Borrower FF&E Account, the Qualified Operating Expense Account, the Excess Cash Flow Reserve Account, the Debt Service Reserve Account, the Affinia Gardens Reserve Account and the Deferred Maintenance and Environmental Escrow Account.

“Completion Guaranty” means that certain Completion Guaranty dated as of the Closing Date, executed by Borrower and Sponsor for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Condemnation” means a taking or voluntary conveyance of all or part of any of the Properties or any interest in or right accruing to or use of any of the Properties, as the result of, or in settlement of, any condemnation or other eminent domain proceeding by any Governmental Authority.

“Contingent Obligation” means, with respect to any Person, any obligation of such Person directly or indirectly guaranteeing any Debt of any other Person in any manner and any contingent obligation to purchase, to provide funds for payment, to supply funds to invest in any other Person or otherwise to assure a creditor against loss.

“Control” of any entity means the ownership, directly or indirectly, of at least 51% of the equity interests in, and the right to at least 51% of the distributions from, such entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through the ability to exercise voting power, by contract or otherwise (“Controlled” and “Controlling” each have the meanings correlative thereto).

“Cooperation Agreement” means that certain Mortgage Loan Cooperation Agreement, dated as of the Closing Date, among Borrower, Lender and Sponsor, as the same may from time to time be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Damages” to a party means any and all liabilities, obligations, losses, demands, damages (other than consequential and punitive damages), penalties, assessments, actions, causes of action, judgments, proceedings, suits, claims, costs, expenses and disbursements of any kind

or nature whatsoever (including reasonable attorneys’ fees and other costs of defense and/or enforcement whether or not suit is brought), fines, charges, fees, settlement costs and disbursements imposed on, incurred by or asserted against such party, whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise.

“DBRS” means DBRS, Inc. or its applicable Affiliate.

“Debt” means, with respect to any Person, without duplication:

(i)    all indebtedness of such Person to any other party (regardless of whether such indebtedness is evidenced by a written instrument such as a note, bond or debenture), including indebtedness for borrowed money or for the deferred purchase price of property or services;

(ii)    all letters of credit issued for the account of such Person and all unreimbursed amounts drawn thereunder;

(iii)    all indebtedness secured by a Lien on any property owned by such Person (whether or not such indebtedness has been assumed) except obligations for impositions that are not yet due and payable;

(iv)    all Contingent Obligations of such Person;

(v)    all payment obligations of such Person under any interest rate protection agreement (including any interest rate swaps, floors, collars or similar agreements) and similar agreements;

(vi)    all contractual indemnity obligations of such Person; and

(vii)        any material actual or contingent liability to any Person or Governmental Authority with respect to any employee benefit plan (within the meaning of Section 3(3) of ERISA) subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.

“Debt Service Reserve Account” has the meaning set forth in Section 3.5(a).

“Debt Yield” means, as of the date of determination, the percentage obtained by dividing Net Operating Income by the Principal Indebtedness.

“Debt Yield Threshold” means, with respect to any release of a Property, the greater of (x) the Closing Date Debt Yield and (y) Debt Yield immediately prior to such release.

“Default” means the occurrence of any event that, but for the giving of notice or the passage of time, or both, would be an Event of Default.

“Default Interest” means, during the continuance of an Event of Default, the amount by which interest accrued on the Notes or Note Components at their respective Default Rates exceeds the amount of interest that would have accrued on the Notes or Note Components at their respective Interest Rates.

“Default Rate” means, with respect to any Note or Note Components, the greater of (x) 4% per annum in excess of the interest rate then applicable to such Note or Note Components hereunder and (y) 1% per annum in excess of the Prime Rate from time to time; provided that, if the foregoing would result in an interest rate in excess of the maximum rate permitted by applicable law, the Default Rate shall be limited to the maximum rate permitted by applicable law.

“Defeasance Borrower” has the meaning set forth in Section 2.1(b).

“Defeasance Collateral” means government securities (as described in Treasury Reg. 1.860G-2(a)(8)(ii)) that are the direct obligations of the United States of America, which obligations are not subject to prepayment, call or early redemption.

“Defeasance Pledge Agreement” has the meaning set forth in Section 2.1(a)(iii).

“Defease” means to deliver Defeasance Collateral as substitute Collateral for the Loan in accordance with Section 2.1 and to cause the Defeased Note to be assumed by a Defeasance Borrower in accordance herewith; and the terms “Defeased” and “Defeasance” have meanings correlative to the foregoing.

“Defeased Note” has the meaning set forth in Section 2.1(b).

“Deferred Maintenance Amount” means $770,000.

“Deferred Maintenance Conditions” means those items described in Schedule C, together with the Life Safety Exceptions.

“Deferred Maintenance and Environmental Escrow Account” has the meaning set forth in Section 3.7(a).

“Denihan Parties” means Brooke Denihan Barrett, Benjamin Joseph Denihan Jr., any members of their immediate families which are competent and of legal age and any trusts established for the benefit of any of the foregoing persons.

“Eligible Account” means (i) a segregated account maintained with a federal or state-chartered depository institution or trust company that complies with the definition of Eligible Institution, or (ii) a segregated trust account or accounts maintained with the corporate trust department of a federal depository institution or state-chartered depository institution that has an investment-grade rating and is subject to regulations regarding fiduciary funds on deposit under, or similar to, Title 12 of the Code of Federal Regulations Section 9.10(b) that, in either case, has corporate trust powers, acting in its fiduciary capacity.

“Eligible Institution” means an institution (i) whose commercial paper, short-term debt obligations or other short-term deposits are rated at least A–1 by S&P, Prime-1 by Moody’s and/or F-1 by Fitch, and whose long-term senior unsecured debt obligations are rated at least A- by S&P, A by Fitch, and A2 by Moody’s and whose deposits are insured by the FDIC or (ii) with respect to which the Rating Condition is satisfied.

“Embargoed Person” has the meaning set forth in Section 4.40.

“Energy Efficiency Plan” means the capital plan set forth on Schedule F-2.

“Engineering Report” means a structural and seismic engineering report or reports (including a “probable maximum loss” calculation, if applicable) with respect to each of the Properties prepared by an independent engineer approved by Lender and delivered to Lender in connection with the Loan, and any amendments or supplements thereto delivered to Lender.

“Environmental Claim” means any written notice, claim, proceeding, notice of proceeding, investigation, demand, abatement order or other order or directive by any Person or Governmental Authority alleging or asserting liability with respect to Borrower, Operating Lessee or any Property arising out of, based on, in connection with, or resulting from (i) the actual or alleged presence, Use or Release of any Hazardous Substance, (ii) any actual or alleged violation of any Environmental Law, or (iii) any actual or alleged injury or threat of injury to property, health or safety, natural resources or to the environment caused by Hazardous Substances.

“Environmental Indemnity” means that certain environmental indemnity agreement executed by Borrower and the Sponsor as of the Closing Date, as the same may from time to time be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Environmental Laws” means any and all present and future federal, state and local laws, statutes, ordinances, orders, rules, regulations and the like, as well as common law, any judicial or administrative orders, decrees or judgments thereunder, and any permits, approvals, licenses, registrations, filings and authorizations, in each case as now or hereafter in effect, relating to (i) the pollution, protection or cleanup of the environment, (ii) the impact of Hazardous Substances on property, health or safety, (iii) the Use or Release of Hazardous Substances, (iv) occupational safety and health, industrial hygiene or the protection of human, plant or animal health or welfare or (v) the liability for or costs of other actual or threatened danger to health or the environment. The term “Environmental Law” includes, but is not limited to, the following statutes, as amended, any successors thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including Subtitle I relating to underground storage tanks); the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act;

the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. The term “Environmental Law” also includes, but is not limited to, any present and future federal state and local laws, statutes ordinances, rules, regulations and the like, as well as common law, conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of a property; or requiring notification or disclosure of Releases of Hazardous Substances or other environmental conditions of a property to any Governmental Authority or other Person, whether or not in connection with transfer of title to or interest in property.

“Environmental Reports” means “Phase I Environmental Site Assessments” as referred to in the ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-05 (and, if necessary, “Phase II Environmental Site Assessments”), prepared by an independent environmental auditor approved by Lender and delivered to Lender in connection with the Loan and any amendments or supplements thereto delivered to Lender, and shall also include any other environmental reports delivered to Lender pursuant to this Agreement and the Environmental Indemnity.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.

“ERISA Affiliate,” at any time, means each trade or business (whether or not incorporated) that would, at the time, be treated together with any Borrower or Operating Lessee as a single employer under Title IV or Section 302 of ERISA or Section 412 of the Code.

“Event of Default” has the meaning set forth in Section 7.1.

“Excess Cash Flow Reserve Account” has the meaning set forth in Section 3.9(a).

“Exception Report” means the report prepared by Borrower and attached to this Agreement as Schedule B, setting forth any exceptions to the representations set forth in Article IV.

“FF&E” means furniture, fixtures and equipment located in the Property.

“Fiscal Quarter” means the three-month period ending on March 31, June 30, September 30 and December 31 of each year, or such other fiscal quarter of Borrower as Borrower may select from time to time with the prior consent of Lender, such consent not to be unreasonably withheld.

“Fiscal Year” means the 12-month period ending on December 31 of each year, or such other fiscal year of Borrower as Borrower may select from time to time with the prior consent of Lender, not to be unreasonably withheld.

“Fitch” means Fitch, Inc. and its successors.

“Force Majeure” means a delay due to acts of God, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes

(including strikes of city workers), work stoppage, shortages or unavailability of labor or materials or similar causes beyond the reasonable control of Borrower; provided that, with respect to any of such circumstances, for the purposes of this Agreement, (1) any period of Force Majeure shall apply only to performance of the obligations necessarily affected by such circumstance and shall continue only so long as Borrower is continuously and diligently using all reasonable efforts to minimize the effect and duration thereof; and (2) Force Majeure shall not include the unavailability or insufficiency of funds.

“Form W-8BEN” means Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) of the Department of Treasury of the United States of America, and any successor form.

“Form W-8ECI” means Form W-8ECI (Certificate of Foreign Person’s Claim for Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America, and any successor form.

“GAAP” means generally accepted accounting principles in the United States of America, consistently applied.

“Governmental Authority” means any federal, state, county, regional, local or municipal government, any bureau, department, agency or political subdivision thereof and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including any court).

“Guaranty” means that certain guaranty, dated as of the Closing Date, executed by Sponsor for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Hazardous Substances” means any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, toxic substances, toxic pollutants, contaminants, pollutants or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the indoor or outdoor environment or the presence of which on, in or under any of the Properties is prohibited or requires investigation or remediation under Environmental Law, including petroleum and petroleum by-products, asbestos and asbestos-containing materials, toxic mold, polychlorinated biphenyls, lead and radon, and compounds containing them (including gasoline, diesel fuel, oil and lead-based paint), pesticides and radioactive materials, flammables and explosives and compounds containing them.

“Increased Costs” has the meaning set forth in Section 1.4(d).

“Indebtedness” means the Principal Indebtedness, together with interest and all other obligations and liabilities of Borrower under the Loan Documents, including all transaction costs, Yield Maintenance Premiums and other amounts due or to become due to Lender pursuant

to this Agreement, under the Notes or in accordance with any of the other Loan Documents, and all other amounts, sums and expenses reimbursable by Borrower to Lender hereunder or pursuant to the Notes or any of the other Loan Documents.

“Indemnified Liabilities” has the meaning set forth in Section 9.19(b).

“Indemnified Parties” has the meaning set forth in Section 9.17.

“Independent Director” of any corporation or limited liability company means an individual who is provided by CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company, Stewart Management Company, Lord Securities Corporation or, if none of those companies is then providing professional independent directors, another nationally-recognized company reasonably approved by Lender, in each case that is not an Affiliate of Borrower and that provides professional independent directors and other corporate services in the ordinary course of its business, and which individual is duly appointed as a member of the board of directors or board of managers of such corporation or limited liability company and is not, and has never been, and will not while serving as Independent Director be, any of the following:

(i)    a member (other than an independent, non-economic “springing” member), partner, equityholder, manager, director, officer or employee of such corporation or limited liability company or any of its equityholders or Affiliates (other than as an independent director or manager of an Affiliate of such corporation or limited liability company that is not in the direct chain of ownership of such corporation or limited liability company and that is required by a creditor to be a single purpose bankruptcy remote entity, provided that such independent director or manager is employed by a company that routinely provides professional independent directors or managers);

(ii)    a creditor, supplier or service provider (including provider of professional services) to such corporation or limited liability company or any of its equityholders or Affiliates (other than a nationally recognized company that routinely provides professional independent managers or directors and that also provides lien search and other similar services to such corporation or limited liability company or any of its equityholders or Affiliates in the ordinary course of business);

(iii)    a family member of any such member, partner, equityholder, manager, director, officer, employee, creditor, supplier or service provider; or

(iv)    a Person that controls (whether directly, indirectly or otherwise) any of (i), (ii) or (iii) above.

A natural person who otherwise satisfies the foregoing definition other than subparagraph (i) by reason of being the Independent Director of a Single-Purpose Entity Affiliated with the corporation or limited liability company in question shall not be disqualified from serving as an Independent Director of such corporation or limited liability company, provided that the fees that

such natural person earns from serving as Independent Director of Affiliates of such the corporation or limited liability company in any given year constitute in the aggregate less than five percent of such natural person’s annual income for that year. The same natural persons may not serve as Independent Directors of a corporation or limited liability company and, at the same time, serve as Independent Directors of an equityholder or member of such corporation or limited liability company.

“Individual Property Closing Date NOI” means, with respect to each Property, the amount set forth with respect thereto on Schedule H hereto.

“Initial Interest Rate” means 3.673% per annum.

“Insurance Requirements” means, collectively, (i) all material terms of any insurance policy required pursuant to this Agreement and (ii) all material regulations and then-current standards applicable to or affecting any of the Properties or any portion thereof or any use or condition thereof, which may, at any time, be recommended by the board of fire underwriters, if any, having jurisdiction over any of the Properties, or any other body exercising similar functions.

“Insurance Reserve Exemption Period” has the meaning set forth in Section 3.4(d)(iii).

“Interest Accrual Period” means each period from and including the sixth day of a calendar month through and including the fifth day of the immediately succeeding calendar month; provided, that, prior to a Securitization, Lender shall have the right, in connection with a change in the Payment Date in accordance with the definition thereof, to make a corresponding change to the Interest Accrual Period. Notwithstanding the foregoing, the first Interest Accrual Period shall commence on and include the Closing Date.

“Interest Rate” means (i) with respect to the initial Note, the Initial Interest Rate, and (ii) with respect to each Note resulting from the bifurcation of the initial Note into multiple Notes pursuant to Section 1.1(c), the per annum interest rate of such Note as determined by Lender in accordance with such Section.

“Lease” means any lease (except the Operating Lease), license, letting, concession, occupancy agreement or sublease to which Borrower and/or Operating Lessee is a party or has a consent right, or other agreement (whether written or oral and whether now or hereafter in effect) under which Borrower and/or Operating Lessee is a lessor, sublessor, licensor or other grantor existing as of the Closing Date or thereafter entered into by Borrower and/or Operating Lessee, in each case pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any of the Properties, and every modification or amendment thereof, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, excluding short-term agreements in the ordinary course of business pursuant to which hotel rooms and facilities are made available to individual hotel guests.

“Leasing Commissions” means leasing commissions required to be paid by Borrower or Operating Lessee in connection with the leasing of space to Tenants at any of the Properties pursuant to Leases entered into by Borrower or Operating Lessee in accordance herewith and payable in accordance with third‑party/arm’s‑length written brokerage agreements, provided that the commissions payable pursuant thereto are commercially reasonable based upon the then current brokerage market for property of a similar type and quality to such Property in the geographic market in which such Property is located.

“Legal Requirements” means all governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities (including Environmental Laws and zoning ordinances) affecting Borrower, Sponsor, Operating Lessee, the Property or any other Collateral or any portion thereof or the construction, ownership, use, alteration or operation thereof, or any portion thereof (whether now or hereafter enacted and in force), and all permits, licenses and authorizations and regulations relating thereto.

“Lender” has the meaning set forth in the first paragraph of this Agreement and in Section 9.7.

“Lender 80% Determination” means a reasonable determination by Lender that, based on a current or updated appraisal by HVS Consulting and Valuation Services (or such other appraiser satisfactory to Lender should HVS Consulting and Valuation Services no longer be actively engaged in the business of real estate valuation), a broker’s price opinion by Jones Lang LaSalle or Eastdil Secured (or such other broker satisfactory to Lender should neither Jones Lang LaSalle or Eastdil Secured be actively engaged in the business of real estate valuation) or other written determination of value using a commercially reasonable valuation method satisfactory to Lender, the fair market value of the Property securing the Indebtedness at the time of such determination (but excluding any value attributable to property that is not an interest in real property within the meaning of section 860G(a)(3)(A) of the Code) is at least 80% of the amount of the Indebtedness (including any accrued and unpaid interest) at the time of such determination.

“Lien” means any mortgage, lien (statutory or other), pledge, hypothecation, assignment, preference, priority, security interest, restrictive covenant, easement, or any other encumbrance or charge on or affecting any Collateral or any portion thereof, or any interest therein (including any conditional sale or other title retention agreement, any sale-leaseback, any financing lease or similar transaction having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any other jurisdiction, domestic or foreign, and mechanics’, materialmen’s and other similar liens and encumbrances, as well as any option to purchase, right of first refusal, right of first offer or similar right).

“Life Safety Exceptions” means, with respect to each Property, the items set forth with respect to such Property on Schedule J.

“Liquidity” means, with respect to any Person, the Lien-free cash deposits of such Person maintained in the conventional forms of demand deposits, money market account deposits, monies held in cash reserves not held by Lender, undrawn lines of credit and other cash equivalents reasonably acceptable to Lender. For the avoidance of doubt the calculation of Liquidity shall not include amounts contained in any Borrower FF&E Account or the FF&E Reserve Account.

“Loan” has the meaning set forth in Section 1.1(a).

“Loan Amount” means $410,000,000.

“Loan Documents” means this Agreement, the Note, each of the Mortgages (and related financing statements), the Environmental Indemnity, each of the Subordination of Property Management Agreements, the Pledge and Security Agreement (Equity), the Cash Management Agreement, any Blocked Account Agreement, the Cooperation Agreement, the Guaranty, the Completion Guaranty, any Defeasance Pledge Agreement, the Qualified Operating Expense Account Agreement, the Borrower FF&E Account Control Agreement (if any), and all other agreements, instruments, certificates and documents necessary to effectuate the granting to Lender of first-priority Liens on the Collateral or otherwise in satisfaction of the requirements of this Agreement or the other documents listed above, as all of the aforesaid may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance herewith.

“Lockout Period” means the period from the Closing Date to but excluding the first Payment Date following the earlier to occur of (i) the third anniversary of the Closing Date and (ii) the second anniversary of the date on which the entire Loan (including any subordinated interest therein) has been Securitized pursuant to a Securitization or series of Securitizations.

“Loss Proceeds” means amounts, awards or payments payable to Borrower, Operating Lessee or Lender in respect of all or any portion of any of the Properties in connection with a Casualty or Condemnation thereof (after the deduction therefrom and payment to Borrower, Operating Lessee and Lender, respectively, of any and all reasonable expenses incurred by Borrower, Operating Lessee and Lender in the recovery thereof, including all attorneys’ fees and disbursements, the fees of insurance experts and adjusters and the costs incurred in any litigation or arbitration with respect to such Casualty or Condemnation).

“Loss Proceeds Account” has the meaning set forth in Section 3.3(a).

“Major Lease” means any Lease that (i) when aggregated with all other Leases at the applicable Property with the same Tenant (or Affiliated Tenants), and assuming the exercise of all expansion rights and all preferential rights to lease additional space contained in each such Lease, is expected to cover more than 3,000 rentable square feet, (ii) contains an option or preferential right to purchase all or any portion of such Property, (iii) is with an Affiliate of Borrower as Tenant, (iv) is entered into during the continuance of an Event of Default or (v) covers space that, as of the Closing Date, covers restaurant space that was owned and operated

by Borrower or an Affiliate of Borrower (regardless of the square footage covered by such Lease).

“Material Adverse Effect” means a material adverse effect upon (i) the ability of Borrower or Sponsor to perform, or of Lender to enforce, any material provision of any Loan Document, (ii) the enforceability of any material provision of any Loan Document, (iii) the value, Net Operating Income, use or enjoyment of any individual Property or the operation or occupancy thereof or (iv) Borrower’s title to any Property.

“Material Agreements” means (x) each contract and agreement (other than Leases) relating to the Property, or otherwise imposing obligations on Borrower or Operating Lessee, under which Borrower or Operating Lessee would have the obligation to pay more than $250,000 per annum or that cannot be terminated by Borrower or Operating Lessee without cause upon 60 days’ notice or less without payment of a termination fee in excess of $50,000, or that is with an Affiliate of Borrower or Operating Lessee, (y) any material reciprocal easement agreement, declaration of covenants, condominium documents, ground lease, material parking agreement or other material Permitted Encumbrance and (z) the Operating Lease.

“Material Alteration” means any Alteration to be performed by or on behalf of Borrower at any of the Properties that (i) is reasonably expected to result in a Material Adverse Effect with respect to the applicable Property, (ii) is reasonably expected to cost in excess of 5% of the Allocated Loan Amount of the applicable Property, as determined by an independent architect, (c) is reasonably expected to permit (or is reasonably likely to induce) any Tenant under a Major Lease to terminate its Lease or abate rent or (d) is reasonably expect to cause more than 10% of guest rooms at any individual Property to be removed from the reservation pool for more than 30 days.

“Maturity Date” means the Payment Date in January 2018, or such earlier date as may result from acceleration of the Loan in accordance with this Agreement.

“Minimum Balance” has the meaning set forth in Section 3.2(a).

“Monthly Debt Service Payment Amount” means the amount of interest due and payable with respect to the Loan on each Payment Date, calculated based on the Principal Indebtedness, the Interest Rate and otherwise in accordance with this Agreement.

“Monthly FF&E Amount” means, with respect to any calendar month, an amount equal to 4% of Operating Income for the immediately preceding calendar month.

“Moody’s” means Moody’s Investors Service, Inc. and its successors.

“Mortgage” means that certain mortgage, assignment of rents and leases, security agreement and fixture filing encumbering such Property, executed by Borrower as of the Closing Date, as the same may from time to time

“Net Operating Income” means, with respect to any Test Period, the excess of (i) Operating Income for such Test Period, minus (ii) Operating Expenses for such Test Period, provided that, in the event that the performance of the Affinia 50 Property is disrupted as a result of the A-50 Capital Plan, Lender shall use, for purposes of determining the existence of a Trigger Period only, Operating Income and Operating Expenses from January through October 2012 in lieu of the same disrupted month from January through October 2013.

“Net Worth” means, with respect to any Person, the fair market value of the gross assets of such Person (excluding intangible assets), minus total liabilities (including all Debt and recourse guarantees of such Person) of such Person.

“Nonconsolidation Opinion” means the opinion letter, dated the Closing Date, delivered by Borrower’s counsel to Lender and addressing issues relating to substantive consolidation in bankruptcy.

“Note(s)” means that certain amended, restated and consolidated promissory note, dated as of the Closing Date, made by Borrower to the order of Lender to evidence the Loan, as such note may be replaced by multiple Notes in accordance with Section 1.1(c) and as otherwise assigned (in whole or in part), amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Note Component” has the meaning set forth in Section 1.1(c).

“OFAC List” means the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and any other similar list maintained by the U.S. Treasury Department, Office of Foreign Assets Control pursuant to any applicable governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities, including trade embargo, economic sanctions, or other prohibitions imposed by Executive Order of the President of the United States. The OFAC List currently is accessible through the internet website at www.treas.gov/ofac/t11sdn.pdf.

“Officer’s Certificate” means a certificate delivered to Lender in a form reasonably acceptable to Lender that is signed by an authorized officer of Borrower and certifies the information therein to the best of such officer’s knowledge.

“Operating Expenses” means, for any period, all operating, renting, administrative, management, legal and other ordinary expenses of Borrower and, without duplication, Operating Lessee (including any amounts expended by the Approved Property Manager that are reimbursable by Borrower or Operating Lessee under an Approved Management Agreement) during such period, determined in accordance with GAAP and the Uniform System of Accounts (excluding reserves for or expenditures on FF&E), plus a deemed expenditure in respect of FF&E in an amount equal to four percent of Operating Income during such period; provided, however, that such expenses shall not include (i) depreciation, amortization or other non-cash items (other than expenses that are due and payable but not yet paid), (ii) interest, principal or any other sums due and owing with respect to the Loan,

(iii) income taxes or other taxes in the nature of income taxes, (iv) Capital Expenditures, or (v) equity distributions.

“Operating Income” means, for any period, all operating income of Borrower and, without duplication, Operating Lessee from each of the Properties during such period, determined in accordance with GAAP and the Uniform System of Accounts (but without straight-lining of rents), including without limitation: (i) all income and proceeds received from any lease, Operating Lease and rental of rooms, exhibit, sales, commercial, meeting, conference or banquet space within each of the Properties, including net parking revenue, and net income from vending machines, health club fees and service charges; (ii) all income and proceeds received from food and beverage operations and from catering services conducted from such Property even though rendered outside of each of the Properties; (iii) all income and proceeds from business interruption, rental interruption and use and occupancy insurance with respect to the operation of each of the Properties (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof and solely to the extent that such income and/or proceeds are allocable to such period); (iv) all awards for temporary use (after deducting therefrom all costs incurred in the adjustment or collection thereof and in restoration of any applicable Property and solely to the extent that such award is allocable to such period); (v) all income and proceeds from judgments, settlements and other resolutions of disputes with respect to matters which would be includable in this definition of “Operating Income” if received in the ordinary course of any of the Properties’ operation (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); and (vi) interest on credit accounts, rent concessions or credits, and other required pass-throughs; but excluding, (1) gross receipts received by lessees, licensees or concessionaires at any of the Properties; (2) consideration received at any of the Properties for hotel accommodations, goods and services to be provided at other hotels, although arranged by, for or on behalf of Borrower, Operating Lessee or Approved Property Manager; (3) income and proceeds from the sale or other disposition of goods, capital assets and other items not in the ordinary course of any Property’s operation; (4) federal, state and municipal excise, sales and use taxes collected directly from patrons or guests at each of the Properties as a part of or based on the sales price of any goods, services or other items, such as gross receipts, room, admission, cabaret or equivalent taxes; (5) awards (except to the extent provided in clause (iv) above); (6) refunds of amounts not included in Operating Expenses at any time and uncollectible accounts; (7) gratuities collected by employees at each of the Properties; (8) the proceeds of any financing; (9) other income or proceeds resulting other than from the use or occupancy of any Property, or any part thereof, or other than from the sale of goods, services or other items sold on or provided from any of the Properties in the ordinary course of business; (10) any credits or refunds made to customers, guests or patrons in the form of allowances or adjustments to previously recorded revenues; (11) any revenue attributable to a Lease that is not a Qualifying Lease; (12) any revenue attributable to a Lease to the extent it is paid more than 30 days prior to the due date, (13) any interest income from any source (except to the extent provided in clause (vi) above); (14) any repayments received from any third party of principal loaned or advanced to such third party by Borrower or Operating Lessee; (15) any proceeds resulting from the Transfer of all or any portion of any Property, (16) Loss Proceeds (except to the extent provided in clause (iii) above); and (17) any other extraordinary or non-recurring items.

“Operating Lease” means, individually or collectively, as the context may require, that certain Operating Lease dated July 29, 2011 by and between 371 Seventh Avenue Co., LLC and 371 Seventh Avenue Co., Lessee LLC, that certain Operating Lease dated July 29, 2011 by and between 125 East 50th Street Co., LLC and 125 East 50th Street Co., Lessee LLC, that certain Operating Lease dated July 29, 2011 by and between 215 East 64th Street Co., LLC and 215 East 64th Street Co., Lessee LLC, that certain Operating Lease dated July 29, 2011 by and between 155 East 50th Street Co., LLC and 155 East 50th Street Co., Lessee LLC and that certain Operating Lease dated July 29, 2011 by and between 303 Lexington Avenue Co., LLC and 303 Lexington Avenue Co., Lessee LLC.

“Operating Lessee” means, individually or collectively, as the context may require, 371 Seventh Avenue Co. Lessee LLC, 125 East 50^th Street Co. Lessee LLC, 215 East 64^th Street Co. Lessee LLC, 155 East 50^th Street Co. Lessee LLC and 303 Lexington Avenue Co. Lessee LLC.

“Operating Lessee Pledged Collateral” means one hundred percent of the equity interests in each Operating Lessee, which is pledged by DP Lease Mezz I Holding Company, LLC to Lender as additional collateral for the Loan pursuant to the Pledge and Security Agreement (Equity).

“Operating Lessee Pledgor” means DP Lease Mezz 1 Holding Company, LLC, a Delaware limited liability company.

“Operating Partnership” means Pebblebrook Hotel Operating Partnership, L.P.

“Participation” has the meaning set forth in Section 9.7(b).

“PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001), as amended from time to time.

“Payment Date” means, with respect to each Interest Accrual Period, the sixth day of the calendar month in which such Interest Accrual Period ends (or, if such day is not a Business Day, the first preceding Business Day); provided, that prior to a Securitization, Lender shall have the right to change the Payment Date so long as a corresponding change to the Interest Accrual Period is also made.

“Permits” means all licenses, permits, variances and certificates used in connection with the ownership, operation, use or occupancy of each of the Properties (including certificates of occupancy, business licenses, state health department licenses, licenses to conduct business and all such other permits, licenses, consents, approvals and rights, obtained from any Governmental Authority or private Person concerning ownership, operation, use or occupancy of such Property).

“Permitted Debt” means:

(i)    the Indebtedness;

(ii)    Taxes that are not yet due and payable;

(iii)    tenant allowances and Capital Expenditure and product improvement plan costs required under the Approved Management Agreement or any Leases or otherwise permitted to be incurred under the Loan Documents that are paid on or prior to the date when due;

(iv)    Trade Payables not represented by a note, customarily paid by Borrower or Operating Lessee within 60 days of incurrence and in fact not more than 60 days outstanding (subject to good faith contest by Borrower conducted with due diligence, solely to the extent such contest could not reasonably be expected to result in a Material Adverse Effect and there is no imminent risk of foreclosure), which are incurred in the ordinary course of Borrower’s or Operating Lessee’s business with respect to the Properties, in amounts reasonable and customary for similar properties and not exceeding 3.0% of the Loan Amount in the aggregate.

“Permitted Encumbrances” means:

(i)    the Liens created by the Loan Documents;

(ii)    all Liens and other matters specifically disclosed on Schedule B of the Qualified Title Insurance Policies;

(iii)    Liens, if any, for Taxes not yet delinquent;

(iv)    mechanics’, materialmen’s or similar Liens, if any, and Liens for delinquent taxes or impositions, in each case only if being diligently contested in good faith and by appropriate proceedings, provided that no such Lien is in imminent danger of foreclosure and providedfurther that either (a) each such Lien is released or discharged of record or fully insured over by the applicable title insurance company issuing the Qualified Title Insurance Policy within 60 days of its creation, or (b) Borrower deposits with Lender, by the expiration of such 60-day period, an amount equal to 150% of the dollar amount of such Lien or a bond in the aforementioned amount from such surety, and upon such terms and conditions, as is reasonably satisfactory to Lender, as security for the payment or release of such Lien;

(v)    rights of existing and future Tenants as tenants only pursuant to written Leases entered into in conformity with the provisions of this Agreement; and

(vi)    easements and other encroachments placed on the Property with the prior written consent of Lender.

“Permitted Investments” means the following, subject to the qualifications hereinafter set forth:

(i)    direct obligations of, or obligations fully and unconditionally guaranteed as to principal and interest by, the U.S. government or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America and have maturities not in excess of one year;

(ii)    federal funds, unsecured certificates of deposit, time deposits, banker’s acceptances, and repurchase agreements, each having maturities of not more than 90 days, of any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia, the short-term debt obligations of which are rated A-1+ by S&P, F1+ by Fitch and P-1 by Moody’s (and if the term is between one and three months A1 by Moody’s) and, if it has a term in excess of three months, the long-term debt obligations of which are rated AAA (or the equivalent) by each of the Rating Agencies, and that (a) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $1,000,000,000;

(iii)    deposits that are fully insured by the Federal Deposit Insurance Corp. (FDIC);

(iv)    commercial paper rated A–1+ by S&P, F1+ by Fitch and P-1 Moody’s (and if the term is between one and three months A1 by Moody’s) by each of the Rating Agencies and having a maturity of not more than 90 days;

(v)    any money market funds that (a) has substantially all of its assets invested continuously in the types of investments referred to in clause (i) above, (b) has net assets of not less than $5,000,000,000, and (c) has a rating of AAAm or AAAm-G from S&P, Aaa by Moody’s and the highest rating obtainable from Fitch; and

(vi)    such other investments as to which the Rating Condition has been satisfied.

Notwithstanding the foregoing, “Permitted Investments” (i) shall exclude any security with the Standard & Poor’s “r” symbol (or any other Rating Agency’s corresponding symbol) attached to the rating (indicating high volatility or dramatic fluctuations in their expected returns because of market risk), as well as any mortgage-backed securities and any security of the type commonly known as “strips”; (ii) shall not have maturities in excess of one year; (iii) shall be limited to those instruments that have a predetermined fixed dollar of principal due at maturity that cannot vary or change; and (iv) shall exclude any investment where the right to receive principal and interest derived from the underlying investment provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. Interest on Permitted Investments may either be fixed or variable, and any variable interest must be tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with that index. No Permitted Investments shall require a payment above par for an obligation if the obligation may be prepaid at the option of the issuer thereof prior to its maturity. All Permitted Investments shall mature or be redeemable upon the option of the holder thereof on or prior to the earlier of

(x) three months from the date of their purchase or (y) the Business Day preceding the day before the date such amounts are required to be applied hereunder.

“Permitted Member Loan” means a loan made by Operating Partnership to DP Fee Holding Co., LLC, provided that such loan (i) has a maturity date that is no less than 180 days after the Maturity Date, (ii) is unsecured by any collateral and is not in a form that would allow it to be construed as a mezzanine loan, (iii) is not assignable to any Person, (iv) has no events of default other than failure to repay the loan in full on its maturity date, permits unpaid interest to accrue without penalty or default and is not cross-defaulted with the operating agreement for DP Fee Holding Co., LLC or any related agreement and (v) is subject and subordinate to the Loan and all amounts payable under such loan are subject and subordinate to all amounts payable to Lender with respect to the Loan, all reserves required with respect to the Loan and all amounts required for Borrower and Operating Lessee to operate the Properties. In connection with a refinancing of both the Loan and the Permitted Member Loan, the members of DP Fee Holding Co., LLC will have the right to (x) sell Properties in the order and as determined by Borrower in its sole discretion, subject to the prepayment, release and other provisions of this Agreement and the other Loan Documents or (y) call capital (including subject to customary “burndown” provisions with respect to non-funding members based on the then fair market value of the Properties). Lender has approved the Permitted Member Loan pursuant to the documentation evidencing the same in effect as of the Closing Date, subject to the understanding that in the event Lender, in its sole discretion, shall agree with Borrower to adjust the Maturity Date, such adjustment shall only be made if the maturity date of the Permitted Member Loan shall be similarly adjusted to a date that is six months following the Maturity Date as so adjusted.

“Person” means any natural person, corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association or Governmental Authority and any fiduciary acting in such capacity on behalf of any of the foregoing.

“Plan Assets” means assets of any (i) employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, (ii) plan (as defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code, or (iii) governmental plan (as defined in Section 3(32) of ERISA) subject to federal, state or local laws, rules or regulations substantially similar to Title I of ERISA or Section 4975 of the Code.

“Pledge and Security Agreement (Equity)” means that certain Pledge and Security Agreement (Equity) dated the date hereof, by Operating Lessee Pledgor in favor of Lender.

“Policies” has the meaning set forth in Section 5.15(b).

“Prepayment Period” means the final three Interest Accrual Periods prior to the Maturity Date.

“Prime Rate” means the “prime rate” published in the “Money Rates” section of The Wall Street Journal. If The Wall Street Journal ceases to publish the “prime rate,” then Lender shall select an equivalent publication that publishes such “prime rate,” and if such “prime rate” is no longer generally published or is limited, regulated or administered by a governmental

or quasi-governmental body, then Lender shall reasonably select a comparable interest rate index.

“Principal Indebtedness” means the principal balance of the Loan outstanding from time to time.

“Prohibited Pledge” has the meaning set forth in Section 7.1(f).

“Properties” means the real property described on Schedule A hereto, together with all buildings and other improvements thereon and all personal property owned by Borrower and encumbered by the Mortgage, together with all rights pertaining to such property; and “Property” means an individual property included in the Properties or all Properties collectively, as the context may require.

“Proportional Amount” has the meaning set forth in Section 9.31.

“Qualified Equityholder” means (i) Sponsor, and each Person comprising Sponsor individually, (ii) any Person approved by Lender with respect to which the Rating Condition is satisfied, (iii) a bank, saving and loan association, investment bank, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan, real estate company, investment fund or an institution substantially similar to any of the foregoing, provided in each case under this clause (iii) that such Person (x) has total assets (in name or under management) in excess of $2,000,000,000 and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity in excess of $1,000,000,000 (in both cases, exclusive of the Property), and (y) is regularly engaged in the business of owning and operating comparable properties in major metropolitan areas or (iv) any Person Controlled by a Person satisfying the requirements of clause (iii), but only during such time period as such Person is so Controlled.

“Qualified Operating Expense Account” means an Eligible Account maintained by Operating Lessee and/or Borrower at an Eligible Institution, which account (i) shall only contain amounts in respect of Operating Expenses for the Property (and no amounts unrelated to the Property shall be deposited therein or otherwise commingled with the amounts on deposit in such account) and (ii) is subject to a Qualified Operating Expense Account Agreement.

“Qualified Operating Expense Account Agreement” means an agreement relating to the Qualified Operating Expense Account, dated as of the date hereof, among Lender, Operating Lessee and/or Borrower and the Eligible Institution at which such account is maintained, pursuant to which such account is pledged to the Lender and Operating Lessee is given full access to the funds on deposit therein but provides for the discontinuance of such access upon receipt by such Eligible Institution of written notice from Lender of the occurrence of an Event of Default, as such agreement may be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Qualified Successor Borrower” means a Single-Purpose Entity that is Controlled by one or more Qualified Equityholders.

“Qualified Successor Operating Lessee” means a Single-Purpose Entity that is Controlled by the same Qualified Equityholders that Control Qualified Successor Borrower and is a successor to the Operating Lessee under the Operating Lease.

“Qualified Survey” means, with respect to each Property, a current land title survey thereof, certified to Borrower, the title company issuing the applicable Title Insurance Policy and Lender and their respective successors and assigns, in form and substance reasonably satisfactory to Lender.

“Qualified Title Insurance Policy” means, with respect to each Property, an ALTA extended coverage mortgagee’s title insurance policy in form and substance reasonably satisfactory to Lender.

“Qualifying Lease” means all Leases other than (i) Leases to a Tenant that is not in occupancy at the Property and open for business at the Property and (ii) Leases to a Tenant that is in default under its Lease or is the subject of bankruptcy or similar insolvency proceedings (to the extent that such Tenant has not assumed such Lease in bankruptcy).

“Rating Agency” shall mean, prior to the final Securitization of the Loan, each of S&P, Moody’s, DBRS, Morningstar, Kroll and Fitch, or any other nationally-recognized statistical rating agency that has been designated by Lender and, after the final Securitization of the Loan, shall mean any of the foregoing that have rated and continue to rate any of the Certificates (excluding unsolicited ratings).

“Rating Condition” means, with respect to any proposed action, the receipt by Lender of confirmation in writing from each of the Rating Agencies that such action shall not result, in and of itself, in a downgrade, withdrawal, or qualification of any rating then assigned to any outstanding Certificates; except that if all or any portion of the Loan has not been Securitized pursuant to a Securitization rated by the Rating Agencies, then “Rating Condition” shall instead mean the receipt of prior written approval of both (x) the applicable Rating Agencies (if and to the extent that any portion of the Loan has been Securitized pursuant to a Securitization or series of Securitizations rated by such Rating Agencies (excluding shadow ratings)), and (y) Lender in its sole discretion. No Rating Condition shall be regarded as having been satisfied unless and until any conditions imposed on the effectiveness of any confirmation from any Rating Agency shall have been satisfied. Lender shall have the right in its sole discretion to waive a Rating Condition requirement with respect to any Rating Agency that Lender determines has declined to review the applicable proposal; provided that if any Rating Agency affirmatively declines to review a Defeasance, then the Rating Condition requirement shall not be waived but shall instead be deemed satisfied as it relates to such Rating Agency for such Defeasance.

“Regulatory Change” means any change after the Closing Date in federal, state or foreign laws or regulations or the adoption or the making, after such date, of any interpretations, directives or requests applying to a class of banks or companies controlling banks, including Lender, of or under any federal, state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

“Release” with respect to any Hazardous Substance means any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances into the indoor or outdoor environment (including the movement of Hazardous Substances through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata).

“Release Price” means (i) with respect to the release of any Property other than the Benjamin Property, 120% of such Property’s Allocated Loan Amount, and (ii) with respect to the release of the Benjamin Property, the greater of (x) 115% of the Allocated Loan Amount for the Benjamin Property and (y) an amount that would cause Debt Yield for the Loan, after giving effect to the release of the Benjamin Property, to be equal to or greater than the greater of (a) Closing Date Debt Yield and (b) the Debt Yield for the Loan immediately prior to the release of the Benjamin Property.

“REMIC” means a “real estate mortgage investment conduit” as defined in Section 860D of the Code.

“Rent Roll” has the meaning set forth in Section 4.14(a).

“Representative Borrower” has the meaning set forth in Section 9.04(a).

“Required CO Amendment Date” means, (i) with respect to the Affinia Shelburne Property (x) May 1, 2013 or (y) any date that is no later than November 1, 2013, solely to the extent the New York Department of Buildings and/or the New York City Board of Standards and Appeals (as applicable) have granted one or more extensions of the deadline for amending such Property’s certificate of occupancy to reflect its use as a transient hotel to at least such date; and (ii) with respect to the Affinia Gardens Property (x) May 1, 2013 or (y) any date that is no later than May 1, 2014, solely to the extent the New York Department of Buildings and/or the New York City Board of Standards and Appeals (as applicable) have granted one or more extensions of the deadline for amending such Property’s certificate of occupancy to reflect its use as a transient hotel to at least such date; provided, however, the Required CO Amendment Date for either of the foregoing Properties shall be extended as necessary if, (x) the amendment of such Property’s certificate of occupancy to reflect its use as a transient hotel has been delayed due to Force Majeure and (y) the New York Department of Buildings and/or the New York City Board of Standards and Appeals (as applicable) have granted one or more extensions of the period of time in which such Property’s certificate of occupancy may be amended to account for the delay caused by such Force Majeure.

“Revenues” means all rents (including percentage rent), rent equivalents, moneys payable as damages pursuant to a Lease or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income and (without duplication) Operating Income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or (without duplication) Operating Lessee or Approved Property Manager (only with respect to the Property) from any and all sources including any obligations now existing or hereafter arising or

created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower or Operating Lessee and proceeds, if any, from business interruption or other loss of income insurance.

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.

“Securitization” means a transaction in which all or any portion of the Loan is deposited into one or more trusts or entities that issue Certificates to investors, or a similar transaction; and the term “Securitize” and “Securitized” have meanings correlative to the foregoing.

“Securitization Vehicle” means the issuer of Certificates in a Securitization of the Loan.

“Service” means the Internal Revenue Service or any successor agency thereto.

“Servicer” means the entity or entities appointed by Lender from time to time to serve as servicer and/or special servicer of the Loan. If at any time no entity is so appointed, the term “Servicer” shall be deemed to refer to Lender.

“Severed Loan Documents” has the meaning set forth in Section 7.2(f).

“Single Member LLC” means a limited liability company that either (x) has only one member, or (y) has multiple members, none of which is a Single-Purpose Equityholder.

“Single-Purpose Entity” means a Person that (a) was formed under the laws of the State of Delaware solely for the purpose of (i) acquiring and holding an ownership interest in one or more of the Properties (or, if applicable, Defeasance Collateral), (ii) in the case of Borrower, entering into and incurring the Indebtedness and obligations under this Agreement and the other Loan Documents or (iii) in the case of a Single-Purpose Equityholder, acquiring and holding an ownership interest in Borrower, Operating Lessee and/or Borrower (or, if applicable, Defeasance Collateral), (b) does not engage in any business unrelated to (i) the applicable Property (or, if applicable, Defeasance Collateral), or (ii) in the case of a Single-Purpose Equityholder, its ownership interest in Borrower, Operating Lessee and/or Borrower (or, if applicable, Defeasance Collateral), (c) does not have any assets other than those related to (i) the applicable Property (or, if applicable, Defeasance Collateral), or (ii) in the case of a Single-Purpose Equityholder, its ownership interest in Borrower, Operating Lessee and/or Borrower (or, if applicable, Defeasance Collateral), (d) does not have any Debt other than Permitted Debt, (e) maintains books, accounts, records, financial statements, stationery, invoices and checks that are separate and apart from those of any other Person (except that such Person’s financial position, assets, results of operations and cash flows may be included in the consolidated financial statements of an Affiliate of such Person in accordance with GAAP, provided that any such consolidated financial statements shall contain a note indicating that such Person and its Affiliates are separate legal entities and maintain records, books of account separate and apart from any other Person), (f) is subject to and complies with all of the limitations on powers and separateness requirements set

forth in the organizational documentation of such Person as of the Closing Date, (g) holds itself out as being a Person separate and apart from each other Person and not as a division or part of another Person, (h) conducts its business in its own name (except for services rendered under a management agreement with an Affiliate, so long as the manager, or equivalent thereof, under such management agreement holds itself out as an agent of such Person), (i) exercises reasonable efforts to correct any known misunderstanding actually known to it regarding its separate identity, and maintains an arm’s-length relationship with its Affiliates, (j) pays its own liabilities out of its own funds (including the salaries of its own employees, if any) and reasonably allocates any overhead that is shared with an Affiliate, including paying for shared office space and services performed by any officer or employee of an Affiliate, (k) maintains a sufficient number of employees (if any) in light of its contemplated business operations, (l) conducts its business so that the assumptions made with respect to it that are contained in the Nonconsolidation Opinion shall at all times be true and correct in all material respects, (m) maintains its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person, (n) observes all applicable entity-level formalities in all material respects, (o) except as contemplated by the Loan Documents with respect to any co-Borrower, does not commingle its assets with those of any other Person and holds such assets in its own name, (p) except as contemplated by the Loan Documents with respect to any co-Borrower, does not assume, guarantee or become obligated for the debts of any other Person, and does not hold out its credit as being available to satisfy the obligations or securities of others, (q) does not acquire obligations or securities of its shareholders, members or partners other than as contemplated by the Loan Documents with respect to co-Borrowers, (r) except as contemplated by the Loan Documents with respect to any co-Borrower, does not pledge its assets for the benefit of any other Person and does not make any loans or advances to any Person, (s) intends to maintain adequate capital in light of its contemplated business operations, (t) has two Independent Directors on its board of directors or board of managers or other governing body, or, in the case of a limited partnership, has a Single-Purpose Equityholder with two Independent Directors on such Single-Purpose Equityholder’s board of directors or board of managers, and has organizational documents that (i) provide that the Independent Directors shall consider only the interests of Borrower, including its creditors, and shall have no fiduciary duties to Borrower’s equityholders (except to the extent of their respective interests in Borrower), and (ii) prohibit replacing any Independent Director without Cause and without giving at least two Business Days’ prior written notice to Lender (except in the case of the death, legal incapacity, or voluntary non-collusive resignation of an Independent Director, in which case no prior notice to Lender or the Rating Agencies shall be required in connection with the replacement of such Independent Director with a new Independent Director that is provided by any of the companies listed in the definition of “Independent Director”), (u) has by-laws or an operating agreement, or, in the case of a limited partnership, has a Single-Purpose Equityholder with by-laws or an operating agreement, which provides that, for so long as the Loan is outstanding, such Person shall not take or consent to any of the following actions except to the extent expressly permitted in this Agreement and the other Loan Documents:

(i)    to the fullest extent permitted by law, the dissolution, liquidation, consolidation, merger or sale of all or substantially all of its assets (and, in the case of a

Single-Purpose Equityholder, the assets of any Single-Purpose Entity in which such Single-Purpose Equityholder holds an interest);

(ii)    the engagement by such Person (and, in the case of a Single-Purpose Equityholder, the engagement by any Single-Purpose Entity in which such Single-Purpose Equityholder holds an interest) in any business other than the acquisition, development, management, leasing, ownership, maintenance and operation of the applicable Property and activities incidental thereto (and, in the case of a Single-Purpose Equityholder, activities incidental to the acquisition and ownership of its interest in each Single-Purpose Entity in which such Single-Purpose Equityholder holds an interest);

(iii)    the filing, or consent to the filing, of a bankruptcy or insolvency petition, any general assignment for the benefit of creditors or the institution of any other insolvency proceeding, or the seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official in respect of such Person without the affirmative vote of both of its Independent Directors (and, in the case of a Single-Purpose Equityholder, in respect of any Single-Purpose Entity in which such Single-Purpose Equityholder holds an interest, without the affirmative vote of both of such Single-Purpose Entities’ Independent Directors); and

(iv)    any amendment or modification of any provision of its (and, in the case of a Single-Purpose Equityholder, any Single-Purpose Entity in which such Single-Purpose Equityholder holds an interest) organizational documents relating to qualification as a “Single-Purpose Entity”,

and (v) if such entity is a Single Member LLC, has organizational documents that provide that upon the occurrence of any event (other than a permitted equity transfer) that causes its sole member to cease to be a member while the Loan is outstanding, at least one of its Independent Directors shall automatically be admitted as the sole member of the Single Member LLC and shall preserve and continue the existence of the Single Member LLC without dissolution.

“Single-Purpose Equityholder” means a Single-Purpose Entity that (x) is a limited liability company or corporation formed under the laws of the State of Delaware, (y) owns at least a 1% direct equity interest in Borrower (or a lessor amount, providing that Lender receives appropriate legal opinions with respect thereto), and (z) serves as the general partner or managing member of each Single-Purpose Entity in which it holds an interest.

“Smith Travel Reports” means a “STAR Program Report” with respect to the Property prepared by Smith Travel Research, Inc, or its successors and assigns.

“Sponsor” means Pebblebrook Hotel Trust and Denihan Ownership Company LLC (d/b/a Denihan Hospitality Group), individually or collectively, as the context requires.

“Sponsor Financial Requirements” has the meaning set forth in Section 5.23.

“Subordination of Operating Lease” means that certain consent and agreement of Operating Lessee and subordination of Operating Lease executed by Operating Lessee and Borrower as of the Closing Date, as the same may from time to time be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Subordination of Property Management Agreement” means that certain consent and agreement of manager and subordination and non-disturbance of management agreement executed by Operating Lessee and the Approved Property Manager as of the Closing Date, as the same may from time to time be amended, restated, replaced, supplemented or otherwise modified in accordance herewith.

“Taxes” means all real estate and personal property taxes, assessments, fees, taxes on rents or rentals, water rates or sewer rents, facilities and other governmental, municipal and utility district charges or other similar taxes or assessments now or hereafter levied or assessed or imposed against the Properties, Borrower or Operating Lessee with respect to the Properties or rents therefrom, or the Operating Lessee Pledged Collateral or that may become Liens upon any of the Properties, without deduction for any amounts reimbursable to Borrower or Operating Lessee by third parties.

“Tax Reserve Exemption Period” has the meaning set forth in Section 3.4(d)(i).

“Tenant” means any Person liable by contract or otherwise to pay monies (including a percentage of gross income, revenue or profits) pursuant to a Lease.

“Tenant Improvements” means, collectively, (i) tenant improvements to be undertaken for any Tenant that are required to be completed by or on behalf of Borrower or Operating Lessee pursuant to the terms of such Tenant’s Lease, and (ii) tenant improvements paid or reimbursed through allowances to a Tenant pursuant to such Tenant’s Lease.

“Tenant Notice” has the meaning set forth in Section 3.1(b).

“Termination Fee” has the meaning set forth in Section 5.7(f).

“Test Period” means each 12-month period ending on the last day of a Fiscal Quarter.

“Trade Payables” means unsecured amounts payable by or on behalf of Borrower or Operating Lessee for or in respect of the operation of the Properties in the ordinary course and that would under GAAP and the Uniform System of Accounts be regarded as ordinary expenses, including amounts payable to suppliers, vendors, contractors, mechanics, materialmen or other Persons providing property or services to the Properties, Borrower or Operating Lessee and the capitalized amount of any ordinary-course financing leases.

“Transaction” means, collectively, the transactions contemplated and/or financed by the Loan Documents.

“Transfer” means the sale or other whole or partial conveyance of all or any portion of any Property or any direct or indirect interest therein to a third party, including granting of any purchase options, rights of first refusal, rights of first offer or similar rights in respect of any portion of any Property or the subjecting of any portion of any Property to restrictions on transfer; except that the conveyance of a space lease or hotel room reservations at any Property in accordance herewith shall not constitute a Transfer.

“Treasury Constant Yield” means the arithmetic mean of the rates published as “Treasury Constant Maturities” as of 5:00 p.m., New York time, for the five Business Days preceding the date on which acceleration has been declared or, as applicable, the date on which the Casualty or Condemnation occurred, as shown on the USD screen of Reuters (or such other page as may replace that page on that service, or such other page or replacement therefor on any successor service), or if such service is not available, the Bloomberg Service (or any successor service), or if neither Reuters nor the Bloomberg Service is available, under Section 504 in the weekly statistical release designated H.15(519) (or any successor publication) published by the Board of Governors of the Federal Reserve System, for “On the Run” U.S. Treasury obligations corresponding to the third Payment Date prior to the scheduled Maturity Date. If no such maturity shall so exactly correspond, yields for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Constant Yield shall be interpolated or extrapolated (as applicable) from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month).

“Trigger Level” means Closing Date NOI times 85%.

“Trigger Period” means any period

(i) from (a) the date of delivery to Lender of any financial reports required to be delivered to Lender pursuant to Sections 5.12, 5.13 or 5.14 indicating that, at the conclusion of the Test Period related to the applicable financial report, Net Operating Income was less than the Trigger Level for such Test Period, to (b) the date of delivery to Lender of any financial reports required to be delivered to Lender pursuant to Sections 5.12, 5.13 or 5.14 indicating that, at the conclusion of the Test Period related to the applicable financial report, Net Operating Income was equal to or greater than the Trigger Level for such Test Period; and/or

(ii) from (a) the date on which Lender determines, by written notice to Borrower, that Borrower has (x) failed to fully commence the guest room construction phase of the A-50 Capital Plan on or before March 1, 2013 and/or (y) failed to substantially complete the A-50 Capital Plan on or before October 31, 2013, to (b) the date on which, as applicable, the guest room construction phase of the A-50 Capital Plan has been fully commenced or the A-50 Capital Plan has been substantially completed, in each case, as determined by Lender in its reasonable discretion;

(iii) during which Sponsor fails to fulfill the Liquidity and/or Net Worth requirements set forth in Section 5.23;

(iv) from (a) the Required CO Amendment Date during which either or both of the Affinia Gardens Property or Affinia Shelburne Property fail to have certificates of occupancy that permit their use as a transient hotel, (b) to the date on which both such Properties have certificates of occupancy permitting their use as transient hotels; and/or

(v) during which any Property is closed for business as a transient hotel as a result of non-compliance with Legal Requirements.    

If any of the reports required under Sections5.12, 5.13 or 5.14 are not delivered to Lender as and when required hereunder, and the same are not delivered to Lender within 5 Business Days following Lender’s written request therefore, a Trigger Period shall be deemed to have commenced and be ongoing, unless and until such reports are delivered and they indicate that, in fact, no Trigger Period is ongoing.

“Undefeased Note” has the meaning set forth in Section 2.1(b).

“Uniform System of Accounts” means the “Uniform System of Accounts for the Lodging Industry” (tenth edition) published by The American Hotel & Lodging Association Educational Institute.

“Use” means, with respect to any Hazardous Substance, the generation, manufacture, processing, distribution, handling, possession, use, discharge, placement, treatment, disposal, disposition, removal, abatement, recycling or storage of such Hazardous Substance or transportation of such Hazardous Substance.

“U.S. Person” means a United States person within the meaning of Section 7701(a)(30) of the Code.

“U.S. Tax” means any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof.

“Waste” means any material abuse or destructive use (whether by action or inaction) of any Property.

“Yield Maintenance Premium” shall mean, with respect to any payment of principal (or any portion thereof) on a Note or Note Component during the continuance of an Event of Default, or pursuant to Section 5.16(f) (following any Casualty or Condemnation), or pursuant to Section 2.4 ,the product of:

(A)     a fraction whose numerator is the amount so paid and whose denominator is the outstanding principal balance of the Note or Note Component before giving effect to such payment, times

(B)     the excess of (1) the sum of the respective present values, computed as of the date of such prepayment, of the remaining scheduled payments of principal and interest with respect to the Note or Note Component (assuming no prepayments or acceleration of the Loan and, solely with respect to the Benjamin Property, using the two-

year anniversary of the Closing Date for determining remaining scheduled payments of principal and interest), determined by discounting such payments to the date on which such payments are made at the Treasury Constant Yield, over (2) the outstanding principal balance of the Note or Note Component on such date immediately prior to such payment;

provided that, except in the case of a prepayment of principal (or any portion thereof) pursuant to Section 5.16(f), the Yield Maintenance Premium shall not be less than 3% of the amount prepaid.

The calculation of the Yield Maintenance Premium shall be made by Lender and shall, absent manifest error, be final, conclusive and binding upon all parties.

(b)    Rules of Construction. All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Unless otherwise specified: (i) all meanings attributed to defined terms in this Agreement shall be equally applicable to both the singular and plural forms of the terms so defined, (ii) “including” means “including, but not limited to”, (iii) “mortgage” means a mortgage, deed of trust, deed to secure debt, indemnity deed of trust or similar instrument, as applicable, and “mortgagee” means the secured party under a mortgage, deed of trust, deed to secure debt, indemnity deed of trust or similar instrument and (iv) the words “hereof,” “herein,” “hereby,” “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision, article, section or other subdivision of this Agreement. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP, as the same may be modified in this Agreement. Each covenant of Borrower contained herein with respect to the operation and maintenance of or otherwise relating to the Property shall be construed to mean that Borrower shall comply or use commercially reasonable efforts to cause the Operating Lessee to comply with such covenant; and any failure by the Operating Lessee to comply therewith shall constitute a Default hereunder even though Operating Lessee is not a party to this Agreement.

Article I
GENERAL TERMS

Section 1.1.The Loan.

(a)On the Closing Date, subject to the terms and conditions of this Agreement, Lender shall make a loan to Borrower (the “Loan”) in an amount equal to the Loan Amount. The Loan shall initially be represented by a single Note that shall bear interest as described in this Agreement at a per annum rate equal to the Initial Interest Rate. Interest payable hereunder shall be computed on the basis of a 360-day year and the actual number of days elapsed in the related Interest Accrual Period.

(b)The Loan shall be secured by the Collateral pursuant to the Mortgage and the other Loan Documents.

(c)Upon written notice from Lender to Borrower, the Note will be deemed to have been subdivided into multiple components (“Note Components”). Each Note Component shall have such notional balance and interest rate as Lender shall specify in such notice, provided that the sum of the principal balances of all Note Components shall equal the then-current Principal Indebtedness, and the weighted average of the component interest rates, weighted on the basis of their respective principal balances, shall equal the Interest Rate (except following repayments of principal during the continuance of an Event of Default or as a result of a Casualty or Condemnation). Borrower shall be treated as the obligor with respect to each of the Note Components, and Borrower acknowledges that each Note Component may be individually beneficially owned by a separate Person. The Note Components need not be represented by separate physical Notes, but if requested by Lender, each Note Component shall be represented by a separate physical Note, in which case Borrower shall execute and return to Lender each such Note in accordance with the terms of this Section. Whether or not Note Components are created, Lender shall have the right at any time, at Lender’s sole discretion, to replace the initial Note with two or more replacement Notes, and the holder of each replacement Note shall similarly have the right at any time, at such holder’s sole discretion, to replace its Note with two or more replacement Notes. Each replacement Note shall be in the form of the Note so replaced, but for its principal amount and Interest Rate. The principal amount of each Note shall be determined by the applicable holder in its sole discretion, provided that the initial sum of the principal amounts of the replacement Notes shall equal the then-outstanding principal balance of the Notes that are so replaced. The Interest Rate of each replacement Note shall be determined by the applicable holder in its sole discretion, provided that the initial weighted average of such Interest Rates, weighted on the basis of the principal balances of the respective Notes, shall initially equal the Interest Rate of the Note so replaced. Neither Borrower’s nor Sponsor’s obligations shall be increased or their respective rights reduced in connection with the creation of Note Components or the replacement of any Notes pursuant to this Section 1.1(c). Borrower shall execute and return to Lender each such Note within two Business Days after Borrower’s receipt of an execution copy thereof, and Borrower’s failure to do so within such time period

shall, at Lender’s election, constitute an immediate Event of Default hereunder. Borrower hereby authorizes and appoints Lender as its attorney-in-fact to execute any replacement Notes required pursuant to this Section on Borrower’s behalf should Borrower fail to do so. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term of this Agreement. Borrower hereby ratifies all actions that such attorney shall lawfully take or cause to be taken in accordance with this Section 1.1(c). If requested by Lender, Borrower shall deliver to Lender, together with such replacement Notes, an opinion of counsel with respect to the due authorization and enforceability of such replacement Notes and confirming that the delivery of such replacement Notes does not alter the conclusions reached in the legal opinions delivered to Lender at Closing.

(d)To secure the full and timely payment of the Indebtedness, Borrower hereby grants to Lender, its heirs, successors and assigns, a first-priority Lien on all Collateral, wherever located, now or hereafter owned from time to time by Borrower, including, without limitation, all “goods,” “consumer goods,” “equipment,” “inventory,” “fixtures,” “farm products,” “accounts,” “deposit accounts,” “chattel paper,” “general intangibles,” “software,” “instruments” and “proceeds” of any of the foregoing (all as defined under the Uniform Commercial Code as in effect from time to time in the State of New York). Borrower hereby authorizes Lender to file any appropriate financing statements with the Secretary of State of the State of Delaware or any other applicable jurisdiction, which financing statements may include a description of the collateral covered thereby as "all assets" or "all personal property" of the Borrower.

Section 1.2.Interest and Principal.

(a)On each Payment Date, Borrower shall pay to Lender the Monthly Debt Service Payment Amount by remitting such amount to the Cash Management Account or such other account as Lender shall direct, which amount shall be applied toward the payment of interest on each Note for the applicable Interest Accrual Period at the applicable Interest Rate (except that in each case, interest shall be payable on the Indebtedness, including due but unpaid interest, at the Default Rate with respect to any portion of such Interest Accrual Period falling during the continuance of an Event of Default, in which case the monthly payment shall be increased by the amount of Default Interest accrued on the Notes during the applicable Interest Accrual Period). Notwithstanding the foregoing, on the Closing Date, Borrower shall pay interest from and including the Closing Date through the end of the first Interest Accrual Period in lieu of making such payment on the first Payment Date following the Closing Date (unless the Closing Date falls on a Payment Date, in which case, no interest will be collected on the Closing Date, and Borrower shall make the payment required pursuant to this Section commencing on the first Payment Date following the Closing Date).

(b)No prepayments of the Loan shall be permitted except for (i) prepayments resulting from Casualty or Condemnation as described in Section 5.16(f), (ii) a prepayment of the Loan in whole (but not in part) during the Prepayment Period on not less than 15 days prior written notice and/or (iii) a prepayment in connection with the release of the Benjamin Property pursuant to Section 2.4; provided that any prepayment hereunder shall be accompanied by all

interest accrued on the amount prepaid, plus the amount of interest that would have accrued thereon if the Loan had remained outstanding through the end of the Interest Accrual Period in which such prepayment occurs, plus all other amounts then due under the Loan Documents. Borrower’s notice of prepayment shall create an obligation of Borrower to prepay the Loan as set forth therein, but may be rescinded with five days’ prior written notice to Lender (subject to payment of any out-of-pocket costs and expenses resulting from such rescission). In addition, Defeasance shall be permitted after the expiration of the Lockout Period as described in Section 2.1. The entire outstanding principal balance of the Loan, together with interest through the end of the applicable Interest Accrual Period and all other amounts then due under the Loan Documents, shall be due and payable by Borrower to Lender on the Maturity Date.

(c)If all or any portion of the Principal Indebtedness is paid to Lender following acceleration of the Loan or as a result of a Casualty or Condemnation, Borrower shall pay to Lender an amount equal to the applicable Yield Maintenance Premium. Amounts received in respect of the Indebtedness during the continuance of an Event of Default shall be applied toward interest, principal and other components of the Indebtedness (in such order as Lender shall determine) before any such amounts are applied toward payment of Yield Maintenance Premiums, with the result that Yield Maintenance Premiums shall accrue as the Principal Indebtedness is repaid but no amount received from Borrower shall constitute payment of a Yield Maintenance Premium until the remainder of the Indebtedness shall have been paid in full. Borrower acknowledges that (i) a prepayment will cause damage to Lender; (ii) the Yield Maintenance Premium is intended to compensate Lender for the loss of its investment and the expense incurred and time and effort associated with making the Loan, which will not be fully repaid if the Loan is prepaid; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender’s damages caused by a prepayment after an acceleration or any other prepayment not permitted by the Loan Documents; and (iv) the Yield Maintenance Premium represents Lender’s and Borrower’s reasonable estimate of Lender’s damages from the prepayment and is not a penalty.

(d)Any payments of interest and/or principal not paid when due hereunder shall bear interest at the applicable Default Rate and, in the case of all payments due hereunder other than the repayment of the Principal Indebtedness on the Maturity Date or on any other earlier date as a result of an acceleration of the Loan, when paid, shall be accompanied by a late fee in an amount equal to the lesser of three percent of such unpaid sum and the maximum amount permitted by applicable law in order to defray a portion of the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment.

Section 1.3.Method and Place of Payment. Except as otherwise specifically provided in this Agreement, all payments and prepayments under this Agreement and the Notes (including any deposit into the Cash Management Account pursuant to Section 3.2(c)) shall be made to Lender not later than 1:00 p.m., New York City time, on the date when due (except in the case of the payment made on the Maturity Date, which shall be made not later than 2:00 p.m., New York City time) and shall be made in lawful money of the United States of America by wire transfer in federal or other immediately available funds to the account specified from time to

time by Lender. Any funds received by Lender after such time shall be deemed to have been paid on the next succeeding Business Day. Lender shall notify Borrower in writing of any changes in the account to which payments are to be made. If the amount received from Borrower (or from the Cash Management Account pursuant to Section 3.2(b)) is less than the sum of all amounts then due and payable hereunder, such amount shall be applied, at Lender’s sole discretion, either toward the components of the Indebtedness (e.g., interest, principal and other amounts payable hereunder) and the Notes and Note Components, in such sequence as Lender shall elect in its sole discretion, or toward the payment of Property expenses.

Section 1.4.Taxes; Regulatory Change.

(a)Borrower agrees to indemnify Lender against any present or future stamp, documentary or other similar or related taxes or other similar or related charges now or hereafter imposed, levied, collected, withheld or assessed by any United States Governmental Authority by reason of the execution and delivery of the Loan Documents and any consents, waivers, amendments and enforcement of rights under the Loan Documents.

(b)If Borrower is required by law to withhold or deduct any amount from any payment hereunder in respect of any U.S. Tax, Borrower shall withhold or deduct the appropriate amount, remit such amount to the appropriate Governmental Authority and pay to each Person to whom there has been an Assignment or Participation of a Loan and who is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Tax imposed with respect to such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S. Person), will not be less than the amount stated in this Agreement to be then due and payable; except that the foregoing obligation to pay such additional amounts shall not apply (i) to any assignee that has not complied with the obligations contained in Section 9.7(c), (ii) to any U.S. Taxes imposed solely by reason of the failure by such Person (or, if such Person is not the beneficial owner of the relevant Loan, such beneficial owner) to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such Person (or beneficial owner, as the case may be) if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes; or (iii) with respect to any Person who is a fiduciary or partnership or other than the sole beneficial owner of such payment, to any U.S. Tax imposed with respect to payments made under any Note to a fiduciary or partnership to the extent that the beneficial owner or member of the partnership would not have been entitled to the additional amounts if such beneficial owner or member of the partnership had been the holder of the Note.

(c)Within 30 days after paying any amount from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, Borrower shall deliver to such non-U.S. Person satisfactory evidence of such deduction, withholding or payment (as the case may be).

(d)If, as a result of any Regulatory Change, any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, Lender or any holder of all or a portion of the Loan is imposed, modified or deemed applicable and the result is to increase the cost to such Lender or such holder of making or holding the Loan, or to reduce the amount receivable by Lender or such holder hereunder in respect of any portion of the Loan by an amount deemed by Lender or such holder to be material (such increases in cost and reductions in amounts receivable, “Increased Costs”), then Borrower agrees that it will pay to Lender or such holder upon Lender’s or such holder’s request such additional amount or amounts as will compensate Lender and/or such holder for such Increased Costs to the extent that such Increased Costs are reasonably allocable to the Loan. Lender will notify Borrower in writing of any event occurring after the Closing Date that will entitle Lender or any holder of the Loan to compensation pursuant to this Section 1.4(d) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation and will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. If such Lender shall fail to notify Borrower of any such event within 90 days following the end of the month during which such event occurred, then Borrower’s liability for any amounts described in this Section incurred by such Lender as a result of such event shall be limited to those attributable to the period occurring subsequent to the 90th day prior to the date upon which such Lender actually notified Borrower of the occurrence of such event. Notwithstanding the foregoing, in no event shall Borrower be required to compensate Lender or any holder of the Loan for any portion of the income or franchise taxes of Lender or such holder, whether or not attributable to payments made by Borrower. If Lender requests compensation under this Section 1.4(d), Borrower may, by notice to Lender, require that such Lender furnish to Borrower a statement setting forth in reasonable detail the basis for requesting such compensation and the method for determining the amount thereof.

Section 1.5.Release. Upon payment of the Indebtedness in full when permitted or required hereunder, Lender shall execute instruments prepared by Borrower and reasonably satisfactory to Lender, which, at Borrower’s election and at Borrower’s sole cost and expense: either (a) release and discharge all Liens on all Collateral securing payment of the Indebtedness (subject to Borrower’s obligation to pay any associated fees and expenses), including all balances in the Collateral Accounts; or (b) assign such Liens (and the Loan Documents) to a new lender designated by Borrower. Any release or assignment provided by Lender pursuant to this Section 1.5 shall be without recourse, representation or warranty of any kind.

ARTICLE II
DEFEASANCE AND ASSUMPTION

Section 2.1.Defeasance.

(e)On any date after the expiration of the Lockout Period, provided no Event of Default is then continuing and subject to the notice requirement described in Section 2.1(d), Borrower may from time to time obtain the release of one or more of the Properties from the

Liens of the Loan Documents by Defeasing either the entire Loan, or a portion of the Loan equal to the lesser of (x) the sum of the Release Prices of the Properties so released and (y) the portion of the Principal Indebtedness that has not been Defeased as of the date of such release, provided that after giving effect thereto, unless the Loan is Defeased in full, the Debt Yield for the Test Period then most recently ended, recalculated to include only income and expense attributable to the Properties remaining after the contemplated release and to exclude the interest expense on the aggregate amount Defeased, shall be no less than the Debt Yield Threshold; and provided further that all sums then due to Lender under the Loan Documents are paid and the following are delivered to Lender:

(i)Defeasance Collateral sufficient to provide payments on or prior to, and in any event as close as possible to, all successive Payment Dates in an amount sufficient (x) to pay the interest and principal due on such Payment Dates in respect of a portion of the Loan equal to the amount Defeased and (y) to repay the outstanding principal balance of such portion of the Loan on the first Payment Date in the Prepayment Period or such other Payment Date in the Prepayment Period as Borrower shall elect;

(ii)written confirmation from an independent certified public accounting firm reasonably satisfactory to Lender that such Defeasance Collateral is sufficient to provide the payments described in clause (i) above;

(iii)a security agreement, in form and substance reasonably satisfactory to Lender, creating in favor of Lender a first priority perfected security interest in such Defeasance Collateral (a “Defeasance Pledge Agreement”);

(iv)an opinion of counsel for Borrower, in form and substance reasonably satisfactory to Lender and delivered by counsel reasonably satisfactory to Lender, opining that (1) the Defeasance Pledge Agreement has been duly authorized and is enforceable against Borrower in accordance with its terms and that Lender has a perfected first priority security interest in such Defeasance Collateral; (2) if the Loan has been Securitized, the Defeasance, including any assumption under Section 2.1(b), does not cause a tax to be imposed on the Securitization Vehicle or, if the Securitization Vehicle is a REMIC, does not cause any portion of the Loan to cease to be a “qualified mortgage” within the meaning of section 860G(a)(3) of the Code, and (3) the Defeasance (in the case of a partial Defeasance, with respect to both the Defeased Note and the Undefeased Note) does not constitute a “significant modification” of the Loan under Section 1001 of the Code;

(v)if the Loan has been Securitized, the Rating Condition with respect to such Defeasance shall have been satisfied;

(vi)instruments reasonably satisfactory to Lender releasing and discharging or assigning to a third party Lender’s Liens on the Collateral so released (other than the Defeasance Collateral);

(vii)such other customary certificates, opinions, documents or instruments as Lender and the Rating Agencies may reasonably request; and

(viii)reimbursement for any costs and expenses incurred in connection with this Section 2.1 (including Rating Agency and Servicer fees and expenses, reasonable fees and expenses of legal counsel and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection herewith).

Lender shall reasonably cooperate with Borrower, at Borrower’s sole cost and expense, to avoid the incurrence of mortgage recording taxes in connection with the refinancing of any of the Properties released in connection with a Defeasance.

(f)If the Loan is not Defeased in full, Borrower shall execute and deliver all documents necessary to amend and restate the Note with two substitute Notes: one note having a principal balance equal to the Defeased portion of the original Note (the “Defeased Note”) and one note having a principal balance equal to the undefeased portion of the original Note (the “Undefeased Note”). At Lender’s discretion, a Default under the Undefeased Note may cause a Default under the Defeased Note (but a Default under the Defeased Note shall not cause a Default under the Undefeased Note). The Undefeased Notes may be the subject of a further Defeasance in accordance with the terms of this Section 2.1 (the term “Note”, as used in this Section 2.1, being deemed to refer to the Undefeased Note that is the subject of further Defeasance).

(g)At the time of the Defeasance, the Defeased Note shall be assumed by a bankruptcy-remote entity established by Borrower and approved by Lender in its reasonable discretion, to which Borrower shall transfer all of the Defeasance Collateral (a “Defeasance Borrower”).  Such Defeasance Borrower shall execute and deliver to Lender an assumption agreement in form and substance reasonably satisfactory to Lender, such Uniform Commercial Code financing statements as may be reasonably requested by Lender and legal opinions of counsel reasonably acceptable to Lender that are substantially equivalent to the opinions delivered to Lender on the Closing Date, including new nonconsolidation opinions reasonably satisfactory to Lender and satisfactory to the Rating Agencies; and Borrower and the Defeasance Borrower shall deliver such other documents, certificates and legal opinions as Lender shall reasonably request.

(h)Borrower must give Lender and each Rating Agency at least 30 days’ (and not more than 90 days’) prior written notice of any Defeasance under this Section 2.1, specifying the date on which the Defeasance is to occur. If such Defeasance is not made on such date (x) Borrower’s notice of Defeasance will be deemed rescinded, and (y) Borrower shall on such date pay to Lender all reasonable losses, costs and expenses suffered by Lender as a consequence of such rescission.

(i)Upon satisfaction of the requirements contained in this Section 2.1, at Borrower’s sole cost and expense, Lender will execute and deliver to Borrower such instruments, prepared by Borrower and reasonably approved by Lender, as shall be necessary to release the Property from the Liens of the Loan Documents.

Section 2.2.Assumption. Solely in connection with a simultaneous sale of all of the Properties securing the Loan from time to time, the initial Borrower shall have the right to Transfer all of the Collateral to a Qualified Successor Borrower that will, contemporaneously with such Transfer, assume all of the obligations of Borrower hereunder and under the other Loan Documents (an “Assumption”), provided no Event of Default or material monetary Default is then continuing or would result therefrom and the following conditions are met to the reasonable satisfaction of Lender:

(i)such Qualified Successor Borrower shall have executed and delivered to Lender an assumption agreement (including an assumption of the Mortgage in recordable form, if requested by Lender), in form and substance reasonably acceptable to Lender, evidencing its agreement to abide and be bound by the terms of the Loan Documents and containing representations substantially equivalent to those contained in Article IV (recast, as necessary, such that representations that specifically relate to Closing Date are remade as of the date of such assumption), and such other representations (and evidence of the accuracy of such representations) as the Servicer shall reasonably request;

(ii)the obligations of Operating Lessee under the Operating Lease shall have been assumed by a Qualified Successor Operating Lessee pursuant to an assumption agreement, in form and substance reasonably acceptable to Lender, and such Qualified Successor Operating Lessee shall have delivered to Lender all documents reasonably requested by Lender relating to the existence of such Qualified Successor Operating Lessee and the due authorization of such Qualified Operating Lessee to assume the obligations under the Operating Lease, each in form and substance reasonably satisfactory to Lender, including a certified copy of the applicable resolutions from all appropriate persons, certified copies of the organizational documents of the Qualified Successor Operating Lessee, together with all amendments thereto, and certificates of good standing or existence for the Qualified Successor Operating Lessee issued as of a recent date by its state of organization and each other state where such entity, by the nature of its business, is required to qualify or register;

(iii)such Uniform Commercial Code financing statements as may be reasonably requested by Lender shall be filed;

(iv)a party satisfactory to Lender in its sole discretion assumes all obligations, liabilities, guarantees and indemnities of Sponsor and any other guarantor under the Loan Documents pursuant to documentation satisfactory to Lender in its reasonable discretion (and upon such assumption by such party, Sponsor and any other such guarantor shall be released from such obligations, liabilities, guarantees and indemnities);

(v)such Qualified Successor Borrower shall have delivered to Lender legal opinions of counsel reasonably acceptable to Lender that are equivalent to the opinions delivered to Lender on the Closing Date, including new nonconsolidation opinions that are reasonably satisfactory to Lender and satisfactory to each of the Rating Agencies; and Borrower and the Qualified Successor Borrower shall have delivered such other

documents, certificates and legal opinions, including relating to REMIC matters, as Lender shall reasonably request;

(vi)such Qualified Successor Borrower shall have delivered to Lender all documents reasonably requested by it relating to the existence of such Qualified Successor Borrower and the due authorization of the Qualified Successor Borrower to assume the Loan and to execute and deliver the documents described in this Section 2.2, each in form and substance reasonably satisfactory to Lender, including a certified copy of the applicable resolutions from all appropriate persons, certified copies of the organizational documents of the Qualified Successor Borrower, together with all amendments thereto, and certificates of good standing or existence for the Qualified Successor Borrower issued as of a recent date by its state of organization and each other state where such entity, by the nature of its business, is required to qualify or register;

(vii)the Qualified Title Insurance Policies shall have been properly endorsed to reflect the Transfer of the Properties to the Qualified Successor Borrower;

(viii)the Rating Condition shall have been satisfied with respect to the legal structure of the Qualified Successor Borrower, the documentation of the Assumption and the related legal opinions; and

(ix)Borrower shall have paid to Lender a nonrefundable assumption fee in an amount equal to 1.0% of the Principal Indebtedness, and Borrower shall have reimbursed Lender for its reasonable out-of-pocket costs and expenses incurred in connection with such assumption.

Section 2.3.Transfers of Equity Interests in Borrower.

(e)No direct or indirect equity interests in Borrower (other than publicly traded shares of Sponsor or transfers of direct or indirect interest in Denihan Ownership Company, LLC to the extent permitted under Section 2.3(b)(iii)) shall be conveyed or otherwise transferred to any Person prior to the later of (x) the first anniversary of the Closing Date and (y) the date on which the Capital Plan has been substantially completed (as determined by Lender in its reasonable discretion). From and after the first anniversary of the Closing Date, provided that no Event of Default is continuing, transfers (but not pledges, except as permitted under Section 7.1(f)) of direct and indirect equity interests in Borrower shall be permitted upon 10 days advance written notice thereof to Lender, provided that:

(i)no such transfer shall result in a Change of Control;

(ii)as a condition to any such transfer that results in Borrower ceasing to be Controlled by Sponsor, and each subsequent transfer that again changes the identity of the Qualified Equityholder that Controls Borrower, shall be conditioned upon payment to Lender of a transfer fee in an amount equal to 1.0% of the Principal Indebtedness at the time of such transfer;

(iii)as a condition to any such transfer that results in any Person acquiring more than 49% of the direct or indirect equity interest in Borrower or a Single-Purpose Equityholder (even if not constituting a Change of Control), Borrower shall deliver to Lender with respect to such Person a new non-consolidation opinion satisfactory to (A) prior to the occurrence of any Securitization of the Loan, Lender (Lender’s approval of any such non-consolidation opinion that is in substantially the form of the Nonconsolidation Opinion not to be unreasonably withheld), and (B) at any time following any Securitization or series of Securitizations of the Loan, each of the Rating Agencies rating such Securitization or Securitizations; and

(iv)Borrower shall have reimbursed Lender for its reasonable out-of-pocket costs and expenses actually incurred in connection with any such transfer.

(f)Notwithstanding Section 2.3(a) above, the following transactions shall not be deemed prohibited transfers under this Agreement and shall not require the consent of Lender:

(i)the issuance of additional shares or the transfer of existing shares of Pebblebrook Hotel Trust on any public exchange or the issuance of new units or transfers of existing units in Operating Partnership, provided that it shall continue to be Controlled by Pebblebrook Hotel Trust;

(ii)any merger of Pebblebrook Hotel Trust with the Operating Partnership or a sale of all or substantially all of the assets of Pebblebrook Hotel Trust to the Operating Partnership or vice versa, provided that the new direct or indirect owner of Borrower resulting from such transaction assumes all obligations of Pebblebrook Hotel Trust under the Loan Documents; and

(iii)transfers of direct or indirect ownership interest in Denihan Ownership Company, LLC, provided that, after giving effect to all such transfers, one or more Denihan Parties shall directly or indirectly Control Denihan Ownership Company, LLC.

Section 2.4.Release of Benjamin Property.

(a)At any time, provided no Event of Default is then continuing and all amounts then due and owing to Lender have been paid in full, Borrower shall have the right, at its option, on not less than 30 days’ prior written notice to Lender, to obtain the release of the Benjamin Property provided that the following conditions shall have been satisfied:

(i)Borrower shall prepay the Loan in an amount equal to the Release Price for the Benjamin Property, plus the amount of interest theretofore accrued but unpaid in respect of the Release Price for the Benjamin Property, plus the amount of interest that would have accrued on the Release Price for the Benjamin Property had it remained outstanding through the end of the Interest Accrual Period in which such prepayment is made and, if such prepayment is made during the last two Business Days in any Interest Accrual Period, the amount of additional interest that would have accrued on the Release

Price for the Benjamin Property had it remained outstanding through the end of the following Interest Accrual Period;

(ii)Debt Yield for the Test Period then most recently ended, recalculated to include only income and expense attributable to the Properties remaining after the release of the Benjamin Property and to exclude the interest expense attributable to the Release Price payable with respect to the Benjamin Property, shall be no less than the Debt Yield Threshold;

(iii)if the release of the Benjamin Property shall occur prior to the two-year anniversary of the Closing Date, Borrower shall pay to Lender the Yield Maintenance Premium payable in respect of the Release Price for the Benjamin Property, in addition to all other amounts required to be paid pursuant to this Section;

(iv)Borrower shall reimburse Lender for any actual out-of-pocket costs and expenses incurred by Lender in connection with this Section (including the reasonable fees and expenses of Lender’s legal counsel and the reasonable out-of-pocket expenses of the Servicer and fees and expenses of the Rating Agencies);

(v)to the extent that the Loan is included in a REMIC, after giving effect to the release of the Benjamin Property, the Lender 80% Determination shall have been satisfied or, if the same is not so satisfied, then Borrower shall have prepaid the Loan in an amount equal to the lesser of (x) the fair market value of the Benjamin Property and (y) the amount necessary to obtain a Lender 80% Determination; and

(vi)to the extent that the Loan is included in a REMIC, Borrower shall deliver to Lender an opinion of counsel in form and substance which would be acceptable to a prudent lender of securitized commercial mortgage loans acting reasonably, stating, among other things, that any REMIC Trust formed pursuant to a Securitization will not fail to maintain its status as a REMIC as a result of such release and will not be subject to tax on any “prohibited transactions” or “prohibited contributions” as a result of such release.

(b)Upon satisfaction of the requirements set forth in this Section, Lender will execute and deliver to Borrower such instruments, prepared by Borrower and reasonably approved by Lender, as shall be necessary to release the Benjamin Property from the Liens of the Loan Documents, and to release the applicable Borrower from all further liabilities and obligations under the Loan Documents (other than those expressly provided to survive repayment). Thereafter the “Borrower” hereunder shall exclude the Borrower that owned the released Property. Any rents or other income from the Benjamin Property that is thereafter inadvertently paid or deposited into the Blocked Account or the Cash Management Account shall be promptly released to the applicable Borrower.

(c)Any prepayment of the Loan in connection of a release of any Property from the Liens of the Loan Documents, whether pursuant to this Section or Section 2.1, shall be applied to the Notes or the Note Components in such order as Lender shall determine; provided,

however, that except in connection with any repayment of the Principal Indebtedness during the continuance of an Event of Default or in connection with a Casualty or Condemnation, no prepayment of the Principal Indebtedness shall result in an increase in the weighted average of the interest rates applicable to the Notes or Note Components.

ARTICLE III
ACCOUNTS

Section 3.1.Cash Management Account.

(b)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank a cash management account into which all Revenue from the Property shall be deposited (the “Cash Management Account”), which account shall be owned by Borrower but remain under the sole and exclusive control (as defined in the New York Uniform Commercial Code) of Lender. As a condition precedent to the closing of the Loan, Borrower shall cause the Cash Management Bank to execute and deliver an agreement (as amended, restated, replaced, supplemented or otherwise modified in accordance herewith, a “Cash Management Agreement”) that provides, interalia, that no party other than Lender and Servicer shall have the right to withdraw funds from the Cash Management Account and that the Cash Management Bank shall comply with all instructions and entitlement orders of Lender relating to the Cash Management Account and the other Collateral Accounts, in each case, without the consent of Borrower, Operating Lessee or any other Person.

(c)Borrower shall cause Approved Property Manager to remit all Revenues from the Property (other than tenant security deposits required to be held in escrow accounts) to the Cash Management Account or a Blocked Account within one Business Day of its receipt thereof. “Blocked Account” means an Eligible Account maintained with a financial institution satisfactory to Lender that enters into a blocked account agreement in form and substance satisfactory to Lender (as amended, restated, replaced, supplemented or otherwise modified in accordance herewith, the “Blocked Account Agreement”) satisfactory to Lender pursuant to which such financial institution will remit, at the end of each Business Day, all amounts contained therein to an account specified by Lender (Lender hereby agreeing to specify the Cash Management Account so long as no Event of Default has occurred and is then continuing).

(d)Lender shall have the right at any time, upon not less than 30 days’ prior written notice to Borrower, to replace the Cash Management Bank with any Eligible Institution at which Eligible Accounts may be maintained that will promptly execute and deliver to Lender a Cash Management Agreement substantially identical to the Cash Management Agreement executed at Closing. In addition, during the continuance of an Event of Default or if the Blocked Account Bank fails to comply with the Blocked Account Agreement or ceases to be an Eligible Institution, Lender shall have the right at any time, upon not less than 30 days’ prior written notice to Borrower, to replace the Blocked Account Bank with any Eligible Institution at which Eligible Accounts may be maintained that will promptly execute and deliver to Lender a Blocked Account Agreement satisfactory to Lender.

(e)Operating Lessee shall maintain at all times a Qualified Operating Expense Account. Neither Borrower nor Operating Lessee shall permit any amounts unrelated to the Property to be commingled with amounts on deposit in the Qualified Operating Expense Account and shall cause all amounts payable with respect to Operating Expenses for the Property to be paid from the Qualified Operating Expense Account or the Cash Management Account (to the extent required or permitted hereunder) and no other account. During the continuance of any Trigger Period or Event of Default, Borrower or Operating Lessee shall deliver to Lender each month the monthly bank statement related to such Qualified Operating Expense Account. Unless and until an Event of Default shall occur, Operating Lessee and the Approved Property Manager shall have direct access to, and shall be permitted to make withdrawals and, except during the continuance of a Trigger Period, equity distributions from, the Qualified Operating Expense Account, without the consent of Lender. During the continuance of an Event of Default, all amounts contained in the Qualified Operating Expense Account shall be remitted to the Cash Management Account.

Section 3.2.Distributions from Cash Management Account.

(g)The Cash Management Agreement shall provide that the Cash Management Bank shall remit to the Qualified Operating Expense Account, at the end of each Business Day (or, at Borrower’s election, on a less frequent basis), the amount, if any, by which amounts then contained in the Cash Management Account exceed the aggregate amount required to be paid to or reserved with Lender on the next Payment Date pursuant hereto (the “Minimum Balance”); provided, however, that Lender shall terminate such remittances during the continuance of an Event of Default or Trigger Period upon notice to the Cash Management Bank. Lender may notify the Cash Management Bank at any time of any change in the Minimum Balance.

(h)On each Payment Date, Borrower shall remit to the Cash Management Account or such other account as Lender shall direct, the Monthly Debt Service Payment Amount and, provided no Event of Default is continuing, Lender shall transfer amounts from the Cash Management Account, to the extent available therein, to make the following payments in the following order of priority:

(i)to the Basic Carrying Costs Escrow Account, the amounts then required to be deposited therein pursuant to Section 3.4;

(ii)in the event Borrower shall fail to remit to Lender the Monthly Debt Service Payment Amount or during the continuance of a Trigger Period, to Lender, the amount of all scheduled or delinquent interest and principal on the Loan and all other amounts then due and payable under the Loan Documents (with any amounts in respect of principal paid last), which amounts shall come first from the Debt Service Reserve Account, to the extent of funds contained therein;

(iii)during the continuance of a Trigger Period, to the Qualified Operating Expense Account, an amount equal to actual Operating Expenses for the Property for the month in which such Payment Date occurs (including amounts payable in respect of sales

and use and occupancy tax, miscellaneous minor vendor charges and server tips, in each case, to the extent the same are collected by Borrower and deposited into the Cash Management Account as Revenue) and, without duplication, the Budgeted Operating Expenses for the month in which such Payment Date occurs, provided that the amounts disbursed to such account pursuant to this clause (iii) shall be used solely to pay Operating Expenses for such month (Borrower agreeing that, in the event that such disbursement exceeds actual Operating Expenses for such month, such excess amounts shall be remitted by Borrower to the Cash Management Account prior to the next succeeding Payment Date);

(iv)to the FF&E Reserve Account, the amounts, if any, required to be deposited therein pursuant to Section 3.6;

(v)during the continuance of a Trigger Period, all remaining amounts to the Excess Cash Flow Reserve Account; and

(vi)if no Trigger Period is continuing, all remaining amounts to the Qualified Operating Expense Account.

(i)If on any Payment Date the amount in the Cash Management Account shall be insufficient to make all of the transfers described in Section 3.2(b)(i) through (iv), Borrower shall deposit into the Cash Management Account on such Payment Date the amount of such deficiency. If Borrower shall fail to make such deposit, the same shall constitute an Event of Default and, in addition to all other rights and remedies provided for under the Loan Documents, Lender may disburse and apply the amounts in the Collateral Accounts in accordance with Section 3.10(c).

Section 3.3.Loss Proceeds Account.

(d)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of depositing any Loss Proceeds (the “Loss Proceeds Account”).

(e)Provided no Event of Default is continuing, funds in the Loss Proceeds account shall be applied in accordance with Section 5.16.

Section 3.4.Basic Carrying Costs Escrow Account.

(a)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts payable by Borrower in respect of Taxes and insurance premiums (the “Basic Carrying Costs Escrow Account”).

(b)On the Closing Date, the Basic Carrying Costs Escrow Account shall be funded in an amount equal to $6,649,661.56, which amount represents the sum of (i) the amount sufficient to pay all of the Taxes that Lender reasonably estimates, based on information

provided by Borrower, will accrue or be payable during the next ensuing six months (such estimate not to be reduced to the extent of any actual or proposed tax appeal), plus (ii) the amount sufficient to pay all of the insurance premiums that Lender reasonably estimates, based on information provided by Borrower, will accrue or be payable during the next ensuing six months .

(c)On each subsequent Payment Date, an additional deposit shall be made therein in an amount equal to the sum of:

(A)to the extent that a Tax Reserve Exemption Period is not in effect, 1/12 of the Taxes that Lender reasonably estimates, based on information provided by Borrower, will be payable during the next ensuing 12 months, plus

(B)to the extent that an Insurance Reserve Exemption Period is not in effect, 1/12 of the insurance premiums that Lender reasonably estimates, based on information provided by Borrower, will be payable during the next ensuing 12 months;

provided, however, that, subject to Section 3.4(d), if at any time Lender reasonably determines that the amount in the Basic Carrying Costs Escrow Account will not be sufficient to accumulate (upon payment of subsequent monthly amounts in accordance with the provisions of this Agreement) the full amount of all installments of Taxes and insurance premiums by the date on which such amounts come due, then Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to the Basic Carrying Costs Escrow Account by the amount that Lender reasonably estimates is sufficient to achieve such accumulation.

(d)Notwithstanding the terms and provisions of the foregoing paragraphs of this Section 3.4:

(iv)No amounts will be reserved in the Basic Carrying Costs Escrow Account in respect of Taxes pursuant to subclause (i) of Section 3.4(b) for so long as (A) no Event of Default or Trigger Period shall be continuing, (B) no Taxes that are currently due and payable remain unpaid; and (C) Borrower shall maintain in the Basic Carrying Costs Escrow Account funds sufficient to pay all of the Taxes that Lender reasonably estimates, based on information provided by Borrower, will accrue or be payable during the next ensuing six months (such estimate not to be reduced to the extent of any actual or proposed tax appeal) (any such period, a “Tax Reserve Exemption Period”); provided, however, that to the extent Lender utilizes funds on deposit in the Basic Carrying Cost Escrow Account to pay Taxes as a result of the failure of the condition set forth in immediately preceding clause (C), any ongoing Tax Reserve Exemption Period shall terminate and shall not be reinstated for the remaining term of the Loan; and

(v)No amounts will be reserved in the Basic Carrying Costs Escrow Account in respect of insurance premiums pursuant to subclause (ii) of Section 3.4(b) for so long as (A) no Event of Default or Trigger Period shall be continuing, (B) no insurance premiums that are currently due and payable remain unpaid; and (C) Borrower shall maintain in the Basic Carrying Costs Escrow Account funds sufficient to pay all of the

insurance premiums that Lender reasonably estimates, based on information provided by Borrower, will accrue or be payable during the next ensuing six months (any such period, a “Insurance Reserve Exemption Period”); provided, however, that to the extent Lender utilizes funds on deposit in the Basic Carrying Cost Escrow Account to pay insurance premiums as a result of the failure of the condition set forth in immediately preceding clause (C), any ongoing Insurance Reserve Exemption Period shall terminate and shall not be reinstated for the remaining term of the Loan.

Upon the termination of any Tax Reserve Exemption Period Borrower shall deposit into the Basic Carrying Cost Escrow Account within two Business Days an amount sufficient to pay all Taxes by the 30^th day prior to the date they come due, taking into account any remaining amounts (if any) contained therein in respect of Taxes and assuming subsequent monthly fundings on Payment Dates of 1/12 of projected annual Taxes and taking into account any amounts already on deposit therein in respect of Taxes. Upon the termination of any Insurance Reserve Exemption Period, Borrower shall deposit into the Basic Carrying Cost Escrow Account within two Business days an amount sufficient to pay all insurance premiums by the 30^th day prior to the date they come due, taking into account any remaining amounts (if any) contained therein in respect of insurance premiums and assuming subsequent monthly fundings on Payment Dates of 1/12 of projected annual insurance premiums and taking into account any amount already on deposit therein in respect of insurance premiums.

(e)Borrower shall provide Lender with copies of all tax, and insurance bills relating to each Property promptly after Borrower’s receipt thereof. During any Tax Reserve Exemption Period, Borrower shall make all Tax payments on or before the date due. During any Insurance Reserve Exemption Period, Borrower shall make all insurance premium payments on or before the date due. At all other times, Lender will apply amounts in the Basic Carrying Costs Escrow Account toward the purposes for which such amounts are deposited therein, including, for the avoidance of doubt, Taxes due and payable. In connection with the making of any payment from the Basic Carrying Costs Escrow Account, Lender may cause such payment to be made according to any bill, statement or estimate procured from the appropriate public office or insurance carrier, without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof unless given written advance notice by Borrower of such inaccuracy, invalidity or other contest.

Section 3.5.Debt Service Reserve.

(a)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving the Monthly Debt Service Payment Amount (the “Debt Service Reserve Account”).

(b)On the Closing Date, Borrower shall deposit into the Debt Service Reserve Account, from the proceeds of the Loan, an amount equal to $1,296,773, which amount represents the Monthly Debt Service Payment Amount assuming a 31-day month and the absence of an Event of Default.

(c)If, on any Payment Date, Borrower shall fail to pay to Lender the Monthly Debt Service Amount, the amounts contained in the Debt Service Reserve Account shall be applied toward the payment of the Monthly Debt Service Amount (to the extent of amounts contained therein).

(d)On any Payment Date in which the amount contained in the Debt Service Reserve Account is not equal to the Monthly Debt Service Payment Amount (assuming a 31-day month), the amount necessary to cause the amount contained therein to equal such amount shall be deposited therein.

Section 3.6.FF&E Reserve Account.

(a)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts in respect of FF&E expenditures (the “FF&E Reserve Account”).

(b)On each Payment Date there shall be deposited into the FF&E Reserve Account an amount equal to the Monthly FF&E Amount.

(c)Upon the request of Borrower at any time that no Event of Default is continuing (but not more often than once per calendar month), Lender shall cause disbursements to Borrower from the FF&E Reserve Account to reimburse Borrower for FF&E expenditures that are consistent with the Approved Annual Budget; provided that:

(i)Borrower shall deliver to Lender invoices and purchase orders evidencing that the costs for which such disbursements are requested are due and payable or are required as a deposit;

(ii)Borrower shall deliver to Lender an Officer’s Certificate confirming that all such costs have been previously paid by Borrower or will be paid from the proceeds of the requested disbursement and that all conditions precedent to such disbursement required by the Loan Documents have been satisfied;

(iii)Lender may condition the making of a requested disbursement on (1) reasonable evidence establishing that Borrower has applied any amounts previously received by it in accordance with this Section for the expenses to which specific draws made hereunder relate, (2) a reasonably satisfactory site inspection, and (3) receipt of lien releases and waivers from any contractors, subcontractors and others with respect to such amounts; and

(iv)No amounts reserved in the FF&E Reserve Account shall be used to pay expenses in respect of the Capital Plan.

(d)Notwithstanding the foregoing, the FF&E Reserve Account shall not be funded pursuant to subclause (b) of this Section 3.6 for so long as (i) no Event of Default or Trigger Period is continuing, (ii) Borrower maintains with an Eligible Institution a separate

account (the “Borrower FF&E Account”) owned by Borrower but subject to a Borrower FF&E Account Control Agreement, into which Borrower shall deposit, on a monthly basis, an amount equal to or greater than the Monthly FF&E Amount and (iii) Borrower’s chief financial officer shall deliver to Lender within ten Business Days of the end of each Fiscal Quarter, an Officer’s Certificate certifying as to the amount contained in the Borrower FF&E Account on the last day of such Fiscal Quarter (and that such amount complies with the requirements of the Loan Documents) and, upon Lender’s request, further certifying that (1) no amount has been remitted from the Borrower FF&E Account for any purpose other than the payment of FF&E expenditures pursuant to the Approved Annual Budget and (2) no amounts reserved in the FF&E Reserve Account have been used to pay expenses in respect of the Capital Plan other than expenses payable in connection with the Energy Efficiency Plan and expenses set forth on Schedule F-5 (each of which may be paid from amounts reserved in the FF&E Reserve Account). Upon the occurrence of a Trigger Period or an Event of Default all amounts contained in the Borrower FF&E Account shall be remitted into the FF&E Reserve Account.

Section 3.7.Deferred Maintenance and Environmental Escrow Account.

(a)On or prior to the Closing Date, if the Deferred Maintenance Amount is greater than zero, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts anticipated to be required to correct Deferred Maintenance Conditions (the “Deferred Maintenance and Environmental Escrow Account”).

(b)On the Closing Date, Borrower shall deposit into the Deferred Maintenance and Environmental Escrow Account, from the proceeds of the Loan, an amount equal to the Deferred Maintenance Amount.

(c)Upon the request of Borrower at any time that no Event of Default is continuing (but not more often than once per calendar month), Lender shall cause disbursements to Borrower from the Deferred Maintenance and Environmental Escrow Account to reimburse Borrower for reasonable costs and expenses incurred in order to correct Deferred Maintenance Conditions, provided that:

(vii)Borrower shall deliver to Lender invoices evidencing that the costs for which such disbursements are requested are due and payable;

(viii)Borrower shall deliver to Lender an Officer’s Certificate confirming that all such costs have been previously paid by Borrower or will be paid from the proceeds of the requested disbursement and that all conditions precedent to such disbursement required by the Loan Documents have been satisfied; and

(ix)Lender may condition the making of a requested disbursement on (1) reasonable evidence establishing that Borrower has applied any amounts previously received by it in accordance with this Section for the expenses to which specific draws made hereunder relate, (2) a reasonably satisfactory site inspection, and (3) receipt of lien

releases and waivers from any contractors, subcontractors and others with respect to such amounts.

(x)No amounts reserved in the Deferred Maintenance and Environmental Escrow Account shall be used to pay expenses in respect of the Capital Plan, except for any maintenance requirements called for in the Capital Plan which, absent the Capital Plan, would ordinarily be funded from the Deferred Maintenance and Environmental Escrow Account.

(d)Upon substantial completion (as reasonably determined by Lender) of the portion of the Deferred Maintenance Conditions identified on any line on Schedule C, and provided no Event of Default is then continuing, the remainder of the portion of the Deferred Maintenance Reserve Account held for such line item (as shown adjacent to such line item on Schedule C) shall promptly be remitted to Borrower. Upon the correcting of all Deferred Maintenance Conditions, provided no Event of Default or Trigger Period is then continuing, any amounts then remaining in the Deferred Maintenance Reserve Account shall promptly be remitted to Borrower and the Deferred Maintenance Account will no longer be maintained.

Section 3.8.Affinia Gardens Reserve Account.

(a)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving for work to be performed in connection with the Affinia Gardens Capital Plan (the “Affinia Gardens Reserve Account”).

(b)On the Closing Date, Borrower shall deposit into the Affinia Gardens Reserve Account, from the proceeds of the Loan, an amount equal to the Affinia Gardens Reserve Amount.

(c)Borrower shall perform all work required to complete the Affinia Gardens Capital Plan within 12 months following the Closing Date. Upon the request of Borrower at any time that no Event of Default is continuing (but not more often than once per calendar month), Lender shall cause disbursements to Borrower from the Affinia Gardens Reserve Account to reimburse Borrower for reasonable costs and expenses incurred in the performance of the Affinia Gardens Capital Plan, provided that:

(i)Borrower shall deliver to Lender invoices evidencing that the costs for which such disbursements are requested are due and payable, together with an Officer’s Certificate confirming that (i) all such costs have been previously paid by Borrower or will be paid from the proceeds of the requested disbursement and (ii) the balance remaining in the Affinia Gardens Reserve Account, after giving effect to the requested disbursement, is sufficient to pay all costs and expenses necessary to complete the Affinia Gardens Capital Plan; and

(ii)Lender may condition the making of a requested disbursement on (1) reasonable evidence establishing that Borrower has applied any prior disbursements from

the Affinia Gardens Reserve Account to the expenses for which such prior disbursements were made, (2) a reasonably satisfactory site inspection, and (3) receipt of lien releases and waivers delivered by contractors, subcontractors and others with respect to prior disbursements from the Affinia Gardens Reserve Account (or evidence that the amount secured by any such liens have been reduced by the amount of prior disbursements from the Affinia Gardens Reserve Account ).

(d)Upon (i) completion of the work related to the Affinia Gardens Capital Plan and (ii) delivery to Lender of a certificate of occupancy for the Affinia Gardens Property amended to permit use of such Property as a transient hotel, provided no Event of Default or Trigger Period is then continuing, any amounts then remaining in the Affinia Gardens Reserve Account shall promptly be remitted to Borrower and the Affinia Gardens Reserve Account will no longer be maintained (and, for the avoidance of doubt, if any Trigger Period or Event of Default is continuing as of the date that the work related to the Affinia Gardens Capital Plan is completed, any amounts then remaining in the Affinia Gardens Reserve Account shall promptly be remitted to Borrower upon the termination of such Trigger Period or waiver of such Event of Default).

Section 3.9.Excess Cash Flow Reserve Account    .

(a)On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the deposit of amounts required to be deposited therein in accordance with Section 3.2(b)(v) (the “Excess Cash Flow Reserve Account”).

(b)Provided that no Event of Default is then continuing, Lender shall release to the Cash Management Account all amounts then contained in the Excess Cash Flow Reserve Account on the first Payment Date after Borrower delivers to Lender evidence reasonably satisfactory to Lender establishing that no Trigger Period is then continuing. Such a release shall not preclude the subsequent commencement of a Trigger Period and the deposit of amounts into the Excess Cash Flow Reserve Account as set forth in Section 3.2(b)(v).

Section 3.10.Account Collateral.

(a)Borrower hereby grants a perfected first-priority security interest in favor of Lender in and to the Account Collateral as security for the Indebtedness, together with all rights of a secured party with respect thereto. Each Collateral Account shall be an Eligible Account under the sole dominion and control of Lender and shall be in the name of Borrower, as pledgor, and Lender, as pledgee. Borrower shall have no right to make withdrawals from any of the Collateral Accounts. Funds in the Collateral Accounts shall not be commingled with any other monies at any time. Borrower shall execute any additional documents that Lender in its reasonable discretion may require and shall provide all other evidence reasonably requested by Lender to evidence or perfect its first-priority security interest in the Account Collateral. Funds in the Collateral Account shall be invested at Lender’s discretion only in Permitted Investments, which Permitted Investments shall be credited to the related Collateral Account. All income and

gains from the investment of funds in the Collateral Accounts other than the Basic Carrying Costs Escrow Account shall be retained in the Collateral Accounts from which they were derived. Unless otherwise required by applicable law, all income and gains from the investment of funds in the Basic Carrying Costs Escrow Account shall be for the account of Lender in consideration of its administration of such Collateral Account, and Lender shall have the right at any time to cause the Cash Management Bank to remit such amounts to Lender. After the Loan and all other Indebtedness have been paid in full, the Collateral Accounts shall be closed and the balances therein, if any, shall be paid to Borrower.

(b)The insufficiency of amounts contained in the Collateral Accounts shall not relieve Borrower from its obligation to fulfill all covenants contained in the Loan Documents.

(c)During the continuance of an Event of Default, Lender may, in its sole discretion, apply funds in the Collateral Accounts, and funds resulting from the liquidation of Permitted Investments contained in the Collateral Accounts, either toward the components of the Indebtedness (e.g., interest, principal and other amounts payable hereunder), the Loan, the Note Components and the Notes in such sequence as Lender shall elect in its sole discretion, and/or toward the payment of Property expenses, which application may result in an increase in the weighted average of the interest rates applicable to such Notes or Note Components.

Section 3.11.Bankruptcy. Borrower and Lender acknowledge and agree that upon the filing of a bankruptcy petition by or against Borrower under the Bankruptcy Code, the Account Collateral and the Revenues (whether then already in the Collateral Accounts, or then due or becoming due thereafter) shall be deemed not to be property of Borrower’s bankruptcy estate within the meaning of Section 541 of the Bankruptcy Code. If, however, a court of competent jurisdiction determines that, notwithstanding the foregoing characterization of the Account Collateral and the Revenues by Borrower and Lender, the Account Collateral and/or the Revenues do constitute property of Borrower’s bankruptcy estate, then Borrower and Lender further acknowledge and agree that all such Revenues, whether due and payable before or after the filing of the petition, are and shall be cash collateral of Lender. Borrower acknowledges that Lender does not consent to Borrower’s use of such cash collateral and that, in the event Lender elects (in its sole discretion) to give such consent, such consent shall only be effective if given in writing signed by Lender. Except as provided in the immediately preceding sentence, Borrower shall not have the right to use or apply or require the use or application of such cash collateral (i) unless Borrower shall have received a court order authorizing the use of the same, and (ii) Borrower shall have provided such adequate protection to Lender as shall be required by the bankruptcy court in accordance with the Bankruptcy Code.

ARTICLE IV
REPRESENTATIONS

Each Borrower represents to Lender with respect to itself and each other Borrower, and Operating Lessee represents to Lender with respect to itself, that, as of the Closing Date, except as set forth in the Exception Report:

Section 4.1.Organization.

(j)Borrower, Operating Lessee and Operating Lessee Pledgor each are duly formed, validly existing and in good standing under the laws of the State of Delaware, and is in good standing in each other jurisdiction where ownership of its properties or the conduct of its business requires it to be so, and each has all power and authority under such laws and its organizational documents and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

(k)Borrower and Operating Lessee each have no subsidiaries and do not own any equity interest in any other Person.

(l)The organizational chart contained in Exhibit A is true and correct as of the date hereof.

Section 4.2.Authorization. Borrower has the power and authority to enter into this Agreement and the other Loan Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated by the Loan Documents and has by proper action duly authorized the execution and delivery of the Loan Documents.

Section 4.3.No Conflicts. Neither the execution and delivery of the Loan Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof will (i) violate or conflict with any provision of its formation and governance documents, (ii) violate any Legal Requirement, regulation (including Regulation U, Regulation X or Regulation T), order, writ, judgment, injunction, decree or permit applicable to it, (iii) violate or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, contract or other Material Agreement to which Borrower, Operating Lessee or Sponsor is a party or by which Borrower, Operating Lessee or Sponsor may be bound, or (iv) result in or require the creation of any Lien or other charge or encumbrance upon or with respect to the Collateral in favor of any party other than Lender.

Section 4.4.Consents. No consent, approval, authorization or order of, or qualification with, any court or Governmental Authority is required in connection with the execution, delivery or performance by Borrower of this Agreement or the other Loan Documents, except for any of the foregoing that have already been obtained.

Section 4.5.Enforceable Obligations. This Agreement and the other Loan Documents have been duly executed and delivered by Borrower and constitute Borrower’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury.

Section 4.6.No Default. No Default or Event of Default will exist immediately following the making of the Loan.

Section 4.7.Payment of Taxes. Borrower and Operating Lessee each have filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all material amounts of taxes due (including interest and penalties) except for taxes that are not yet delinquent and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangible taxes) owing by it necessary to preserve the Liens in favor of Lender.

Section 4.8.Compliance with Law.

(c)Except as set forth on the Exception Report, Borrower, Operating Lessee, each Property and the uses thereof comply in all material respects with all applicable Insurance Requirements and Legal Requirements, including building and zoning ordinances and codes. Except as set forth on the Exception Report, each Property conforms to current zoning requirements (including requirements relating to parking) and is neither an illegal nor a legal nonconforming use. Except as set forth on the Exception Report, neither Borrower nor Operating Lessee is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority the violation of which could adversely affect any Property or the condition (financial or otherwise) or business of Borrower or Operating Lessee. There has not been committed by or on behalf of Borrower, Operating Lessee or, to the best of Borrower’s knowledge, any other person in occupancy of or involved with the operation or use of any Property, any act or omission affording any federal Governmental Authority or any state or local Governmental Authority the right of forfeiture as against the Property or any portion thereof or any monies paid in performance of its obligations under any of the Loan Documents. None of Borrower, Operating Lessee or Sponsor has purchased any portion of the Properties with proceeds of any illegal activity.

(d)Except for the Life Safety Exceptions, each Property complies in all material respect with all Legal Requirements related to life safety requirements that are applicable to both (i) the certificate of occupancy of such Property and (ii) properties that are permitted to be used as transient hotels in the City of New York under such properties’ certificates of occupancy (whether or not such Property is zoned for transient use). Schedule J accurately sets forth Borrower’s good faith estimate of the cost to remediate the Life Safety Exceptions.

(e)The Affinia Shelburne Property and the Affinia Gardens Property have each completed the registration process administered by the New York City Department of Buildings, and the New York City Department of Buildings has confirmed that each such Property satisfies the registration criteria set forth in the New York State Multiple Dwelling Law that would allow the amendment of the certificate of occupancy of each such Property to legally permit its use as a transient hotel.

(f)To Borrower’s knowledge there are no pending or threatened zoning or use enforcement actions against any Property.

Section 4.9.ERISA. None of Borrower, Operating Lessee, or any ERISA Affiliate of Borrower or Operating Lessee has incurred or could be subjected to any liability

under Title IV or Section 302 of ERISA or Section 412 of the Code or maintains or contributes to, or is or has been required to maintain or contribute to, any employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title IV or Section 302 of ERISA or Section 412 of the Code. The consummation of the transactions contemplated by this Agreement will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or substantially similar provisions under federal, state or local laws, rules or regulations.

Section 4.10.Investment Company Act. Neither Borrower nor Operating Lessee is an “investment company”, or a company “controlled” by an “investment company”, registered or required to be registered under the Investment Company Act of 1940, as amended.

Section 4.11.No Bankruptcy Filing. Neither Borrower nor Operating Lessee is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property. Neither Borrower nor Operating Lessee has knowledge of any Person contemplating the filing of any such petition against it. During the ten year period preceding the Closing Date, no petition in bankruptcy has been filed by or against Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, or any Affiliate of any of the aforementioned Persons, or any person who owns or controls, directly or indirectly, ten percent or more of the beneficial ownership interests of any such Person.

Section 4.12.Other Debt. Neither Borrower nor Operating Lessee has outstanding any Debt other than Permitted Debt.

Section 4.13.Litigation. There are no actions, suits, proceedings, arbitrations or governmental investigations by or before any Governmental Authority or other court or agency now pending, and to the best of Borrower’s knowledge there are no such actions, suits, proceedings, arbitrations or governmental investigations threatened against or affecting Borrower, Operating Lessee or any of the Collateral, in each case, except as listed in the Exception Report (and none of the matters listed in the Exception Report, even if determined against Borrower, Operating Lessee or such Collateral, could reasonably be expected to result in a Material Adverse Effect).

Section 4.14.Leases; Material Agreements.

(a)There are no Leases at the Properties other than those set forth on Schedule I.

(b)There are no Material Agreements except as described in Schedule E. Borrower has made available to Lender true and complete copies of all Material Agreements. Each Material Agreement has been entered into at arm’s length in the ordinary course of business by or on behalf of Borrower or Operating Lessee. The Material Agreements are in full force and effect and there are no defaults thereunder by Borrower, Operating Lessee, or to Borrower’s knowledge, any other party thereto. Neither Borrower nor Operating Lessee is in default in any material respect in the performance, observance or fulfillment of any of the obligations,

covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or any Property is bound (including, for the avoidance of doubt, the Operating Lease).

(c)Other than as disclosed on Schedule E, Operating Lessee is not a party to any Material Agreements related to the Property.

Section 4.15.Full and Accurate Disclosure. To Borrower’s knowledge, no statement of fact heretofore delivered by Borrower, Sponsor or Operating Lessee to Lender in writing in respect of the Properties, Borrower, Sponsor or Operating Lessee contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading unless subsequently corrected. There is no fact, event or circumstance presently known to Borrower, Sponsor or Operating Lessee that has not been disclosed to Lender that has had or could reasonably be expected to result in a Material Adverse Effect.

Section 4.16.Financial Condition. All financial data concerning Borrower, Operating Lessee and the Properties heretofore provided to Lender fairly presents in accordance with GAAP the financial position of Borrower and Operating Lessee in all material respects, as of the date on which it was made, and does not omit to state any fact necessary to make statements contained herein or therein not misleading. Since the delivery of such data, except as otherwise disclosed in writing to Lender, there have occurred no changes or circumstances that have had or are reasonably expected to result in a Material Adverse Effect. As of the Closing Date, Sponsor meets the requirements set forth in first sentence of Section 5.23.

Section 4.17.Single-Purpose Requirements.

(a)Each of Borrower, Operating Lessee and Operating Lessee Pledgor is now a Single-Purpose Entity. Each of Borrower, Operating Lessee and Operating Lessee Pledgor has always been since its formation a “bankruptcy-remote single-purpose entity” (as such term is commonly understood in the commercial mortgage loan securitization market) and has conducted its business in substantial compliance with the provisions of its organizational documents, which have always had provisions commonly required of “bankruptcy-remote single-purpose entities” (as such term is commonly understood in the commercial mortgage loan securitization market). Neither Borrower nor Operating Lessee has ever (i) owned any property other than the Properties and/or related personal property (ii) engaged in any business, except the ownership and/or operation of the Properties or (iii) had any material contingent or actual obligations or liabilities unrelated to the Properties. Operating Lessee Pledgor has never owned any property or engaged in any business unrelated to its ownership of 100% of the equity interests in Operating Lessee.

(b)Borrower has provided Lender with true, correct and complete copies of (i) Borrower’s and Operating Lessee’s current financial statements; and (ii) Borrower’s and Operating Lessee’s respective current operating agreements, together with all amendments and modifications thereto.

Section 4.18.Use of Loan Proceeds. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System or for any other purpose that would be inconsistent with such Regulations T, U or X or any other Regulations of such Board of Governors, or for any purpose prohibited by Legal Requirements or by the terms and conditions of the Loan Documents. The Loan is solely for the business purpose of Borrower or for distribution to Borrower’s equityholders in accordance with Legal Requirements.

Section 4.19.Not Foreign Person. Neither Borrower nor Operating Lessee is a “foreign person” within the meaning of Section 1445(f)(3) of the Code.

Section 4.20.Labor Matters. Except as set forth on the Exception Report, neither Borrower nor Operating Lessee has any employees or is a party to any collective bargaining agreements.  To the Borrower’s or Operating Lessee’s knowledge, no strikes or other material labor disputes against Borrower or Operating Lessee are pending or threatened.  Hours worked by and payment made to employees of Borrower and Operating Lessee comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matters.  To the Borrower’s or Operating Lessee’s knowledge, there is no union organizing activity involving the Borrower or Operating Lessee pending or threatened by any labor union or group of employees.  To the Borrower’s or Operating Lessee’s knowledge, there are no complaints or charges against any Borrower or threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Borrower or Operating Lessee.

Section 4.21.Title. Borrower owns good, marketable and insurable fee title to the Properties, subject to the Permitted Exceptions. Borrower owns good and marketable title to the FF&E. Borrower and/or Operating Lessee own good and marketable title to all personal property related to the Property (other than the FF&E, which is owned solely by Borrower), to the Collateral Accounts and to any other Collateral, in each case free and clear of all Liens whatsoever except the Permitted Encumbrances. The Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (i) valid, perfected first priority Liens on the Properties and the rents therefrom, enforceable as such against creditors of and purchasers from Borrower or Operating Lessee and subject only to Permitted Encumbrances, and (ii) perfected Liens (pursuant to the Uniform Commercial Code of the State of New York) in and to all personalty, all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances. The Permitted Encumbrances do not and will not materially and adversely affect or interfere with the value, or current or contemplated use or operation, of the Properties, or the security intended to be provided by the Mortgage or Borrower’s ability to repay the Indebtedness in accordance with the terms of the Loan Documents. Except as insured over by a Qualified Title Insurance Policy, there are no claims for payment for work, labor or materials affecting the Properties that are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. No creditor of Borrower (other than Lender) or Operating Lessee has in its possession any goods that constitute or evidence the Collateral.

Section 4.22.No Encroachments. Except as shown on the applicable Qualified Survey, all of the improvements on each of the Properties lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining property encroach upon any Property, and no easements or other encumbrances upon the Property encroach upon any of the improvements, so as, in either case, to adversely affect the value or marketability of the applicable Property, except those that are insured against by a Qualified Title Insurance Policy.

Section 4.23.Physical Condition.

(a)Except for matters set forth in the Engineering Reports, each Property (including sidewalks, storm drainage system, roof, plumbing system, HVAC system, fire protection system, electrical system, equipment, elevators, exterior sidings and doors, irrigation system and all structural components) is in good condition, order and repair in all respects material to its use, operation or value.

(b)Borrower is not aware of any material structural or other material defect or damages in any of the Properties, whether latent or otherwise.

(c)Borrower has not received and is not aware of any other party’s receipt of notice from any insurance company or bonding company of any defects or inadequacies in any of the Properties that would, alone or in the aggregate, adversely affect in any material respect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

Section 4.24.Fraudulent Conveyance. Borrower has not entered into the Transaction or any of the Loan Documents with the actual intent to hinder, delay or defraud any creditor. Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. On the Closing Date, the fair salable value of Borrower’s aggregate assets is and will, immediately following the making of the Loan and the use and disbursement of the proceeds thereof, be greater than Borrower’s probable aggregate liabilities (including subordinated, unliquidated, disputed and Contingent Obligations and, in the case of Borrower, taking into account Borrower’s right of contribution from Borrower, as set forth in Section 9.31). Borrower’s aggregate assets do not and, immediately following the making of the Loan and the use and disbursement of the proceeds thereof will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including Contingent Obligations and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

Section 4.25.Management. Except for any Approved Management Agreement, no property management agreements are in effect with respect to the Properties. The Approved Management Agreement is in full force and effect and there is no event of default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder.

Section 4.26.Condemnation. No Condemnation has been commenced or, to Borrower’s knowledge, is contemplated or threatened with respect to all or any portion of any of the Properties or for the relocation of roadways providing access to any of the Properties.

Section 4.27.Utilities and Public Access. Each Property has adequate rights of access to dedicated public ways (and makes no material use of any means of access or egress that is not pursuant to such dedicated public ways or recorded, irrevocable rights-of-way or easements) and is adequately served by all public utilities, including water and sewer (or well and septic), necessary to the continued use and enjoyment of such Property as presently used and enjoyed.

Section 4.28.Environmental Matters. Except as disclosed in the Environmental Reports:

(i)To Borrower’s and Operating Lessee’s knowledge, each Property is in compliance in all material respects with all Environmental Laws applicable to such Property (which compliance includes, but is not limited to, the possession of, and compliance with, all environmental, health and safety permits, approvals, licenses, registrations and other governmental authorizations required in connection with the ownership and operation of such Property under all Environmental Laws).

(ii)No Environmental Claim is pending with respect to any Property, nor, to Borrower’s knowledge, is any threatened, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to Borrower, Operating Lessee or any Property.

(iii)Without limiting the generality of the foregoing, to Borrower’s and Operating Lessee’s knowledge, there is not present at, on, in or under any Property, any Hazardous Substances, PCB-containing equipment, asbestos or asbestos containing materials, underground storage tanks or surface impoundments for any Hazardous Substance, lead in drinking water (except in concentrations that comply with all Environmental Laws), or lead-based paint.

(iv)There have not been and are no past, present or threatened Releases of any Hazardous Substance from or at any Property that are reasonably likely to form the basis of any Environmental Claim, and, to Borrower’s knowledge, there is no threat of any Release of any Hazardous Substance migrating to any Property.

(v)No Liens are presently recorded with the appropriate land records under or pursuant to any Environmental Law with respect to any Property and, to Borrower’s knowledge, no Governmental Authority has been taking any action to subject any Property to Liens under any Environmental Law.

(vi)There have been no material environmental investigations, studies, audits, reviews or other analyses conducted by or that are in the possession of Borrower or Operating Lessee in relation to any Property that have not been made available to Lender.

Section 4.29.Assessments. There are no pending or, to Borrower’s knowledge, proposed special or other assessments for public improvements or otherwise affecting any of the Properties, nor are there any contemplated improvements to any of the Properties that may result in such special or other assessments. No extension of time for assessment or payment by Borrower of any federal, state or local tax is in effect.

Section 4.30.No Joint Assessment. Borrower has not suffered, permitted or initiated the joint assessment of any of the Properties (i) with any other real property constituting a separate tax lot, or (ii) with any personal property, or any other procedure whereby the Lien of any Taxes that may be levied against such other real property or personal property shall be assessed or levied or charged to any of the Properties as a single Lien.

Section 4.31.Separate Lots. No portion of any of the Properties is part of a tax lot that also includes any real property that is not Collateral.

Section 4.32.Permits; Certificate of Occupancy. Borrower, Operating Lessee and/or Approved Property Manager have obtained all Permits necessary for the present and contemplated use and operation of each of the Properties. The uses being made of each Property are in conformity in all material respects with the certificate of occupancy and/or Permits for such Property and any other restrictions, covenants or conditions affecting such Property.

Section 4.33.Flood Zone. None of the improvements on any of the Properties is located in an area identified by the Federal Emergency Management Agency or the Federal Insurance Administration as a “100 year flood plain” or as having special flood hazards (including Zones A and V), or, to the extent that any portion of any of the Properties is located in such an area, such Property is covered by flood insurance meeting the requirements set forth in Section 5.15(a)(ii).

Section 4.34.Security Deposits. Borrower and Operating Lessee are in compliance in all material respects with all Legal Requirements relating to security deposits.

Section 4.35.Acquisition Documents. Borrower has delivered to Lender true and complete copies of all material agreements and instruments under which Borrower or any of its Affiliates or the seller of any of the Properties have remaining rights or obligations in respect of Borrower’s acquisition of the Properties.

Section 4.36.Insurance. Borrower or Operating Lessee has obtained, or caused to be obtained, insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. All premiums on such insurance policies required to be paid as of the Closing Date have been paid for the current policy period. No Person, including Borrower and Operating Lessee, has done, by act or omission, anything that would impair the coverage of any such policy.

Section 4.37.No Dealings. Borrower, Operating Lessee and the Sponsor are not aware of any unlawful influence on the assessed value of any of the Properties.

Section 4.38.Estoppel Certificates. Borrower has delivered to Lender true and complete copies of (a) the form(s) of estoppel certificate heretofore sent by Borrower, Operating Lessee or any of their Affiliates to every Tenant under a Major Lease at the Property and every Tenant at the Property that operates a restaurant (whether or not under a Major Lease), and (b) each estoppel certificate received back from any such Tenant prior to the Closing Date.

Section 4.39.Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws. (a) None of the funds or other assets of any Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under federal law, including the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any executive orders or regulations promulgated thereunder, with the result that (i) the investment in any of Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, as applicable (whether directly or indirectly), is prohibited by law or (ii) the Loan is in violation of law (any such person, entity or government, an “Embargoed Person”); (b) no Embargoed Person has any interest of any nature whatsoever in any of Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, as applicable (whether directly or indirectly), with the result that (i) the investment in any of Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, as applicable (whether directly or indirectly) is prohibited by law or (ii) the Loan is in violation of law, (c) none of the funds of any of Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, as applicable, have been derived from any unlawful activity with the result that (i) the investment in any of Borrower, Operating Lessee, any Single-Purpose Equityholder or Sponsor, as applicable (whether directly or indirectly) is prohibited by law or (ii) the Loan is in violation of law, (d) to the best of Borrower’s knowledge, no Tenant at the Property is identified on the OFAC List and (e) Borrower, Operating Lessee, any Single-Purpose Equityholder and Sponsor are in material compliance with the PATRIOT Act. Borrower has implemented procedures, and will consistently apply those procedures throughout the term of the Loan, to ensure the foregoing representations and warranties remain true and correct during the term of the Loan. Notwithstanding Section 4.42 to the contrary, the representations and warranties contained in this Section 4.39 shall survive in perpetuity.

Section 4.40.Survival. Borrower agrees that all of the representations of Borrower set forth in this Agreement and in the other Loan Documents shall survive for so long as any portion of the Indebtedness is outstanding. All representations, covenants and agreements made by Borrower in this Agreement or in the other Loan Documents shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. On the date of any Securitization, on not less than three days’ prior written notice, Borrower shall deliver to Lender a certification (x) confirming that all of the representations contained in this Agreement are true and correct as of the date of such Securitization, or (y) otherwise specifying any changes in or qualifications to such

representations as of such date as may be necessary to make such representations consistent with the facts as they exist on such date.

Section 4.41.Capital Plan. As of the Closing Date, $5,333,860 has been expended towards the Capital Plan, as set forth in more detail on Schedules F-1 through F-5.

Section 4.42.ADA Compliance. Each of the Properties is in compliance with Americans with Disabilities Act of 1990 with respect to the required number of accessible bathrooms.

ARTICLE V
AFFIRMATIVE COVENANTS

Each individual Borrower and each individual Operating Lessee covenants and agrees as follows with respect to itself and each other individual Borrower and individual Operating Lessee:

Section 5.1.Existence. Borrower, Operating Lessee and if applicable, any Single-Purpose Equityholder shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence and all rights, licenses, Permits, franchises and other agreements necessary for the continued use and operation of its business. Borrower, Operating Lessee and, if applicable, each Single-Purpose Equityholder shall deliver to Lender a copy of each amendment or other modification to any of its organizational documents promptly after the execution thereof.

Section 5.2.Maintenance of Properties.

(f)Borrower shall cause each Property to be maintained in good and safe working order and repair, reasonable wear and tear excepted, and in keeping with the condition and repair of properties of a similar use, value, age, nature and construction. Borrower shall not, and shall not cause or permit Operating Lessee or Approved Property Manager to, use, maintain or operate any Property in any manner that constitutes a public or private nuisance or that makes void, voidable, or cancelable, or increases the premium of, any insurance then in force with respect thereto. Subject to Section 6.13, without the prior written consent of Lender, no improvements or equipment located at or on the Property shall be removed, demolished or materially altered (except for replacement of equipment in the ordinary course of Borrower’s or Operating Lessee’s business with items of the same utility and of equal or greater value and sales of obsolete equipment no longer needed for the operation of the applicable Property). Subject to Section 6.13, Borrower shall from time to time make, or cause to be made, all reasonably necessary and desirable repairs, renewals, replacements, betterments and improvements to the Properties. Borrower shall not, and shall not cause or permit Operating Lessee or Approved Property Manager to, make any change in the use of any Property that would materially increase the risk of fire or other hazard arising out of the operation of any Property, or do or permit to be done thereon anything that may in any way impair the value of any Property in any material respect or the Lien of the Mortgage or otherwise cause or reasonably be expected to result in a

Material Adverse Effect. Borrower shall not install or permit to be installed on any Property any underground storage tank. Borrower shall not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of any Property, regardless of the depth thereof or the method of mining or extraction thereof.

(g)Borrower shall remediate the Deferred Maintenance Conditions (including all Life Safety Exceptions) within 12 months following the Closing Date, subject to Force Majeure, and upon request from Lender after the expiration of such period shall deliver to Lender an Officer’s Certificate confirming that such remediation has been completed and that all associated expenses have been paid.

(h)Borrower shall use its best efforts (including the expenditure of all necessary amounts and repair and remediation of the applicable Properties) to cause the certificate of occupancy for the Affinia Gardens Property and the Affinia Shelburne Property to be amended to reflect and permit use as a transient hotel within 12 months following the date hereof. Borrower shall cause any deadline relating to the amendment of the certificate of occupancy for each of the Affinia Gardens Property and the Affinia Shelburne Property to permit use as a transient hotel to be extended until such amendment is completed

Section 5.3.Compliance with Legal Requirements. Borrower shall, and shall cause Operating Lessee to, comply with, and shall cause each Property to comply with and be operated, maintained, repaired and improved in compliance with, all Legal Requirements, Insurance Requirements and all material contractual obligations by which Borrower is legally bound.

Section 5.4.Impositions and Other Claims. Borrower shall pay and discharge all taxes, assessments and governmental charges levied upon it, its income and its assets as and when such taxes, assessments and charges are due and payable, as well as all lawful claims for labor, materials and supplies or otherwise, subject to any rights to contest contained in the definition of Permitted Encumbrances. Borrower shall file all federal, state and local tax returns and other reports that it is required by law to file. If any law or regulation applicable to Lender, any Note, any of the Collateral or the Mortgage is enacted that deducts from the value of property for the purpose of taxation any Lien thereon, or imposes upon Lender the payment of the whole or any portion of the taxes or assessments or charges or Liens required by this Agreement to be paid by Borrower, or changes in any way the laws or regulations relating to the taxation of mortgages or security agreements or debts secured by mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect the Mortgage, the Indebtedness or Lender, then Borrower, upon demand by Lender, shall pay such taxes, assessments, charges or Liens, or reimburse Lender for any amounts paid by Lender. If in the opinion of Lender’s counsel it might be unlawful to require Borrower to make such payment or the making of such payment might result in the imposition of interest beyond the maximum amount permitted by applicable Law, Lender may elect to declare all of the Indebtedness to be due and payable 90 days from the giving of written notice by Lender to Borrower.

Section 5.5.Access to Properties. Borrower shall, and shall cause Operating Lessee and Approved Property Manager to permit agents, representatives and employees of Lender and the Servicer to enter and inspect the Properties or any portion thereof, and/or inspect, examine, audit and copy the books and records of Borrower, Operating Lessee and Approved Property Manager (including all recorded data of any kind or nature, regardless of the medium of recording), at such reasonable times as may be requested by Lender upon reasonable advance notice (all subject to the terms and conditions of the Approved Management Agreement). The cost of such inspections, examinations, copying or audits shall be borne by Borrower, including the cost of all follow up or additional investigations, audits or inquiries deemed reasonably necessary by Lender if (i) Lender shall determine that an Event of Default exists or (ii) such inspections, examinations, copying or audits are conducted by Lender in connection with its verification of completion of the Capital Plan. The cost of such inspections, examinations, audits and copying, if not paid for by Borrower following demand, may be added to the Indebtedness and shall bear interest thereafter until paid at the Default Rate. If Borrower prohibits, bars or fails to permit agents, representatives and employees of Lender and Servicer from entering and inspecting any of the Properties or from inspecting, examining, auditing and copying the books and records of Borrower, Operating Lessee and Approved Property Manager, as required by this Section, for more than five days after a written request is made by Lender to do so, Borrower agrees to pay Lender on demand the sum of $1,000.00 for each day after such five-day period that Borrower so prohibits or bars such inspection, and such sum or sums shall be part of the Indebtedness. Notwithstanding any of Lender’s or Servicer’s rights in this Section, in no event shall Lender or Servicer have any right to enter or inspect any Property or inspect, examine, audit or copy the books and records of Approved Property Manager that is greater than or inconsistent with the access afforded to Borrower and Operating Lessee under the terms of the Approved Management Agreement.

Section 5.6.Cooperate in Legal Proceedings. Except with respect to any claim by Borrower against Lender, Borrower shall, and shall cause Operating Lessee to, cooperate fully with Lender with respect to any proceedings before any Governmental Authority that may in any way affect the rights of Lender hereunder or under any of the Loan Documents and, in connection therewith, Lender may, at its election, participate or designate a representative to participate in any such proceedings.

Section 5.7.Leases.

(g)Borrower shall furnish Lender with executed copies of all Leases, together with a detailed breakdown of income and cost associated therewith. All new Leases and renewals or amendments of Leases must (i) be entered into on an arms-length basis with Tenants that are not Affiliates of Borrower and whose identity and creditworthiness is appropriate for tenancy in property of comparable quality, (ii) provide for rental rates and other economic terms that, taken as a whole, are at least equivalent to then-existing market rates, based on the applicable market, and otherwise contain terms and conditions that are commercially reasonable, (iii) have an initial term of not more than 10 years, (iv) not have or reasonably be expected to result in a Material Adverse Effect, (v) be expressly subject and subordinate to the Mortgage and contain provisions for the agreement by the Tenant thereunder to attorn to Lender and any

purchaser at a foreclosure sale, such attornment to be self-executing and effective upon acquisition of title to the applicable Property by any purchaser at a foreclosure sale and (vi) require the Tenant thereunder to execute and deliver to Borrower an estoppel certificate addressing the issues set forth in Section 9.16(b) of this Agreement (in each case, unless Lender consents to such Lease in its sole discretion).

(h)All new Leases that are Major Leases, and all terminations, renewals and amendments of Major Leases, and any surrender of rights under any Major Lease, shall be subject to the prior written consent of Lender. If Lender shall fail to respond to Borrower’s request for such consent within five Business Days of Lender’s receipt thereof, Borrower may deliver to Lender a second request for consent stating in bold and capitalized type that “LENDER’S FAILURE TO RESPOND TO THE ENCLOSED REQUEST WITHIN TEN BUSINESS DAYS SHALL BE DEEMED LENDER’S APPROVAL.” In the event Lender fails to approve or disapprove such request within ten Business Days of Lender’s receipt of such second request, such request shall be deemed approved.

(i)Borrower shall, or shall cause Operating Lessee to, (i) observe and punctually perform all the material obligations imposed upon the lessor under the Leases; (ii) enforce all of the material terms, covenants and conditions contained in the Leases on the part of the lessee thereunder to be observed or performed, short of termination thereof, except that the lessor may terminate any Lease following a material default thereunder by the respective Tenant; (iii) not collect any of the rents thereunder more than one month in advance; (iv) not execute any assignment of lessor’s interest in the Leases or associated rents other than the assignment of rents and leases under the Mortgage; (v) not cancel or terminate any guarantee of any of the Major Leases without the prior written consent of Lender; and (vi) not permit any subletting of any space covered by a Lease or an assignment of the Tenant’s rights under a Lease, except in strict accordance with the terms of such Lease. Borrower shall, or shall cause Operating Lessee to, deliver to each new Tenant a Tenant Notice upon execution of such Tenant’s Lease, and promptly thereafter deliver to Lender a copy thereof and evidence of such Tenant’s receipt thereof.

(j)Security deposits of Tenants shall be held by Borrower or Operating Lessee in compliance with Legal Requirements. Borrower shall, or shall cause Operating Lessee to, maintain books and records of sufficient detail to identify all security deposits of Tenants separate and apart from any other payments received from Tenants. Any bond or other instrument that Borrower or Operating Lessee is permitted to hold in lieu of cash security deposits under any applicable Legal Requirements shall be maintained in full force and effect unless replaced by cash deposits as described above, shall be issued by an institution reasonably satisfactory to Lender, shall (if not prohibited by any Legal Requirements) name Lender as payee or mortgagee thereunder (or at Lender’s option, be fully assignable to Lender) or may name Borrower or Operating Lessee as payee thereunder so long as such bond or other instrument is pledged to Lender as security for the Indebtedness and shall, in all respects, comply with any applicable Legal Requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon Lender’s request, provide Lender with evidence reasonably satisfactory to Lender of Borrower’s and Operating Lessee’s compliance with the foregoing. During the continuance of

an Event of Default, Borrower shall, upon Lender’s request, cause to be deposited with Lender in an Eligible Account pledged to Lender an amount equal to the aggregate security deposits of the Tenants (and any interest theretofore earned on such security deposits and actually received by Borrower or Operating Lessee) that Borrower and Operating Lessee had not returned to the applicable Tenants or applied in accordance with the terms of the applicable Lease.

(k)Borrower shall cause to be promptly delivered to Lender a copy of each written notice from a Tenant under any Major Lease claiming that Borrower or Operating Lessee is in default in the performance or observance of any of the material terms, covenants or conditions thereof. Borrower shall cause each Major Lease executed after the Closing Date to which Borrower or Operating Lessee is a party to provide that any Tenant delivering any such notice shall send a copy of such notice directly to Lender.

(l)Whenever a Major Lease is terminated, whether by buy-out, cancellation, default, rejection or otherwise, and Borrower receives any payment, fee, damages or penalty in respect of such termination (a “Termination Fee”), Borrower shall promptly cause such Termination Fee to be remitted to Lender to be held in a reserve account controlled by Lender. Provided no Event of Default is continuing, (i) Lender shall disburse such Termination Fee or portion thereof to Borrower at the written request of Borrower in respect of Leasing Commissions and Tenant Improvement costs incurred by Borrower in connection with entering into Leases at the Properties and (ii) unless a Trigger Period is continuing, the remainder of such Termination Fee or portion thereof, if any, shall be remitted to the Cash Management Account after the space covered by such terminated Lease has been relet, the replacement Tenant is in occupancy and has commenced paying rent under the replacement Lease and all Leasing Commissions and Tenant Improvement costs relating to such space have been paid.

Section 5.8.Plan Assets, etc. Borrower will do, or cause to be done, all things necessary to ensure that neither Borrower nor Operating Lessee will be deemed to hold Plan Assets at any time.

Section 5.9.Further Assurances. Borrower shall (and, as applicable, shall cause Operating Lessee to), at Borrower’s sole cost and expense, from time to time as reasonably requested by Lender, execute, acknowledge, record, register, file and/or deliver to Lender such other instruments, agreements, certificates and documents (including Uniform Commercial Code financing statements and amended or replacement mortgages) as Lender may reasonably request to evidence, confirm, perfect and maintain the Liens securing or intended to secure the obligations of Borrower and the rights of Lender under the Loan Documents or to facilitate a replacement of the Cash Management Bank pursuant to Section 3.1(c) or a bifurcation of the Notes pursuant to Sections 1.1(c) and/or 9.7(b) or a restructuring of the Loan pursuant to the Cooperation Agreement, in each case if requested by Lender, and do and execute all such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents as Lender shall reasonably request from time to time (including the payment and application of Loss Proceeds). Upon foreclosure, the appointment of a receiver or any other relevant action, Borrower shall (and, as applicable, shall cause Operating Lessee or Approved Property Manager

to), at Borrower’s sole cost and expense, cooperate fully and completely to effect the assignment or transfer of any license, permit, agreement or any other right necessary or useful to the operation of the Collateral. Upon receipt of an affidavit from Lender as to the loss, theft, destruction or mutilation of any Note, Borrower shall issue, in lieu thereof, a replacement Note in the same principle amount thereof and in the form thereof. Borrower hereby authorizes and appoints Lender as its attorney-in-fact to execute, acknowledge, record, register and/or file such instruments, agreements, certificates and documents, and to do and execute such acts, conveyances and assurances, should Borrower fail to do so itself in violation of this Agreement or the other Loan Documents following written request from Lender, in each case without the signature of Borrower. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term of this Agreement. Borrower hereby ratifies all actions that such attorney shall lawfully take or cause to be taken in accordance with this Section 5.9.

Section 5.10.Management of Collateral.

(a)Each Property shall be managed at all times by an Approved Property Manager pursuant to an Approved Management Agreement. Pursuant to the Subordination of Property Management Agreement, Approved Property Manager shall agree that the Approved Management Agreement and the incentive fee payable thereunder are subject and subordinate to the Indebtedness. Borrower may from time to time, with Lender’s consent and subject to satisfaction of the Rating Condition, appoint a replacement Approved Property Manager to manage one or more of the Properties pursuant to an Approved Management Agreement, and such successor manager shall execute for Lender’s benefit a Subordination of Property Management Agreement in form and substance reasonably satisfactory to Lender. Any request for Lender’s consent to the appointment of a replacement Approved Property Manager shall be made in writing and accompanied by the proposed management agreement and such information regarding the proposed replacement Approved Property Manager that would allow Lender to evaluate the same (including, the number of hotels and rooms under management, the geographic regions in which such managed properties are located, the flags related to such managed properties and the number of years the proposed manager has been managing such properties). If Lender shall fail to respond to Borrower’s request to approve or disapprove a replacement Approved Property Manager within ten Business Days of Lender’s receipt of such request and all required information, Borrower may deliver to Lender a second request for consent stating in bold and capitalized type that “LENDER’S FAILURE TO RESPOND TO THE ENCLOSED REQUEST WITHIN TEN BUSINESS DAYS SHALL BE DEEMED LENDER’S APPROVAL.” In the event Lender fails to approve or disapprove such request, or request additional information, within ten Business Days of Lender’s receipt of such second request, such request shall be deemed approved.

(b)The Properties shall be branded at all times as “Affinia”, except for the Property branded as “The Benjamin”, which shall continue to be branded at all times as “The Benjamin”.

(c)Borrower shall cause each Approved Property Manager (including any successor Approved Property Manager) to maintain at all times worker’s compensation insurance as required by Governmental Authorities.

(d)Borrower shall notify Lender in writing of any default of Borrower, Operating Lessee or the Approved Property Manager under any Approved Management Agreement after the expiration of any applicable cure periods, of which Borrower has actual knowledge. After reasonable notice to Borrower, Lender shall have the right to cure defaults of Borrower or Operating Lessee under any Approved Management Agreement (in accordance with the Subordination of Management Agreement). Any out-of-pocket expenses incurred by Lender to cure any such default shall constitute a part of the Indebtedness and shall be due from Borrower upon demand by Lender.

(e)Upon an Event of Default followed by acceleration of the Loan, Lender may, in its sole discretion (in accordance with the applicable Subordination of Management Agreement), require Borrower or Operating Lessee to cause the termination of one or more Approved Management Agreements and to engage an Approved Property Manager selected by Lender to serve as replacement Approved Property Manager pursuant to an Approved Management Agreement.

Section 5.11.Notice of Material Event.

(a)Borrower shall give Lender prompt notice (containing reasonable detail) of (i) any material change in the financial or physical condition of any Property, as reasonably determined by Borrower, including the termination or cancellation of any Major Lease, the termination or cancellation of terrorism or other insurance required by this Agreement and/or the closure of more than the lesser of (x)10% of the guest rooms at any Property and (y) 25 guest rooms at any Property, in each case, for more than five nights (except in connection with work under the A-50 Capital Plan), (ii) any notice from the Approved Property Manager, to the extent such notice relates to a matter that is reasonably expected to result in a Material Adverse Effect, (iii) any litigation or governmental proceedings pending or threatened in writing against Borrower, Operating Lessee or any Property that is reasonably expected to result in a Material Adverse Effect, (iv) the insolvency or bankruptcy filing of Borrower, Operating Lessee, any Single-Purpose Equityholder, Sponsor or an Affiliate of any of the foregoing and (v) any other circumstance or event reasonably expected to result in a Material Adverse Effect.

(b)Borrower shall deliver to Lender, within three Business Days of receipt thereof, the periodic reports regarding the Properties, if any, delivered to Borrower and/or Operating Lessee by Approved Property Manager.

Section 5.12.Annual Financial Statements. As soon as available, and in any event within 90 days after the close of each Fiscal Year, Borrower shall furnish to Lender, in an Excel spreadsheet file in electronic format (which may be via an intralinks site at Borrower’s sole cost and expense), or, in the case of predominantly text documents, in Adobe pdf format, a combined balance sheet of Borrower (and no other entities) as of the end of such Fiscal Year, together with related combined statements of income and equityholders’ capital and cash flows

for such Fiscal Year, including a combining balance sheet and statement of income for the Properties on a combined basis, in each case audited by a “Big Four” accounting firm or PKF whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP applied on a consistent basis and shall not be qualified as to the scope of the audit or as to the status of Borrower as a going concern. Together with Borrower’s annual financial statements, Borrower shall furnish to Lender, in an Excel spreadsheet file in electronic format (which may be via an intralinks site at Borrower’s sole cost and expense), or, in the case of predominantly text documents, in Adobe pdf format:

(i)a statement of cash flows and income and expenses in the format set forth in the most recent Uniform System of Accounts (as shown on Exhibit C);

(ii)average daily room rates, sales reports, Smith Travel Reports (to the extent available) and occupancy reports;

(iii)an annual report for the most recently completed fiscal year, describing Capital Expenditures (stated separately with respect to any project costing in excess of $100,000); and

(iv)such other information as Lender shall reasonably request.

Section 5.13.Quarterly Financial Statements. From and after a Securitization of all or any portion of the Loan, as soon as available, and in any event within 45 days after the end of each Fiscal Quarter (including year-end), Borrower shall furnish to Lender, in an Excel spreadsheet file in electronic format (which may be via an intralinks site at Borrower’s sole cost and expense), or, in the case of predominantly text documents, in Adobe pdf format, quarterly and year-to-date unaudited financial statements prepared for such fiscal quarter with respect to Borrower, including a balance sheet and operating statement as of the end of such Fiscal Quarter, together with related statements of income, equityholders’ capital and cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ending with such Fiscal Quarter, which statements shall include income and expenses in the format set forth in the most recent Uniform System of Accounts (as shown on Exhibit C) and be accompanied by an Officer’s Certificate certifying that the same are true, correct and complete and were prepared in accordance with GAAP applied on a consistent basis, subject to changes resulting from audit and normal year-end audit adjustments. Each such quarterly report shall be accompanied by the following, in an Excel spreadsheet file in electronic format (which may be via an intralinks site at Borrower’s sole cost and expense), or, in the case of predominantly text documents, in Adobe pdf format:

(i)a statement in reasonable detail that calculates Net Operating Income for each of the Fiscal Quarters in the Test Period ending in such Fiscal Quarter, in the case of each such Fiscal Quarter, ending at the end thereof, together with an Officer’s Certificate certifying the same;

(ii)copies of each of the Leases signed during such quarter, together with a summary thereof that shall include the Tenant’s name, lease term, base rent, Tenant Improvements, leasing commissions paid, free rent and other material tenant concessions;

(iii)the current franchise reports, average daily room rates, sales reports, Smith Travel Reports (to the extent available) and occupancy reports;

(iv)an Officer’s Certificate containing a certified calculation the threshold for payment of incentive management fees under the each Approved Management Agreement; and

(v)such other information as Lender shall reasonably request.

Section 5.14.Monthly Financial Statements; Non-Delivery of Financial Statements.

(a)Until the occurrence of a Securitization and during the continuance of a Trigger Period or an Event of Default (or, in the case of item (iii) below, at all times), Borrower shall furnish within 30 days after the end of each calendar month (other than the calendar month immediately following the final calendar month of any Fiscal Year or Fiscal Quarter), in an Excel spreadsheet file in electronic format (which may be via an intralinks site at Borrower’s sole cost and expense), or, in the case of predominantly text documents, in Adobe pdf format, monthly and year-to-date unaudited financial statements prepared for the applicable month with respect to Borrower, including a balance sheet and operating statement as of the end of such month, together with related statements of income, equityholders’ capital and cash flows for such month and for the portion of the Fiscal Year ending with such month , which statements shall include income and expenses in the format set forth in the most recent Uniform System of Accounts (as shown on Exhibit C) and be accompanied by an Officer’s Certificate certifying that the same are true, correct and complete and were prepared in accordance with GAAP applied on a consistent basis, subject to changes resulting from audit and normal year-end audit adjustments. Each such monthly report shall be accompanied by the following:

(i)a summary of Leases signed during such month, which summary shall include the Tenant’s name, lease term, base rent, escalations, Tenant Improvements, leasing commissions paid, free rent and other concessions;

(ii)then current rent roll, average daily room rates, sales reports, Smith Travel Reports (to the extent available) and occupancy reports;

(iii)the Capital Plan Monthly Report; and

(iv)such other information as Lender shall reasonably request.

(b)If Borrower fails to provide to Lender any of the financial statements and other information specified in Sections 5.12, 5.13 or this Section 5.14 within the respective time period specified in such Sections, Lender shall deliver to Borrower written notice of such failure. If Borrower fails to provide such financial statements and other information within ten Business Days after receipt of such notice, (i) at Lender’s election, the same shall constitute an Event of Default and (ii) Borrower shall pay to Lender the amount of $20,000 within five Business Days following Lender’s demand therefor, plus an additional $20,000 for each 10-day period that

elapses until Borrower provides all required financial statements and other information; provided, however, that the foregoing shall not be applicable to any failure to comply with Section 5.13(v) or Section 5.14(iv) to the extent the request made by Lender in connection therewith would not have been made by a prudent Lender acting reasonably.

Section 5.15.Insurance.

(a)Borrower shall cause to be obtained and maintained with respect to the Properties, for the mutual benefit of Borrower and Lender at all times, the following policies of insurance:

(vi)Property insurance against loss or damage by standard perils included within the classification “All Risks” or “Special Form” or Causes of Loss”, including coverage for damage caused by windstorm (including named storm). Such insurance shall (A) be in an amount equal to the full replacement cost of the Properties and fixtures (without deduction for physical depreciation); (B) have deductibles acceptable to Lender (but in any event not in excess of $50,000, except in the case of windstorm and earthquake coverage, which shall have deductibles not in excess of 5% of the total insurable value of the Properties); (C) be paid annually in advance; (D) be written on a “Replacement Cost” basis waiving depreciation, (E) be written on a no coinsurance form or contain an “Agreed Upon Amount” endorsement waiving all coinsurance provisions; (F) include an ordinance or law coverage endorsement containing Coverage A: “Loss Due to Operation of Law” (with a limit equal to replacement cost, provided that the limit under the coverage in effect as of the Closing Date may be maintained so long as the Property remains legal and conforming under all applicable zoning requirements), Coverage B: “Demolition Cost” and Coverage C: “Increased Cost of Construction” coverages each with limits of no less than 10% of replacement cost or such lesser amounts as Lender may require in its sole discretion; and (G) permit that the improvements and other property covered by such insurance be rebuilt at another location in the event that such improvements and other property cannot be rebuilt at the location on which they are situated as of the date hereof. If such insurance excludes mold, Borrower shall implement a mold prevention program satisfactory to Lender;

(vii)flood insurance if any one or more of the Properties is located in a “100 Year Flood Plain”, “special hazard area” (Zones A and V) in an amount equal to the maximum limit of coverage available from FEMA/FIA, plus such excess limits requested by Lender, with a deductible not in excess of $50,000;

(viii)commercial general liability insurance, including broad form coverage of property damage, contractual liability for insured contracts and personal injury (including death resulting therefrom), to be on the so-called “occurrence” form containing minimum limits per occurrence of not less than $1,000,000 with not less than a $2,000,000 general aggregate for any policy year (with a per location aggregate if the Properties are on a blanket policy). In addition, at least $50,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for any and all claims, including all legal

liability imposed upon Borrower and all related court costs and attorneys’ fees and disbursements;

(ix)rental loss and/or business interruption insurance covering all risks required to be covered by the insurance provided for herein, including but not limited to, clauses (i), (ii), (v), (vii), (viii) and (ix) of this Section 5.15(a), and covering the 18-month period from the date of any Casualty to the date that the applicable Property is restored and operations are resumed (regardless of the length of such period), and containing an extended period of indemnity endorsement covering the 12 month period commencing on the date on which the applicable Property has been restored, as reasonably determined by the applicable insurer (even if the policy will expire prior to the end of such period). The amount of such insurance shall be increased from time to time as and when the gross revenues from the Properties increase;

(x)insurance against loss or damage from (A) leakage of sprinkler systems, if not provided by the policy required by Section 5.15(a)(i), and (B) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in any of the improvements (without exclusion for explosions) and insurance against loss of occupancy or use arising from any breakdown, in such amounts as are generally available and are generally required by institutional lenders for properties comparable to the Properties;

(xi)worker’s compensation insurance with respect to all employees of Borrower as and to the extent required by any Governmental Authority or Legal Requirement and employer’s liability coverage of at least $1,000,000 (if applicable);

(xii)during any period of repair or restoration, and only if the property and liability coverage forms do not otherwise apply, (A) commercial general liability and umbrella liability insurance covering claims related to the repairs or restoration at the Properties that are not covered by or under the terms or provisions of the insurance provided for in Section 5.15(a)(iii), and (B) the insurance provided for in Section 5.15(a)(i), which shall, in addition to the requirements set forth in such Section (1) be written in a so-called builder’s risk completed value form or equivalent coverage, including coverage for 100% of the total costs of construction on a non-reporting basis and against all risks insured against pursuant to clauses (i), (ii), (iv), (v), (viii) and (ix) of Section 5.15(a) and (2) shall include permission to occupy the Properties;

(xiii)if required by Lender, earthquake insurance (A) with minimum coverage equivalent to the greater of 1.0x SUL (scenario upper loss) and 1.5x SEL (scenario expected loss) multiplied by the full replacement cost of the building plus business income, (B) having a deductible approved by Lender (but in any event not be in excess of 5% of the total insurable value of the Properties), and (C) if one or more of the Properties is legally nonconforming under applicable zoning ordinances and codes, containing ordinance of law coverage in amounts as required by Lender;

(xiv)so long as the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) or a similar statute is in effect, terrorism insurance for foreign and domestic acts (as such terms are defined in TRIPRA or similar statute) in an amount equal to the full replacement cost of the Properties (plus rental loss and/or business interruption insurance coverage for a term set forthin clause (iv) above). If TRIPRA or a similar statute is not in effect, then provided that terrorism insurance is commercially available, Borrower shall be required to carry terrorism insurance throughout the term of the Loan as required by the preceding sentence, but in such event Borrower shall not be required to spend on terrorism insurance coverage more than two times the amount of the insurance premium that is payable at such time in respect of the casualty and business interruption/rental loss insurance required hereunder on a stand-alone basis (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance), and if the cost of terrorism insurance exceeds such amount, Borrower shall purchase the maximum amount of terrorism insurance available with funds equal to such amount;

(xv)liquor liability insurance in an amount of at least $10,000,000 or in such greater amount as may be required by applicable Legal Requirements against claims or liability arising directly or indirectly to persons or property on account of the sale or dispensing of alcoholic beverages at the Properties and public liability insurance in an amount of at least $10,000,000 or in such greater amount as may be required by applicable Legal Requirements providing coverage against such claims or liability;

(xvi)crime coverage in an amount not less than $2,000,000 to protect against employee dishonesty and related incidents, containing minimum limits per occurrence of $1,000,000;

(xvii)auto liability coverage for all owned and non owned vehicles, including rented and leased vehicles containing minimum limits per occurrence of $1,000,000.00 (if applicable); and

(xviii)such other insurance as may from time to time be requested by Lender.

(b)All policies of insurance (the “Policies”) required pursuant to this Section 5.15 shall be issued by one or more primary insurers having a claims-paying ability of at least “A” with S&P and Fitch and at least “A2” by Moody’s (to the extent Moody’s rates the insurers and is rating the Certificates), or by a syndicate of insurers through which at least 75% of the coverage (if there are 4 or fewer members of the syndicate) or at least 60% of the coverage (if there are 5 or more members of the syndicate) is with carriers having such claims-paying ability ratings (provided that the first layers of coverage are from carriers rated at least “A” with S&P and Fitch and at least “A2” with Moody’s (to the extent Moody’s rates the insurers and is rating the Certificates), and all such carriers shall have claims-paying ability ratings of not less than “BBB+” with S&P and Fitch and at least “Baa1” with Moody’s (to the extent Moody’s rates the insurers and is rating the Certificates)). For purposes of determining whether the insurer ratings requirements set forth above have been satisfied, any insurer that is not rated by Fitch will be regarded as having a Fitch rating that is the equivalent of the rating given to such insurer by any

of Moody’s or S&P that does rate such insurer (or, if both such rating agencies rate such insurer, the lower of the two ratings). Notwithstanding the foregoing, Lender accepts RSUI Indemnity Company in its current participation amount and position within the syndicate provided it maintains a rating of at least “A3” with Moody’s and a rating of at least “A XII” with AM Best.

(c)All Policies required pursuant to this Section 5.15:

(i)shall contain deductibles that, in addition to complying with any other requirements expressly set forth in Section 5.15(a), are approved by Lender (such approval not to be unreasonably withheld, delayed or conditioned, but subject to the requirements of each Rating Agency) and are no larger than is customary for similar policies covering similar properties in the geographic market in which the Properties are located, but in any event are not in excess of $50,000 (except in the case of windstorm and earthquake coverage, to the extent required, which shall have deductibles not in excess of 5% of the total insurable value of the Property);

(ii)shall be maintained throughout the term of the Loan without cost to Lender and shall name Borrower as the named insured;

(iii)with respect to property and rental or business interruption insurance policies, shall contain a standard noncontributory mortgagee clause naming Lender and its successors and assigns as their interests may appear as first mortgagee and loss payee;

(iv)with respect to liability policies, except for workers compensation, employers liability and auto liability, shall name Lender and its successors and assigns as their interests may appear as additional insureds;

(v)with respect to property and rental or business interruption insurance policies, shall either be written on a no coinsurance form or contain an endorsement providing that neither Borrower nor Lender nor any other party shall be a co‑insurer under such Policies;

(vi)with respect to property and rental or business interruption insurance policies, shall contain an endorsement providing that Lender shall receive at least 30 days’ prior written notice of any cancellation thereof (or, in the case of cancellation due to non-payment of premium, 10 days’ prior written notice;

(vii)with respect to property and rental or business interruption insurance policies, shall contain an endorsement providing that no act or negligence of Borrower or any foreclosure or other proceeding or notice of sale relating to one or more of the Properties shall affect the validity or enforceability of the insurance insofar as a mortgagee is concerned;

(viii)shall not contain provisions that would make Lender liable for any insurance premiums thereon or subject to any assessments thereunder;

(ix)shall contain a waiver of subrogation against Lender, as applicable;

(x)may be in the form of a blanket policy, provided that Borrower shall provide evidence satisfactory to Lender that the insurance premiums for the Properties are separately allocated to the Properties and that (i) payment of such allocated amount shall maintain the effectiveness of such Policy as to the Property notwithstanding the failure of payment of any other portion of premiums, and (ii) overall insurance limits will under no circumstance limit the amount that will be paid in respect of the Property, and provided further that any such blanket policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder or shall otherwise provide the same protection as would a separate Policy in Lender’s discretion, subject to review and approval by Lender based on the schedule of locations and values; and

(xi)shall otherwise be reasonably satisfactory in form and substance to Lender and shall contain such other provisions as Lender deems reasonably necessary or desirable to protect its interests.

(d)Borrower shall pay the premiums for all Policies as the same become due and payable. Complete copies of such Policies, certified as true and correct by Borrower, shall be delivered to Lender promptly upon request. Not later than 30 days prior to the expiration date of each Policy, Borrower shall deliver to Lender evidence, reasonably satisfactory to Lender, of its renewal. Borrower shall promptly forward to Lender a copy of each written notice received by Borrower of any modification, reduction or cancellation of any of the Policies or of any of the coverages afforded under any of the Policies. Within 30 days after request by Lender, Borrower shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like.

(e)Borrower shall not procure any other insurance coverage that would be on the same level of payment as the Policies or would adversely impact in any way the ability of Lender or Borrower to collect any proceeds under any of the Policies. If at any time Lender is not in receipt of written evidence that all Policies are in full force and effect when and as required hereunder, Lender shall have the right to take such action as Lender deems necessary to protect its interest in the Properties, including the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate (but limited to the coverages and amounts required hereunder). All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and, until paid, and shall bear interest at the Default Rate.

(f)In the event of foreclosure of the Mortgage or other transfer of title to the Properties in extinguishment in whole or in part of the Indebtedness, all right, title and interest of Borrower in and to the Policies then in force with respect to such Properties and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or in Lender or other transferee in the event of such other transfer of title.

Section 5.16.Casualty and Condemnation.

(c)Borrower shall give prompt notice to Lender of any Casualty or Condemnation or of the actual or threatened commencement of proceedings that would result in a Condemnation.

(d)Lender may participate in any proceedings for any taking by any public or quasi-public authority accomplished through a Condemnation or any transfer made in lieu of or in anticipation of a Condemnation, to the extent permitted by law. Upon Lender’s request, Borrower shall deliver to Lender all instruments reasonably requested by it to permit such participation. Borrower shall, at its sole cost and expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Borrower shall not consent or agree to a Condemnation or action in lieu thereof without the prior written consent of Lender in each instance, which consent shall not be unreasonably withheld or delayed in the case of a taking of an immaterial portion of any Property.

(e)Lender may (x) jointly with Borrower settle and adjust any claims, (y) during the continuance of an Event of Default, settle and adjust any claims without the consent or cooperation of Borrower, or (z) allow Borrower to settle and adjust any claims; except that if no Event of Default is continuing, Borrower may settle and adjust claims aggregating not in excess of 5% of the Allocated Loan Amount for the applicable Property if such settlement or adjustment is carried out in a competent and timely manner, but Lender shall be entitled to collect and receive (as set forth below) any and all Loss Proceeds. Notwithstanding the foregoing, Lender shall have no right to settle or adjust claims relating to damage caused by Hurricane Sandy. The reasonable expenses incurred by Lender in the adjustment and collection of Loss Proceeds shall become part of the Indebtedness and shall be reimbursed by Borrower to Lender upon demand therefor.

(f)All Loss Proceeds from any Casualty or Condemnation shall be immediately deposited into the Loss Proceeds Account (monthly rental loss/business interruption proceeds to be initially deposited into the Loss Proceeds Account and subsequently deposited into the Cash Management Account in installments as and when the lost rental income covered by such proceeds would have been payable). Following the occurrence of a Casualty, Borrower, regardless of whether proceeds are available, shall in a reasonably prompt manner proceed to restore, repair, replace or rebuild the applicable Property to be of at least equal value and of substantially the same character as prior to the Casualty, all in accordance with the terms hereof applicable to Alterations. If at any Property a Condemnation or Casualty occurs as to which, in the reasonable judgment of Lender:

(i)in the case of a Casualty, the cost of restoration would not exceed 25% of the applicable Allocated Loan Amount and the Casualty does not (x) render untenantable, or result in the cancellation of Leases covering, more than 25% of the gross rentable area of such Property, or result in cancellation of Leases covering more than 25% of the base contractual rental revenue of such Property and/or (y) result in the removal of more than 30% of the guest rooms at such Property from the reservation pool;

(ii)in the case of a Condemnation, the Condemnation does not (x) render untenantable, or result in the cancellation of Leases covering, more than 15% of the gross rentable area of such Property and/or (y) result in the removal of more than 15% of the guest rooms at such Property from the reservation pool;

(iii)restoration of such Property is reasonably expected to be completed prior to the expiration of rental interruption insurance and at least six months prior to the Maturity Date;

(iv)after such restoration, the fair market value of such Property is reasonably expected to equal at least the fair market value of such Property immediately prior to such Condemnation or Casualty; and

(v)all necessary approvals and consents from Governmental Authorities will be obtained to allow the rebuilding and re-occupancy of such Property;

or if Lender otherwise elects to allow Borrower to restore such Property, then, provided no Event of Default is continuing, the Loss Proceeds after receipt thereof by Lender and reimbursement of any reasonable expenses incurred by Lender in connection therewith shall be applied to the cost of restoring, repairing, replacing or rebuilding such Property or part thereof subject to the Casualty or Condemnation, in the manner set forth below (and Borrower shall commence, as promptly and diligently as practicable, to prosecute such restoring, repairing, replacing or rebuilding of such Properties in a workmanlike fashion and in accordance with applicable law to a status at least equivalent to the quality and character of such Properties immediately prior to the Condemnation or Casualty). Provided that no Event of Default shall have occurred and be then continuing, Lender shall disburse such Loss Proceeds to Borrower upon Lender’s being furnished with (i) evidence reasonably satisfactory to it of the estimated cost of completion of the restoration, (ii) funds, or assurances reasonably satisfactory to Lender that such funds are available and sufficient in addition to any remaining Loss Proceeds, to complete the proposed restoration (including for any reasonable costs and expenses of Lender to be incurred in administering such restoration) and for payment of the Indebtedness as it becomes due and payable during the restoration, and (iii) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Lender may reasonably request; and Lender may, in any event, require that all plans and specifications for restoration reasonably estimated by Lender to exceed 5% of the Allocated Loan Amount for the applicable Property be submitted to and approved by Lender prior to commencement of work (which approval shall not be unreasonably withheld). If Lender reasonably estimates that the cost to restore will exceed 5% of the Allocated Loan Amount for the applicable Property, Lender may retain a local construction consultant to inspect such work and review Borrower’s request for payments and Borrower shall, on demand by Lender, reimburse Lender for the reasonable fees and expenses of such consultant (which fees and expenses shall constitute Indebtedness). No payment shall exceed 90% of the value of the work performed from time to time until such time as 50% of the restoration (calculated based on the anticipated aggregate cost of the work) has been completed, and amounts retained prior to completion of 50% of the restoration shall not be paid prior to the final

completion of the restoration. Funds other than Loss Proceeds shall be disbursed prior to disbursement of such Loss Proceeds, and at all times the undisbursed balance of such proceeds remaining in the Loss Proceeds Account, together with any additional funds irrevocably and unconditionally deposited therein or irrevocably and unconditionally committed for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the restoration free and clear of all Liens or claims for Lien.

(g)Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Loss Proceeds lawfully or equitably payable to Lender in connection with the Properties. Lender shall be reimbursed for any expenses reasonably incurred in connection therewith (including reasonable attorneys’ fees and disbursements, and, if reasonably necessary to collect such proceeds, the expense of an Appraisal on behalf of Lender) out of such Loss Proceeds or, if insufficient for such purpose, by Borrower. Borrower hereby irrevocably constitutes and appoints Lender as the attorney-in-fact of Borrower for matters in excess of 5% of the Allocated Loan Amount for the applicable Property with respect to the Property, with full power of substitution, subject to the terms of this Section 5.16, to settle for, collect and receive all Loss Proceeds and any other awards, damages, insurance proceeds, payments or other compensation from the parties or authorities making the same, to appear in and prosecute any proceedings therefor and to give receipts and acquittance therefor (which power of attorney shall be irrevocable so long as any of the Indebtedness is outstanding, shall be deemed coupled with an interest, and shall survive the voluntary or involuntary dissolution of Borrower).

(h)If Borrower is not entitled to apply Loss Proceeds toward the restoration of a Property pursuant to Section 5.16(d) and Lender elects not to permit such Loss Proceeds to be so applied, such Loss Proceeds shall be applied on the first Payment Date following such election to the prepayment of the principal of the Loan and shall be accompanied by interest through the end of the applicable Interest Accrual Period (calculated as if the amount prepaid were outstanding for the entire Interest Accrual Period); provided, however, that if Borrower shall deliver to Lender written notice of its intent to Defease the Loan in the amount of the Release Price allocable to the affected Property and obtain a release of the affected Property from the Liens of the Loan Documents, and Borrower thereafter so Defeases the Loan and obtains a release of the affected Property (in each case, pursuant to and in accordance with the terms and conditions of Section 2.1), so long as no Event of Default is continuing, Lender shall remit the applicable Loss Proceeds to the applicable Borrower. If the Note has been bifurcated into multiple Notes or Note Components pursuant to Section 1.1(c), and Borrower does not effectuate a Defeasance of the Loan pursuant to the immediately preceding sentence, all prepayments of the Loan made by Borrower in accordance with this Section 5.16(f) shall be applied to the Notes or Note Components in ascending order of interest rate (i.e., first to the Note or Note Component with the lowest interest rate until its outstanding principal balance has been reduced to zero, then to the Note or Note Component with the second lowest interest rate until its outstanding principal balance has been reduced to zero, and so on) or in such other order as Lender shall determine, which application may result in an increase in the weighted average of the interest rate applicable to such Notes or Note Components.

(i)Notwithstanding the foregoing provisions of this Section 5.16, if the Loan is included in a REMIC and immediately following a release of any portion of the applicable Property from the Lien of the Loan Documents in connection with a Casualty or Condemnation the Loan would fail to satisfy a Lender 80% Determination, then the principal of the Loan shall be prepaid in accordance with Section 5.16(f) in an amount equal to either (i) so much of the Loss Proceeds as are necessary to cause the Lender 80% Determination to be satisfied, or if the aggregate Loss Proceeds are insufficient for such purpose, then the amount realized by Borrower from the Casualty or Condemnation for purposes of computing gain or loss under section 1001 of the Code, or (ii) a lesser amount provided Borrower delivers to Lender an opinion of counsel for Borrower, in form and substance reasonably satisfactory to Lender and delivered by counsel reasonably satisfactory to Lender, opining that such release of such Property from the Lien does not cause any portion of the Loan to cease to be a “qualified mortgage” within the meaning of section 860G(a)(3) of the Code.

Section 5.17.Annual Budget. Each calendar year during the term of the Loan, pursuant to Section 4.04 of each Approved Management Agreement, within 60 days following the first day of each Fiscal Year, Borrower or Operating Lessee shall deliver or shall cause Approved Property Manager to deliver to Lender, for informational purposes only, the Annual Budget for each Property and, promptly after preparation thereof, any subsequent revisions to the Annual Budget of any Property. If the budget approval process under the Approved Management Agreement shall be ongoing during the continuance of a Trigger Period or an Event of Default, neither Borrower nor Operating Lessee shall exercise any budget approval right they may have under the Approved Management Agreement without the approval of Lender, such approval not to be unreasonably conditioned, withheld or delayed. For so long as Lender shall withhold its consent to any Annual Budget or any revisions thereto, the Annual Budget in effect prior to any such request for approval shall remain in effect. Without the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed, during the continuance of a Trigger Period, neither Borrower nor Operating Lessee shall make or approve any expenditures that are either not provided for in the Approved Annual Budget or that would, in the aggregate, cause any line item in the Approved Annual Budget for any individual Property to be exceeded by 5% or more measured on an annual basis, other than expenditures for non-discretionary items and expenditures required to be made by reason of the occurrence of any emergency (i.e., an unexpected event that threatens imminent harm to persons or property at a Property) and with respect to which it would be impracticable, under the circumstances, to obtain Lender’s prior consent thereto. For the avoidance of doubt, decreases made in any line item in the Approved Annual Budget shall not require Lender’s consent.

Section 5.18.Nonbinding Consultation. Lender shall have the right to consult with and advise Borrower regarding significant business activities and business and financial developments of Borrower and Operating Lessee, provided that any such advice or consultation or the result thereof shall be completely nonbinding on Borrower.

Section 5.19.Compliance with Encumbrances and Material Agreements. Borrower covenants and agrees as follows:

(i)Borrower shall, and shall cause Operating Lessee to, comply with all material terms, conditions and covenants of each Material Agreement and each material Permitted Encumbrance, including any reciprocal easement agreement, any declaration of covenants, conditions and restrictions, and any condominium arrangements.

(ii)Borrower shall, and shall cause Operating Lessee to, promptly deliver to Lender a true, correct and complete copy of each and every notice of default received by Borrower or Operating Lessee with respect to any obligation of such Borrower or Operating Lessee under the provisions of any Material Agreement and/or Permitted Encumbrance.

(iii)Borrower shall, and shall cause Operating Lessee to, deliver to Lender copies of any written notices of default or event of default relating to any Material Agreement and/or Permitted Encumbrance served by Borrower or Operating Lessee.

(iv)After the occurrence of an Event of Default, so long as the Loan is outstanding, Borrower shall not, and shall not cause Operating Lessee to, grant or withhold any material consent, approval or waiver under any Material Agreement or Permitted Encumbrance without the prior written consent of Lender.

(v)Borrower shall, and shall cause Operating Lessee to, deliver to each other party to any Permitted Encumbrance and any Material Agreement notice of the identity of Lender and each assignee of Lender of which Borrower is aware if such notice is required in order to protect Lender’s interest thereunder.

(vi)Borrower shall, and shall cause Operating Lessee to, enforce, short of termination thereof, the performance and observance of each and every material term, covenant and provision of each Material Agreements to be performed or observed, if any.

Section 5.20.Prohibited Persons. None of Borrower, Operating Lessee, Sponsor or any Person owning a direct or indirect beneficial interest in Borrower, Operating Lessee, or Sponsor shall (i) knowingly conduct any business, or engage in any transaction or dealing, with any Embargoed Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Embargoed Person, or (ii) knowingly engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order 13224. Borrower shall deliver to Lender from time to time written certification or other evidence as may be reasonably requested by Lender, confirming that (x) none of Borrower, Operating Lessee, Sponsor or, to Borrower’s knowledge, any Person owning a direct or indirect beneficial interest in Borrower, Operating Lessee, or Sponsor is an Embargoed Person and (y) none of Borrower, Operating Lessee, Sponsor or, to Borrower’s knowledge, any Person owning a direct or indirect beneficial interest in Borrower, Operating Lessee, or Sponsor has knowingly engaged in any business, transaction or dealings with a Embargoed Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Embargoed Person.

Section 5.21.Operating Lease.

(a)Operating Lessee shall comply with the affirmative and negative covenants relating to the Operating Lessee contained in this Agreement, and no Default hereunder shall be excused by virtue of the fact that such Default was caused by Operating Lessee. Lender acknowledges that Operating Lessee is not liable for the Indebtedness; provided, however, that Operating Lessee acknowledges that Operating Lessee’s property constitutes Collateral for the Loan as set forth in the Mortgage and the other Loan Documents.

(b)Notwithstanding anything to the contrary contained herein, Borrower shall cause the Operating Lease to remain in effect in accordance with its terms so long as any portion of the Indebtedness is outstanding.

(c)Notwithstanding anything to the contrary herein or in any other Loan Documents or in the Operating Lease, upon conveyance of the Property by foreclosure or deed in lieu of foreclosure, Lender may, at its sole option and regardless of whether Operating Lessee is in default or in compliance with the terms of the Operating Lease, terminate the Operating Lease without payment of any termination fee, penalty or other amount, such termination to be effective upon such conveyance or such later date as Lender shall determine in its sole discretion. In addition, upon acceleration of the Loan, Lender may, at its sole option and regardless of whether Operating Lessee is in default or in compliance with the terms of the Operating Lease, deliver a termination notice to Borrower and Operating Lessee terminating the Operating Lease without payment of any termination fee, penalty or other amount, such termination to be immediately effective upon the conveyance of the Property by foreclosure or deed in lieu of foreclosure.

(d)Operating Lessee hereby consents to the Loan and acknowledges that it derives substantial benefit from the making thereof. Borrower acknowledges that, pursuant to the Operating Lease, all amounts remitted to Lender or deposited into the Cash Management Account by the Approved Property Manager or Operating Lessee shall be credited against any rent payable by the Operating Lessee to Borrower under the Operating Lease.

(e)Operating Lessee hereby makes for and on behalf of itself each representation in Article IV relating to Operating Lessee and/or the Properties. With respect to any provision in this Agreement pursuant to which Borrower has covenanted to cause the Operating Lessee to take an action or refrain from taking an action, Operating Lessee hereby covenants that it shall take such action, or refrain from taking such action, as the case may be (and any failure to take, or refrain from taking, such action shall be a Default hereunder).

(f)Operating Lessee hereby represents and warrants that all personal property of Operating Lessee located at or in any way related to any of the Properties is owned by Operating Lessee free and clear of all Liens whatsoever. Operating Lessee and Borrower acknowledge and agree that upon expiration or termination of the Operating Lease for any reason whatsoever (including termination of the Operating Lease absent of a default by Operating Lessee under the Operating Lease), Operating Lessee shall transfer all personal property of Operating Lessee located at or in any way related to the Properties (and all agreements relating to

the Properties to which Operating Lessee is a party) to (i) Lender, in the case of termination of the Operating Lease after an Event of Default and Lender’s exercise of its rights under the Loan Documents or (ii) at all other times, Borrower.

Section 5.22.Capital Plan.

(d)Borrower shall do or cause to be done all things necessary to cause the timely, workman-like completion of the Capital Plan on or before the dates set forth in Schedules F-1 through F-5.

(e)Borrower shall complete the A-50 Capital Plan according to the periodic targets set forth on Schedule F-1 hereto. The guest room construction phase of the A-50 Capital Plan shall commence no later than March 1, 2013 and, within 10 Business days after the commencement of such phase, Borrower shall deliver to Lender an Officer’s Certificate certifying such commencement. Borrower shall substantially complete the entire A-50 Capital Plan by no later than October 31, 2013 and, within 10 Business days following such completion Borrower shall deliver to Lender an Officer’s Certificate certifying such completion and the total cost thereof. Lender shall have the right to (i) inspect the Property (in accordance with Section 5.5 of this Agreement) to verify completion of the A-50 Capital Plan and (ii) request backup documentation, including copies of invoices and cancelled checks related to the A-50 Capital Plan and/or a summary of such invoices and cancelled checks in a spreadsheet that also indicates the associated line item on Schedule F-1.

(f)Borrower shall spend a minimum of $17,500,000 on the completion of the A-50 Capital Plan; provided, however, that to the extent the A-50 Capital Plan shall be completed for an amount less than $17,500,000, within three Business Days following the date on which all work under the A-50 Capital Plan shall have been substantially completed, Borrower shall deposit or cause to be deposited into the Borrower FF&E Account funds equal to the amount, if any, by which $17,500,000 exceeds the amount actually expended by Borrower in connection with the substantial completion of the A-50 Capital Plan.

(g)Borrower shall, if required to do so under applicable Legal Requirements, obtain a new certificate of occupancy for the Property in connection with the Capital Plan or any future renovations. Borrower shall deliver a copy of any such new certificate of occupancy, promptly, and in no case later than three Business Days after receipt thereof.

Section 5.23.Sponsor Financial Covenant     . For so long as any portion of the Indebtedness shall remain outstanding, the Persons comprising Sponsor shall collectively maintain (i) a Net Worth of no less than $600,000,000 (up to $400,000,000 of which may be attributable to the Properties) and (ii) Liquidity of no less than (x) prior to the completion of the Capital Plan, $100,000,000 and (y) from and after the completion of the Capital Plan, $75,000,000 (collectively, the “Sponsor Financial Requirements”). Borrower shall deliver to Lender within 90 days following the end of each Fiscal Year an Officer’s Certificate from Sponsor certifying that it complies with the Sponsor Financial Requirements. In addition, prior to the completion of the Capital Plan, upon Lender’s request (not to exceed once per month), Borrower shall provide an Officer’s Certificate from Sponsor certifying that it complies with the

Sponsor Financial Requirements. The failure of Sponsor to satisfy the Net Worth requirement set forth in the first sentence of this Section 5.23 shall, in addition to causing the commencement of a Trigger Period, at Lender’s election, constitute an immediate Event of Default. The failure of Sponsor to satisfy the Liquidity requirement set forth in the first sentence of this Section 5.23 shall not constitute an Event of Default (but shall cause the commencement of a Trigger Period), provided that, if such failure shall occur prior to the completion of the Capital Plan, within 10 Business Days following such failure, Borrower shall deposit with Lender as additional collateral for the Loan an amount equal to 110% of the remaining cost to complete the Capital Plan (and the failure to so deposit such amount with Lender shall constitute an Event of Default).

ARTICLE VI
NEGATIVE COVENANTS

Each individual Borrower and each individual Operating Lessee covenants and agrees as follows with respect to itself and each other individual Borrower and individual Operating Lessee:

Section 6.1.Liens on the Collateral. None of Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder shall permit or suffer the existence of any Lien on any of its assets, other than Permitted Encumbrances.

Section 6.2.Ownership. Operating Lessee shall not hold any interest in any assets other than the Properties and related personal property and fixtures located therein or used in connection therewith. Borrower shall not own any assets other than the Property and related personal property and fixtures located therein or used in connection therewith.

Section 6.3.Transfer; Change of Control. Neither Borrower nor Operating Lessee shall Transfer any Collateral other than in compliance with Article II and other than the replacement or other disposition of obsolete or non-useful personal property and fixtures in the ordinary course of business, and neither Borrower nor Operating Lessee shall hereafter file a declaration of condominium with respect to any Property. No Change of Control or Prohibited Pledge shall occur.

Section 6.4.Debt. Neither Borrower nor Operating Lessee shall have any Debt, other than Permitted Debt.

Section 6.5.Dissolution; Merger or Consolidation. None of Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder shall, to the fullest extent permitted by law, dissolve, terminate, liquidate, merge with or consolidate into another Person without first causing the Loan to be assumed by a Qualified Successor Borrower pursuant to Section 2.2.

Section 6.6.Change in Business. Neither Borrower nor Operating Lessee shall make any material change in the scope or nature of its business objectives, purposes or

operations or undertake or participate in activities other than the continuance of its present business.

Section 6.7.Debt Cancellation. Neither Borrower nor Operating Lessee shall cancel or otherwise forgive or release any material claim or Debt owed to it by any Person, except for adequate consideration or in the ordinary course of its business.

Section 6.8.Affiliate Transactions. Neither Borrower nor Operating Lessee shall enter into, or be a party to, any transaction with any Affiliate of Borrower and/or Operating Lessee, except on terms that are no less favorable to Borrower or Operating Lessee than would be obtained in a comparable arm’s length transaction with an unrelated third party.

Section 6.9.Misapplication of Funds. Neither Borrower nor Operating Lessee shall (a) distribute any Revenue or Loss Proceeds in violation of the provisions of this Agreement (and shall promptly cause the reversal of any such distributions made in error of which Borrower becomes aware), (b) fail to remit amounts to the Cash Management Account as required by Section 3.1, or (c) misappropriate any security deposit or portion thereof.

Section 6.10.Jurisdiction of Formation; Name. Neither Borrower nor Operating Lessee shall change its jurisdiction of formation or name without receiving Lender’s prior written consent and promptly providing Lender such information and replacement Uniform Commercial Code financing statements and legal opinions as Lender may reasonably request in connection therewith.

Section 6.11.Modifications and Waivers. Unless otherwise consented to in writing by Lender, none of Borrower, Operating Lessee or, in the case of clause (ii) below, any Single-Purpose Equityholder (if applicable) shall:

(v)amend, modify, terminate, renew, or surrender any rights or remedies under any Lease, or enter into any Lease, except in compliance with Section 5.7;

(vi)terminate, amend or modify its organizational documents (including any operating agreement, limited partnership agreement, by-laws, certificate of formation, certificate of limited partnership or certificate of incorporation);

(vii)terminate, amend or modify the Approved Management Agreement, except immaterial amendments and modifications that have no adverse effect on Lender and do not alter any economic term of the Approved Management Agreement; and

(viii)amend, modify, surrender or waive any material rights or remedies under, or enter into or terminate, or default in its obligations under, any Material Agreement.

Section 6.12.ERISA.

(d)Neither Borrower nor Operating Lessee shall maintain or contribute to, or agree to maintain or contribute to, or permit any ERISA Affiliate to maintain or contribute to or

agree to maintain or contribute to, any employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title IV or Section 302 of ERISA or Section 412 of the Code.

(e)Neither Borrower nor Operating Lessee shall engage in a non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code, or substantially similar provisions under federal, state or local laws, rules or regulations or in any transaction that would cause any obligation or action taken or to be taken hereunder (or the exercise by Lender of any of its rights under the Notes, this Agreement, the Mortgage or any other Loan Document) to be a non-exempt prohibited transaction under such provisions.

Section 6.13.Alterations and Expansions. During the continuance of any Trigger Period or Event of Default, Borrower shall not, and shall not permit Operating Lessee to, perform or contract to perform any capital improvements requiring Capital Expenditures that are not consistent with the Approved Annual Budget. Borrower shall not, and shall not permit Operating Lessee to, perform, undertake, contract to perform or consent to any Material Alteration without the prior written consent of Lender, which consent (in the absence of an Event of Default) shall not be unreasonably withheld, but such consent may be conditioned on the delivery of additional collateral acceptable to Lender in respect of the unpaid cost of any such Material Alteration. If Lender’s consent is requested hereunder with respect to a Material Alteration, Lender may retain a construction consultant to review such request and, if such request is granted, Lender may retain a construction consultant to inspect the work from time to time. Borrower shall, on demand by Lender, reimburse Lender for the reasonable fees and disbursements of such consultant. Lender has reviewed and consented to the Capital Plan.

Section 6.14.Advances and Investments. Neither Borrower nor Operating Lessee shall lend money or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, except for Permitted Investments.

Section 6.15.Single-Purpose Entity. None of Borrower, Operating Lessee or Operating Lessee Pledgor shall cease to be a Single-Purpose Entity. None of Borrower, Operating Lessee or Operating Lessee Pledgor shall remove or replace any Independent Director without Cause and without providing at least two Business Days’ advance written notice thereof to Lender and the Rating Agencies.

Section 6.16.Zoning and Uses. Neither Borrower nor Operating Lessee shall do any of the following:

(xii)initiate or support any limiting change in the permitted uses of any Property (or to the extent applicable, zoning reclassification of any Property, except as required pursuant to this Agreement) or any portion thereof, seek any variance under existing land use restrictions, laws, rules or regulations (or, to the extent applicable, zoning ordinances) applicable to any Property, or use or permit the use of any Property in a manner that would result in the use of such Property becoming a nonconforming use under applicable land-use restrictions or zoning ordinances or that would violate the terms of any Lease, Material Agreement or Legal Requirement (and if under applicable

zoning ordinances the use of all or any portion of any Property is a nonconforming use, Borrower shall not cause or permit such nonconforming use to be discontinued or abandoned without the express written consent of Lender);

(xiii)consent to any modification, amendment or supplement to any of the terms of, or materially default in its obligations under, any Permitted Encumbrance;

(xiv)impose or consent to the imposition of any restrictive covenants, easements or encumbrances upon any Property in any manner that adversely affects in any material respect its value, utility or transferability;

(xv)execute or file any subdivision plat affecting any Property, or institute, or permit the institution of, proceedings to alter any tax lot comprising any Property;

(xvi)amend or cause to be amended any Material Agreement in any manner reasonably likely to (x) diminish the value of any Property, (y) diminish the rights of Borrower or Lender thereunder or (z) or otherwise cause or reasonably be expected to result in a Material Adverse Effect, or terminate the same for any reason or purpose whatsoever, in each case, without the prior written consent of Lender; or

(xvii)permit or consent to any Property being used by the public or any Person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement.

Section 6.17.Waste. Neither Borrower nor Operating Lessee shall commit or permit any Waste on any Property, nor take any actions that might invalidate any insurance carried on the Properties (and Borrower shall promptly correct any such actions of which Borrower becomes aware).

ARTICLE VII
DEFAULTS

Section 7.1.Event of Default. The occurrence of any one or more of the following events shall be, and shall constitute the commencement of, an “Event of Default” hereunder (any Event of Default that has occurred shall continue unless and until waived by Lender in writing in its sole discretion):

(e)Payment.

(xi)Borrower shall default in the payment when due of any principal or interest owing hereunder or under the Notes (including any mandatory prepayment required hereunder) provided that the Default Rate shall not apply to any amount owing hereunder or under the Notes unless and until Borrower and Borrower’s counsel shall have received email notification at the email addresses provided in Section 9.4, or any

other form of notice permitted under this Agreement, setting forth the payment amount and the due date thereof; or

(xii)Borrower shall default, and such default shall continue for at least five Business Days after notice to Borrower that such amounts are owing, in the payment when due of fees, expenses or other amounts owing hereunder, under the Notes or under any of the other Loan Documents (other than principal and interest owing hereunder or under the Note).

(f)Representations. Any representation made by any Borrower, Sponsor or Operating Lessee in any of the Loan Documents, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender proves to be untrue in any material respect (or, with respect to any representation that itself contains a materiality qualifier, in any respect) as of the date such representation was made.

(g)Other Loan Documents. Any Loan Document shall fail to be in full force and effect or to convey the material Liens, rights, powers and privileges purported to be created thereby; or a default shall occur under any of the other Loan Documents or Material Agreements, or a default by Borrower or Operating Lessee, as applicable, shall occur under the Approved Management Agreement or the Operating Lease, in each case, beyond the expiration of any applicable cure period.

(h)Bankruptcy; Reorganization; Receivership; and Insolvency.

(i)Any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder shall commence a voluntary case concerning itself under Title 11 of the United States Code (as amended, modified, succeeded or replaced, from time to time, the “Bankruptcy Code”);

(ii)any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder shall commence any other proceeding under any reorganization, arrangement, adjustment of debt, relief of creditors, dissolution, insolvency or similar law of any jurisdiction whether now or hereafter in effect relating to any Borrower, Operating Lessee or such Single-Purpose Equityholder, or shall dissolve or otherwise cease to exist;

(iii)there is commenced against any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder an involuntary case under the Bankruptcy Code, or any such other proceeding, which remains undismissed for a period of 60 days after commencement;

(iv)any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder is adjudicated insolvent or bankrupt;

(v)any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder suffers appointment of any custodian or the like for it or for any substantial

portion of its property and such appointment continues unchanged or unstayed for a period of 60 days after commencement of such appointment;

(vi)any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder makes a general assignment for the benefit of creditors; or

(vii)any action is taken by any Borrower, Operating Lessee or, if applicable, any Single-Purpose Equityholder for the purpose of effecting any of the foregoing.

(i)Change of Control.

(i)A Change of Control shall occur; or

(ii)the failure to deliver any Nonconsolidation Opinion required pursuant to Section 2.3.

(j)Equity Pledge; Preferred Equity. Any direct or indirect equity interest in or right to distributions from any Borrower or Operating Lessee shall be subject to a Lien in favor of any Person, or any Borrower, Operating Lessee or any holder of a direct or indirect interest in any Borrower or Operating Lessee shall issue preferred equity (or debt granting the holder thereof rights substantially similar to those generally associated with preferred equity); except that the following shall be permitted:

(ix)any pledge of direct and indirect equity interests in and rights to distributions from a Qualified Equityholder meeting the requirements of subclauses (i), (ii) or (iii) of the definition of Qualified Equityholder;

(x)the issuance of preferred equity interests in a Qualified Equityholder meeting the requirements of subclauses (i), (ii) or (iii) of the definition of Qualified Equityholder; and

(iii)    the Permitted Member Loan.

Any act, action or state of affairs that would result in an Event of Default pursuant to this Section 7.1(f) shall be referred to in this Agreement as a “Prohibited Pledge”.

(k)Insurance. Any of the Policies required hereunder shall not be maintained in full force and effect.

(l)ERISA; Negative Covenants. A default shall occur in the due performance or observance by any Borrower or Operating Lessee of any term, covenant or agreement contained in Section 5.8 or in Article VI.

(m)Legal Requirements. If Borrower fails to cure or cause the cure of any violations of Legal Requirements affecting all or any portion of any Property within 30 days after Borrower first receives written notice of any such violations; provided, however, if any such violation is reasonably susceptible of cure, but not within such 30 day period, then Borrower

shall be permitted up to an additional 60 days to cure such violation provided that cure is commenced within such initial 30 day period and thereafter diligently and continuously pursued.

(n)Other Covenants. A default shall occur in the due performance or observance by any Borrower of any term, covenant or agreement (other than those referred to in any other subsection of this Section 7.1) contained in this Agreement or in any of the other Loan Documents, except that in the case of a default that can be cured by the payment of money, such default shall not constitute an Event of Default unless and until it shall remain uncured for 10 days after Borrower receives written notice thereof; and in the case of a default that cannot be cured by the payment of money but is susceptible of being cured within 30 days, such default shall not constitute an Event of Default unless and until it remains uncured for 30 days after Borrower receives written notice thereof, provided that within 5 days of its receipt of such written notice, Borrower delivers written notice to Lender of its intention and ability to effect such cure within such 30 day period; and if such non-monetary default is not cured within such 30 day period despite Borrower’s diligent efforts but is susceptible of being cured within 90 days of Borrower’s receipt of Lender’s original notice, then Borrower shall have such additional time as is reasonably necessary to effect such cure, but in no event in excess of 90 days from Borrower’s receipt of Lender’s original notice, provided that prior to the expiration of the initial 30 day period, Borrower delivers written notice to Lender of its intention and ability to effect such cure prior to the expiration of such 90 day period.

(o)Operating Lease. The Operating Lease shall no longer be in effect for any reason whatsoever, including, without limitation, expiration of the Operating Lease by its terms absent renewal or extension of the Operating Lease.

Section 7.2.Remedies.

(e)During the continuance of an Event of Default, Lender may by written notice to Borrower, in addition to any other rights or remedies available pursuant to this Agreement, the Notes, the Mortgage and the other Loan Documents, at law or in equity, declare by written notice to Borrower all or any portion of the Indebtedness to be immediately due and payable, whereupon all or such portion of the Indebtedness shall so become due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Collateral (including all rights or remedies available at law or in equity); provided, however, that, notwithstanding the foregoing, if an Event of Default specified in paragraph 7.1(d) shall occur, then the Indebtedness shall immediately become due and payable without the giving of any notice or other action by Lender. Any actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth in this Agreement or in the other Loan Documents.

(f)If Lender forecloses on the Property, Lender shall apply all net proceeds of such foreclosure to repay the Indebtedness, the Indebtedness shall be reduced to the extent of such net proceeds and the remaining portion of the Indebtedness shall remain outstanding and

secured by the Properties and the other Loan Documents, it being understood and agreed by Borrower that Borrower is liable for the repayment of all the Indebtedness; provided, however, that at the election of Lender, the Notes shall be deemed to have been accelerated only to the extent of the net proceeds actually received by Lender with respect to the Properties and applied in reduction of the Indebtedness.

(g)During the continuance of any Event of Default (including an Event of Default resulting from a failure to satisfy the insurance requirements specified herein), Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, take any action to cure such Event of Default. Lender may enter upon any or all of the Properties upon reasonable notice to Borrower for such purposes or appear in, defend, or bring any action or proceeding to protect its interest in the Collateral or to foreclose the Mortgage or collect the Indebtedness. The costs and expenses incurred by Lender in exercising rights under this Section (including reasonable attorneys’ fees), with interest at the Default Rate for the period after notice from Lender that such costs or expenses were incurred to the date of payment to Lender, shall constitute a portion of the Indebtedness, shall be secured by the Mortgage and other Loan Documents and shall be due and payable to Lender upon demand therefor.

(h)Interest shall accrue on any judgment obtained by Lender in connection with its enforcement of the Loan at a rate of interest equal to the Default Rate.

(i)Notwithstanding the availability of legal remedies, Lender will be entitled to obtain specific performance, mandatory or prohibitory injunctive relief, or other equitable relief requiring Borrower to cure or refrain from repeating any Default.

(j)Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, mortgages and other security documents (the “Severed Loan Documents”) in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to execute the Severed Loan Documents (Borrower ratifying all that its said attorney shall do by virtue thereof); provided, however, that Lender shall not make or execute any such Severed Loan Documents under such power until the expiration of three days after written notice has been given to Borrower by Lender of Lender’s intent to exercise its rights under the aforesaid power. Borrower shall be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents. The Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents, and any such representations and warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing Date. In connection with the exercise by Lender of its rights

and remedies under the Mortgage and the other Loan Documents, the Properties may be foreclosed upon and sold individually or collectively and in such manner and order as Lender in its sole discretion, may elect, subject to applicable law; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales.

Section 7.3.No Waiver. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed by Lender to be expedient. A waiver of any Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon.

Section 7.4.Application of Payments after an Event of Default. Notwithstanding anything to the contrary contained herein, during the continuance of an Event of Default, all amounts received by Lender in respect of the Loan shall be applied at Lender’s sole discretion either toward the components of the Indebtedness (e.g., Lender’s expenses in enforcing the Loan, interest, principal and other amounts payable hereunder) and the Notes or Note Components in such sequence as Lender shall elect in its sole discretion (which application may result in an increase in the weighted average of the interest rates applicable to the Notes or Note Components), or toward the payment of Property expenses.

ARTICLE VIII
CONDITIONS PRECEDENT

Section 8.1.Conditions Precedent to Closing. This Agreement shall become effective on the date that all of the following conditions shall have been satisfied (or waived in accordance with Section 9.3):

(k)Loan Documents. Lender shall have received a duly executed copy of each Loan Document. Each Loan Document that is to be recorded in the public records shall be in form suitable for recording.

(l)Collateral Accounts. Each of the Collateral Accounts shall have been established with the Cash Management Bank and funded to the extent required under Article III.

(m)Opinions of Counsel. Lender shall have received, in each case in form and substance satisfactory to Lender, (i) a New York legal opinion, (ii) a legal opinion with respect to the laws of the state in which the Property is located, (iii) a bankruptcy nonconsolidation opinion with respect to each Person owning at least a 49% direct or indirect equity interest in Borrower, if applicable, any Single-Purpose Equityholder and any Affiliated property manager, and (iv) a Delaware legal opinion regarding matters related to Single Member LLC’s.

(n)Organizational Documents. Lender shall have received all documents reasonably requested by Lender relating to the existence of Sponsor, Borrower and Operating

Lessee, the validity of the Loan Documents and other matters relating thereto, in form and substance satisfactory to Lender, including:

(xviii)Authorizing Resolutions. A certified copy of the resolutions approving and adopting the Loan Documents to be executed by Borrower, Operating Lessee and Sponsor and authorizing the execution and delivery thereof.

(xix)Organizational Documents. Certified copies of the organizational documents of Sponsor, Borrower, Operating Lessee and, if applicable, any Single-Purpose Equityholder (including any certificate of formation, certificate of limited partnership, certificate of incorporation, operating agreement, limited partnership agreement or by-laws), in each case together with all amendments thereto.

(xx)Certificates of Good Standing or Existence. Certificates of good standing or existence for Sponsor, Borrower, Operating Lessee and, if applicable, any Single-Purpose Equityholder issued as of a recent date by its state of organization and by the state in which the Property is located.

(xxi)Recycled Entity Certificate. A recycled entity certificate acceptable to Lender, to the extent that Borrower was formed more than 60 days prior to the date hereof.

(o)Lease; Material Agreements. Lender shall have received true, correct and complete copies of all Leases and all Material Agreements.

(p)Lien Search Reports. Lender shall have received satisfactory reports of Uniform Commercial Code, tax lien, bankruptcy and judgment searches conducted by a search firm acceptable to Lender with respect to the Property and Borrower, such searches to be conducted in such locations as Lender shall have requested.

(q)No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date either before or after the execution and delivery of this Agreement.

(r)No Injunction. No Legal Requirement shall exist, and no litigation shall be pending or threatened, which in the good faith judgment of Lender would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Loan or the consummation of the Transaction.

(s)Representations. The representations in this Agreement and in the other Loan Documents shall be true and correct in all respects on and as of the Closing Date with the same effect as if made on such date.

(t)[Intentionally Omitted].

(u)No Material Adverse Effect. No event or series of events shall have occurred, affecting Borrower, Operating Lessee, or Sponsor, that Lender reasonably believes has had or is reasonably expected to result in a Material Adverse Effect.

(v)Transaction Costs. Borrower shall have paid all transaction costs (or provided for the direct payment of such transaction costs by Lender from the proceeds of the Loan).

(w)Insurance. Lender shall have received certificates of insurance on ACORD Form 25 for liability insurance and ACORD Form 28 for casualty insurance demonstrating insurance coverage in respect of the Properties of types, in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in this Agreement. Such certificates shall indicate that Lender and its successors and assigns are named as additional insured on each liability policy, and that each casualty policy and rental interruption policy contains a loss payee and mortgagee endorsement in favor of Lender, its successors and assigns.

(x)Title. Lender shall have received a marked, signed commitment to issue, or a signed pro-forma version of, a Qualified Title Insurance Policy in respect of each Property, listing only such exceptions as are reasonably satisfactory to Lender. If any Qualified Title Insurance Policy is to be issued by, or if disbursement of the proceeds of the Loan are to be made through, an agent of the actual insurer under such Qualified Title Insurance Policy (as opposed to the insurer itself), the actual insurer shall have issued to Lender for Lender’s benefit a so-called “Insured Closing Letter.”

(y)Zoning. Lender shall have received evidence reasonably satisfactory to Lender that each Property is in compliance with all applicable zoning requirements (including a zoning report, a zoning endorsement if obtainable and a letter from the applicable municipality if obtainable).

(z)Permits; Certificate of Occupancy. Lender shall have received a copy of all Permits necessary for the use and operation of each Property and the certificate(s) of occupancy, if required, for each Property, all of which shall be in form and substance reasonably satisfactory to Lender.

(aa)Engineering Report. Lender shall have received a current Engineering Report with respect to each Property, which report shall be in form and substance reasonably satisfactory to Lender.

(bb)Environmental Report. Lender shall have received an Environmental Report (not more than six months old) with respect to the Property that discloses no material environmental contingencies with respect to the Property.

(cc)Qualified Survey. Lender shall have received a Qualified Survey with respect to the Property in form and substance reasonably satisfactory to Lender.

(dd)Appraisal. Lender shall have obtained an Appraisal of the Property satisfactory to Lender.

(ee)Consents, Licenses, Approvals, etc. Lender shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by Borrower, Sponsor and Operating Lessee, and the validity and enforceability, of the Loan Documents, and such consents, licenses and approvals shall be in full force and effect.

(ff)Financial Information. Lender shall have received financial information relating to the Sponsor, Borrower and the Properties that is satisfactory to Lender, including, without limitation, financial statements and operating statements with respect to the Property (audited to the extent available), in each case for the prior three calendar years and trailing twelve-month operating statements certified by the Chief Financial Officer of Sponsor.

(gg)[Intentionally Omitted].

(hh)Know Your Customer Rules. At least 10 days prior to the Closing Date, the Lender shall have received all documentation and other information required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations, including the PATRIOT Act.

(ii)Capital Plan. Lender shall have received and approved the Capital Plan.

(jj)Additional Matters. Lender shall have received such other certificates, opinions, documents and instruments relating to the Loan as may have been reasonably requested by Lender. All corporate and other proceedings, all other documents (including all documents referred to in this Agreement and not appearing as exhibits to this Agreement) and all legal matters in connection with the Loan shall be reasonably satisfactory in form and substance to Lender.

ARTICLE IX
MISCELLANEOUS

Section 9.1.Successors. Except as otherwise provided in this Agreement, whenever in this Agreement any of the parties to this Agreement is referred to, such reference shall be deemed to include the successors and permitted assigns of such party. All covenants, promises and agreements in this Agreement contained, by or on behalf of Borrower, shall inure to the benefit of Lender and its successors and assigns.

Section 9.2.GOVERNING LAW.

(A)THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT

REGARD TO CHOICE OF LAW RULES TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

(B)ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER, BORROWER, OPERATING LESSEE OR SPONSOR ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (OTHER THAN ANY ACTION IN RESPECT OF THE CREATION, PERFECTION OR ENFORCEMENT OF A LIEN OR SECURITY INTEREST CREATED PURSUANT TO ANY LOAN DOCUMENTS NOT GOVERNED BY THE LAWS OF THE STATE OF NEW YORK) SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK. BORROWER, OPERATING LESSEE AND LENDER HEREBY (i) IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (ii) IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND (iii) IRREVOCABLY CONSENT TO SERVICE OF PROCESS BY MAIL, PERSONAL SERVICE OR IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW, AT THE ADDRESS SPECIFIED IN SECTION 9.4 (AND AGREES THAT SUCH SERVICE AT SUCH ADDRESS IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER ITSELF IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT).

Section 9.3.Modification, Waiver in Writing. Neither this Agreement nor any other Loan Document may be amended, changed, waived, discharged or terminated, nor shall any consent or approval of Lender be granted hereunder, unless such amendment, change, waiver, discharge, termination, consent or approval is in writing signed by Lender.

Section 9.4.Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given either (i) in writing by expedited prepaid delivery service, either commercial or United States Postal Service, with proof of delivery or attempted delivery, addressed as follows (or at such other address and person as shall be designated from time to time by any party to this Agreement, as the case may be, in a written notice to the other parties to this Agreement in the manner provided for in this Section) or (ii) by email at the email addresses provided below, provided that such email notification is followed by an additional written notice delivered in accordance with clause (i) of this paragraph, provided, however, that no such additional notification shall be required in the case of email notice of a payment default, as provided for in Section 7.1(a). A notice shall be deemed to have been given when delivered or upon refusal to accept delivery.

If to Lender:

Goldman Sachs Mortgage Company
6011 Connection Drive, Suite 550
Irving, Texas 75039
Attention: Michael Forbes

Email: michael.forbes@archongroup.com

with copies to:

Goldman Sachs Mortgage Company
200 West StreetNew York, New York 10282
Attention: Daniel Bennett and Rene J. Theriault

Email: daniel.bennett@gs.com and rene.theriault@gs.com

and

Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006Attention: Michael Weinberger, Esq.

Email: mweinberger@cgsh.com

If to Borrower:

371 Seventh Avenue Co., LLC

c/o Pebblebrook Hotel Trust

2 Bethesda Metro Center

Suite 1530

Bethesda, MD 20814
Attention: Raymond D. Martz

Email: rmartz@pebblebrookhotels.com

with copies to:

Hunton & Williams LLP
200 Park Avenue, 52^nd Floor

New York, NY 10016

Attention: Carl F. Schwartz

Email: cschwartz@hunton.com

And

c/o Denihan Hospitality Group
551 Fifth Avenue
New York, NY 10176

Attention: Thomas A. Felderman
Email: tom.felderman@denihan.com

and

Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Attention: Stephen L. Rabinowitz, Esq.
Email: rabinowitzs@gtlaw.com

Borrowers hereby appoint the individual Borrower named as notice party above (the “Representative Borrower”) to serve as agent on behalf of all Borrowers to receive any notices required to be delivered to any or all Borrowers hereunder or under the other Loan Documents and to be the sole party authorized to deliver notices on behalf of the Borrowers hereunder and under each of the other Loan Documents. Any notice delivered to the Representative Borrower, with copies sent as provided above, shall be deemed to have been delivered to all Borrowers, and any notice received from the Representative Borrower shall be deemed to have been received from all Borrowers. Borrowers shall be entitled from time to time to appoint a replacement Representative Borrower by written notice delivered to Lender and signed by both the new Representative Borrower and the Representative Borrower being so replaced.

Section 9.5.TRIAL BY JURY. LENDER, BORROWER, OPERATING LESSEE AND SPONSOR, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY LENDER, BORROWER, OPERATING LESSEE AND SPONSOR AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER, BORROWER, OPERATING LESSEE AND/OR SPONSOR ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER, OPERATING LESSEE AND SPONSOR.

Section 9.6.Headings. The Article and Section headings in this Agreement are included in this Agreement for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 9.7.Assignment and Participation.

(c)Except as explicitly set forth in Sections 2.1 and 2.2, Borrower may not sell, assign or transfer any interest in the Loan Documents or any portion thereof (including Borrower’s rights, title, interests, remedies, powers and duties hereunder and thereunder).

(d)Lender and each assignee of all or a portion of the Loan shall have the right from time to time in its discretion to sell one or more of the Notes or Note Components or any interest therein (an “Assignment”) and/or sell a participation interest in one or more of the Notes or Note Components (a “Participation”). Borrower agrees to reasonably cooperate with Lender, at Lender’s request, in order to effectuate any such Assignment or Participation, and Borrower shall promptly provide such information, legal opinions and documents relating to Borrower, any Single-Purpose Equityholder, Sponsor, the Property,the Approved Property Manager and any Tenants as Lender may reasonably request in connection with such Assignment or Participation. In the case of an Assignment, (i) each assignee shall have, to the extent of such Assignment, the rights, benefits and obligations of the assigning Lender as a “Lender” hereunder and under the other Loan Documents, (ii) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to an Assignment, relinquish its rights and be released from its obligations under this Agreement, and (iii) one Lender shall serve as agent for all Lenders and shall be the sole Lender to whom notices, requests and other communications shall be addressed and the sole party authorized to grant or withhold consents hereunder on behalf of the Lenders (subject, in each case, to appointment of a Servicer, pursuant to Section 9.22, to receive such notices, requests and other communications and/or to grant or withhold consents, as the case may be) and to be the sole Lender to designate the account to which payments shall be made by Borrower to the Lenders hereunder. Goldman Sachs Mortgage Company or, upon the appointment of a Servicer, such Servicer, shall maintain, or cause to be maintained, as agent for Borrower, a register on which it shall enter the name or names of the registered owner or owners from time to time of the Notes. Borrower agrees that upon effectiveness of any Assignment of any Note in part, Borrower will promptly provide to the assignor and the assignee separate promissory notes in the amount of their respective interests (but, if applicable, with a notation thereon that it is given in substitution for and replacement of an original Note or any replacement thereof), and otherwise in the form of such Note, upon return of the Note then being replaced. The assigning Lender shall notify in writing each of the other Lenders of any Assignment. Each potential or actual assignee, participant or investor in a Securitization, and each Rating Agency, shall be entitled to receive all information received by Lender under this Agreement. After the effectiveness of any Assignment, the party conveying the Assignment shall provide notice to Borrower and each Lender of the identity and address of the assignee. Notwithstanding anything in this Agreement to the contrary, after an Assignment, the assigning Lender (in addition to the assignee) shall continue to have the benefits of any indemnifications contained in this Agreement that such assigning Lender had prior to such assignment with respect to matters occurring prior to the date of such assignment.

(e)If, pursuant to this Section 9.7, any interest in this Agreement or any Note is transferred to any transferee that is not a U.S. Person, the transferor Lender shall cause such transferee, concurrently with the effectiveness of such transfer, (i) to furnish to the transferor Lender either Form W-8BEN or Form W-8ECI or any other form in order to establish an exemption from, or reduction in the rate of, U.S. withholding tax on all interest payments

hereunder, and (ii) to agree (for the benefit of Lender and Borrower) to provide the transferor Lender a new Form W-8BEN or Form W-8ECI or any forms reasonably requested in order to establish an exemption from, or reduction in the rate of, U.S. withholding tax upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption.

Section 9.8.Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 9.9.Preferences; Waiver of Marshalling of Assets. Lender shall have no obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the obligations of Borrower pursuant to this Agreement, the Notes or any other Loan Document. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder and under the Loan Documents. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any portion thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or portion thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. To the fullest extent permitted by law, Borrower, for itself and its permitted successors and assigns, waives all rights to a marshalling of the assets of Borrower, and Borrower’s partners and others with interests in Borrower, or to a sale in inverse order of alienation in the event of foreclosure of the Mortgage, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Property for the collection of the Indebtedness without any prior or different resort for collection or of the right of Lender to the payment of the Indebtedness out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, to the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of the Mortgage, any legal right otherwise available to Borrower that would require the separate sale of any Collateral or require Lender to exhaust its remedies against any Collateral before proceeding against any other Collateral; and further in the event of such foreclosure, Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Collateral.

Section 9.10.Remedies of Borrower. If a claim is made that Lender or its agents have unreasonably delayed acting or acted unreasonably in any case where by law or under this

Agreement, the Notes, the Mortgage or the other Loan Documents, any of such Persons has an obligation to act promptly or reasonably, Borrower agrees that no such Person shall be liable for any monetary damages, and Borrower’s sole remedy shall be limited to commencing an action seeking specific performance, injunctive relief and/or declaratory judgment. Without in any way limiting the foregoing, Borrower shall not assert, and hereby waives, any claim against Lender and/or its Affiliates, directors, employees, attorneys, agents or sub-agents, on any theory of liability, for direct, special, indirect, consequential or punitive damages (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, as a result of, or in any way related to, the Loan Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, the Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Borrower hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 9.11.Offsets, Counterclaims and Defenses. All payments made by Borrower hereunder or under the other Loan Documents shall be made irrespective of, and without any deduction for, any setoffs or counterclaims. Borrower waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender arising out of or in any way connected with the Notes, this Agreement, the other Loan Documents or the Indebtedness. Any assignee of Lender’s interest in the Loan shall take the same free and clear of all offsets, counterclaims or defenses that are unrelated to the Loan.

Section 9.12.No Joint Venture. Nothing in this Agreement is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender, nor to grant Lender any interest in any Property other than that of mortgagee or lender.

Section 9.13.Conflict; Construction of Documents. In the event of any conflict between the provisions of this Agreement and the provisions of the Notes, the Mortgage or any of the other Loan Documents, the provisions of this Agreement shall prevail.

Section 9.14.Brokers and Financial Advisors. Borrower and Sponsor each represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower and Sponsor each agree, jointly and severally, to indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower in connection with the transactions contemplated in this Agreement. The provisions of this Section 9.14 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness.

Section 9.15.Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Copies of originals, including copies

delivered by facsimile, pdf or other electronic means shall have the same import and effect as original counterparts and shall be valid, enforceable and binding for the purposes of this Agreement.

Section 9.16.Estoppel Certificates.

(a)Borrower agrees at any time and from time to time, to execute, acknowledge and deliver to Lender, within five days after receipt of Lender’s written request therefor, a statement in writing setting forth (A) the Principal Indebtedness, (B) the date on which installments of interest and/or principal were last paid, (C) any offsets or defenses to the payment of the Indebtedness, (D) that the Notes, this Agreement, the Mortgage and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification, (E) that neither Borrower nor, to Borrower’s knowledge, Lender, is in default under the Loan Documents (or specifying any such default), (F) that all Leases are in full force and effect and have not been modified (except in accordance with the Loan Documents), (G) whether or not any of the Tenants under the Leases are in material default under the Leases (setting forth the specific nature of any such material defaults) and (H) such other matters as Lender may reasonably request. Any prospective purchaser of any interest in a Loan shall be permitted to rely on such certificate.

(b)Upon Lender’s written request, Borrower shall use commercially reasonable efforts to obtain from each Tenant whose Lease requires such Tenant to execute and deliver an estoppel certificate, and shall thereafter promptly deliver to Lender duly executed estoppel certificates from any one or more Tenants under the Leases as requested by Lender, attesting to such facts regarding the Leases as Lender may reasonably require, including, but not limited to, attestations that each Lease covered thereby is in full force and effect with no material defaults thereunder on the part of any party, that rent has not been paid more than one month in advance, except as security, and that the Tenant claims no defense or offset against the full and timely performance of its obligations under the Lease. Borrower shall not be required to deliver such certificates more frequently than one time in any 12-month period, other than the 12-month period during which a Securitization occurs or is attempted.

Section 9.17.General Indemnity; Payment of Expenses; Mortgage Recording Taxes.

(g)Borrower, at its sole cost and expense, shall protect, indemnify, reimburse, defend and hold harmless Lender and its officers, partners, members, directors, trustees, advisors, employees, agents, sub-agents, Affiliates, successors, participants and assigns of any and all of the foregoing (collectively, the “Indemnified Parties”) for, from and against, and shall be responsible for, any and all Damages of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any of the Indemnified Parties arising out of (i) any negligence or tortious act or omission on the part of Borrower, Operating Lessee, Sponsor or any of their respective agents, contractors, servants, employees, sublessees, licensees or invitees; (ii) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (iii) any use, nonuse or condition in, on or about the

Property any part thereof or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (iv) any failure on the part of Borrower, Operating Lessee or Sponsor to perform or comply with any of the terms of the Loan Documents; (v) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; (vi) any failure of the Property, Borrower, Operating Lessee or Sponsor to comply with any Legal Requirements; (vii) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any lease or other transaction involving the Property or any part thereof under any legal requirement or any liability asserted against any Indemnified Party with respect thereto; and (viii) any and all claims and demands whatsoever that may be asserted against any Indemnified Party by reason of any alleged obligations or undertakings on such party’s part to perform or discharge any of the terms, covenants, or agreements contained in any Lease, in each case, to the extent resulting, directly or indirectly, from any claim (including any Environmental Claim) made (whether or not in connection with any legal action, suit, or proceeding) by or on behalf of any Person; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder to the extent that such Damages have been found by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Party.

(h)If for any reason (including violation of law or public policy) the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 9.17 are unenforceable in whole or in part or are otherwise unavailable to Lender or insufficient to hold it harmless, then Borrower shall contribute to the amount paid or payable by Lender as a result of any Damages the maximum amount Borrower is permitted to pay under Legal Requirements. The obligations of Borrower under this Section 9.17 will be in addition to any liability that Borrower may otherwise have hereunder and under the other Loan Documents, will extend upon the same terms and conditions to any Affiliate of Lender and the partners, members, directors, agents, employees and controlling persons (if any), as the case may be, of Lender and any such Affiliate, and will be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of Borrower, Lender, any such Affiliate and any such person.

(i)At the option of the Indemnified Parties and in their sole discretion, upon written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals reasonably approved by such Indemnified Party. Notwithstanding the foregoing, any Indemnified Party may engage its own attorneys and other professionals to defend or assist it (chosen at Lender’s sole discretion), and, at the option of such Indemnified Party, its attorneys shall control the resolution of any claim or proceeding. Upon demand, Borrower shall pay or, in the sole discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable and actual fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith.

(j)Any amounts payable to Lender by reason of the application of this Section 9.17 shall be secured by the Mortgage and shall become immediately due and payable

and shall bear interest at the Default Rate from the date Damages are sustained by the Indemnified Parties until paid.

(k)The provisions of and undertakings and indemnification set forth in this Section 9.17 shall survive the satisfaction and payment in full of the Indebtedness and termination of this Agreement.

(l)Borrower shall reimburse Lender upon receipt of written notice from Lender for (i) all reasonable out-of-pocket costs and expenses incurred by Lender (or any of its Affiliates) in connection with the Transaction and the origination of the Loan, including reasonable legal fees and disbursements, reasonable fees of auditors and consultants, reasonable accounting fees, and the costs of the Appraisals, the Engineering Reports, the Qualified Title Insurance Policies, the Qualified Surveys, the Environmental Reports and any other third-party diligence materials; (ii) all reasonable out-of-pocket costs and expenses incurred by Lender (or any of its Affiliates) in connection with (A) monitoring Borrower’s ongoing performance of and compliance with Borrower’s agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including confirming compliance with environmental and insurance requirements, (B) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Borrower or by Lender (including Leases, Material Agreements, and Permitted Encumbrances), (C) filing, registration or recording fees and expenses and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents (including the filing, registration or recording of any instrument of further assurance) and all federal, state, county and municipal, taxes (including, if applicable, intangible taxes), search fees, title insurance premiums, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Loan Documents, any mortgage supplemental thereto, any security instrument with respect to the Collateral or any instrument of further assurance, (D) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents or any Collateral and (E) the satisfaction of the Rating Condition required or requested by Borrower hereunder; and (iii) all actual out-of-pocket costs and expenses (including attorney’s fees and, if the Loan has been Securitized, special servicing fees) incurred by Lender (or any of its Affiliates) in connection with the enforcement of any obligations of Borrower, or a Default by Borrower, under the Loan Documents, including any actual or attempted foreclosure, deed-in-lieu of foreclosure, refinancing, restructuring, settlement or workout and any insolvency or bankruptcy proceedings (including any applicable transfer taxes). Without limiting the foregoing, Borrower shall pay all actual out-of-pocket costs and expenses and all fees of Lender and its Servicer, operating advisor and securitization trustee, and all other actual expenses of the Securitization Vehicle, in each case resulting from Defaults and reasonably imminent Defaults by Borrower, the Loan going into special servicing or requests by Borrower (including enforcement expenses and any liquidation fees, workout fees, special servicing fees, operating advisor consulting fees or any other similar fees and interest payable on advances made by the Servicer or the securitization trustee with respect to delinquent debt

service payments or expenses of curing Borrower’s Defaults under the Loan Documents, and any expenses paid by Servicer or a trustee in respect of the protection and preservation of the Property, such as payment of taxes, ground rents and insurance premiums); and the costs of all property inspections and/or appraisals (or any updates to any existing inspection or appraisal) that Servicer may be required to obtain due to a request by Borrower or the occurrence of a Default or reasonably imminent Default.

Section 9.18.No Third-Party Beneficiaries. This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower, and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender, Borrower and Indemnified Parties any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender, and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof, and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

Section 9.19.Recourse.

(a)Except for any indemnification by Borrower under this Agreement or any indemnification by Borrower or Sponsor under any of the other Loan Documents, Lender’s recourse shall be solely to Borrower, the Property and the Collateral, except as set forth below. In addition, no recourse shall be had for the Loan against any other Person, including any affiliate of Borrower or any officer, director, partner or equityholder of Borrower or any such affiliate, unless expressly set forth in a Loan Document or other written agreement to which such Person is a party.

(b)Borrower shall indemnify Lender and hold Lender harmless from and against any and all Damages to Lender (including the reasonable and actual out-of-pocket legal and other expenses of enforcing the obligations of Borrower under this Section 9.19 and the Sponsor under the Guaranty and the Completion Guaranty) resulting from or arising out of any of the following (the “Indemnified Liabilities”), which Indemnified Liabilities shall be guaranteed by Sponsor pursuant to the Guaranty:

(i)any intentional or grossly negligent physical Waste with respect to any of the Properties or FF&E committed or consented to by Borrower, Operating Lessee, Sponsor or any of their respective Affiliates;

(ii)any fraud or intentional misrepresentation committed by Borrower, Operating Lessee, Sponsor or any of their respective Affiliates, in each case, in connection with the Loan or any Collateral;

(iii)any bad faith willful misconduct by Borrower, Sponsor or any of their respective Affiliates (including (1) any litigation or other legal proceeding initiated by such Person in bad faith that delays, opposes impedes, obstructs, hinders, enjoins or otherwise interferes with or frustrates the efforts of Lender to exercise any rights and remedies available to Lender as provided herein and in the other Loan Documents during the continuance of an Event of Default and (2) any refusal by Borrower to comply with Section 5.9 hereof);

(iv)the misappropriation or misapplication by Borrower, Operating Lessee, the Sponsor or any of their respective affiliates of any funds in violation of the Loan Documents, including misappropriation or misapplication of Revenues, security deposits and/or Loss Proceeds and the violation of the last sentence of Section 5.7(d) (for the avoidance of doubt, neither Borrower nor Sponsor shall have any liability for the failure of Lender or the Cash Management Bank to properly apply funds contained in the Collateral Accounts, provided Lender’s or Cash Management Bank’s access to such funds is not obstructed or interfered with in any way by the activities of Borrower or its Affiliates or by any action or proceeding affecting any of them or the Collateral);

(v)the incurrence of voluntary Debt of Borrower or Operating Lessee prohibited hereunder, provided that, for the purpose of this clause (v), Debt will be regarded as voluntary if such Debt is incurred voluntarily or incurred involuntarily and not repaid despite the availability of sufficient cash flow from the Property and Lender permits such cash flow to be used to repay such Debt;

(vi)any breach by Borrower, Operating Lessee or the Sponsor of any representation or covenant regarding environmental matters contained in this Agreement or in the Environmental Indemnity;

(vii)the failure to pay or maintain the Policies or pay the amount of any deductible required thereunder following a Casualty or other insurance claim despite the availability of sufficient cash flow from the Property, provided Lender permits cash flow from the Properties to be applied for such purpose;

(viii)the failure of any of Borrower, Operating Lessee and/or Operating Lessee Pledgor to be, and to at all times have been, a Single-Purpose Entity, including any and all liabilities, contingent or otherwise, arising from or related to (x) the actions, conduct and/or operating history of Borrower or Operating Lessee (or any Person merged into Borrower or Operating Lessee) prior to the Closing Date and (y) Borrower’s and/or Operating Lessee’s ownership (or the ownership of any Person merged into Borrower) of assets prior to the Closing Date that do not constitute a portion of the Collateral;

(ix)removal of personal property or FF&E by Borrower, Operating Lessee or any Affiliate thereof from any of the Properties during an Event of Default, unless replaced with personal property or FF&E, as applicable, of the same utility and of the same or greater value and utility;

(x)the payment of any fees or commissions by Borrower or Operating Lessee to any Affiliate in violation of the terms of the Loan Documents;

(xi)the failure of any of the Properties to comply with all applicable zoning requirements, including the failure to have certificates of occupancy that permit the use of the Properties as transient hotels (but excluding Damages arising from an inability to restore any Property to its condition prior to a Casualty due to Legal Requirements that prohibit the same in connection with a Casualty that destroys 75% or more of the Property), and any enforcement action sought by any Governmental Authority in respect thereof;

(xii)the failure of Borrower and Operating Lessee to renew the term of any Operating Lease; and

(xiii)the failure of Borrower to maintain the required account balance in the Borrower FF&E Account (it being agreed that Damages in such event shall include the amount of any funds not deposited to the Borrower FF&E Account);

In addition to the foregoing, the Loan shall be fully recourse to Borrower and Sponsor, jointly and severally, upon (A) any Change of Control, unauthorized Transfer of any portion of one or more of the Properties constituting real property or unauthorized Liens and encumbrances on any portion of one or more of the Properties constituting real property (except for mechanic’s liens and similar Liens that are addressed by Borrower or Operating Lessee in accordance with clause (iv) of the definition of Permitted Encumbrances), in each case, in violation of the Loan Documents, (B) the occurrence of any filing by any of Borrower, Operating Lessee or Operating Lessee Pledgor under the Bankruptcy Code or any joining or colluding by any of Borrower, Operating Lessee or Operating Pledgor or any of their respective Affiliates (including Sponsor) with the intent to cause the filing of an involuntary case in respect of any Borrower or Operating Lessee under the Bankruptcy Code (provided, however, that if such involuntary case is dismissed within 60 days of such filing the Loan shall not be fully recourse to Borrower and Sponsor, however Borrower and Sponsor shall indemnify Lender and hold Lender harmless from and against any and all Damages to Lender arising from or related to the filing of such involuntary case) or (C) the failure of any Borrower, Operating Lessee or Operating Lessee Pledgor to be, and to at all times have been, a Single-Purpose Entity, which failure results in a substantive consolidation of such Borrower with any Affiliate (other than a co-Borrower under the Loan) in a bankruptcy or similar proceeding (or the filing of a motion by any Person other than Lender for substantive consolidation in bankruptcy citing any such failure, provided, however, that if such motion is dismissed within 120 days of filing the Loan shall not be fully recourse to Borrower and Sponsor, however Borrower and Sponsor shall indemnify Lender and hold Lender harmless from and against any and all Damages to Lender arising from or related to such motion). The Loan shall be fully recourse to Sponsor in an amount equal to its unpaid Guaranteed Obligations (as such term is defined in the Completion Guaranty) under the Completion Guaranty. The liability of the Persons comprising Sponsor for each of clauses (i) through (xvi) and (A), (B) and (C) of this Section 9.19(b) shall be either several or joint and several, as described in the Guaranty.

(c)The foregoing limitations on personal liability shall in no way impair or constitute a waiver of the validity of the Notes, the Indebtedness secured by the Collateral, or the Liens on the Collateral, or the right of Lender, as mortgagee or secured party, to foreclose and/or enforce its rights with respect to the Collateral after an Event of Default. Nothing in this Agreement shall be deemed to be a waiver of any right which Lender may have under the Bankruptcy Code to file a claim for the full amount of the debt owing to Lender by Borrower or to require that all Collateral shall continue to secure all of the Indebtedness owing to Lender in accordance with the Loan Documents. Lender may seek a judgment on the Note (and, if necessary, name Borrower in such suit) as part of judicial proceedings to foreclose under the Mortgage or to foreclose pursuant to any other Loan Documents, or as a prerequisite to any such foreclosure or to confirm any foreclosure or sale pursuant to power of sale thereunder, and in the event any suit is brought on the Notes, or with respect to any Indebtedness or any judgment rendered in such judicial proceedings, such judgment shall constitute a Lien on and will be and can be enforced on and against the Collateral and the rents, profits, issues, products and proceeds thereof. Nothing in this Agreement shall impair the right of Lender to accelerate the maturity of the Note upon the occurrence of an Event of Default, nor shall anything in this Agreement impair or be construed to impair the right of Lender to seek personal judgments, and to enforce all rights and remedies under applicable law, jointly and severally against any guarantors to the extent allowed by any applicable guarantees. The provisions set forth in this Section 9.19 are not intended as a release or discharge of the obligations due under the Note or under any Loan Documents, but are intended as a limitation, to the extent provided in this Section, on Lender’s right to sue for a deficiency or seek a personal judgment against Borrower or Sponsor except as required in order to realize on the Collateral.

Section 9.20.Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, during the continuance of an Event of Default, Lender may from time to time, without presentment, demand, protest or other notice of any kind (all of such rights being hereby expressly waived), set-off and appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by Lender (including branches, agencies or Affiliates of Lender wherever located) to or for the credit or the account of Borrower against the obligations and liabilities of Borrower to Lender hereunder, under the Notes, the other Loan Documents or otherwise, irrespective of whether Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of Lender subsequent thereto.

Section 9.21.Exculpation of Lender. Lender neither undertakes nor assumes any responsibility or duty to Borrower or any other party to select, review, inspect, examine, supervise, pass judgment upon or inform Borrower or any third party of (a) the existence, quality, adequacy or suitability of Appraisals of the Properties or other Collateral, (b) any environmental report, or (c) any other matters or items, including engineering, soils and seismic reports that are contemplated in the Loan Documents. Any such selection, review, inspection, examination and the like, and any other due diligence conducted by Lender, is solely for the purpose of protecting

Lender’s rights under the Loan Documents, and shall not render Lender liable to Borrower or any third party for the existence, sufficiency, accuracy, completeness or legality thereof.

Section 9.22.Servicer. Lender may delegate any and all rights and obligations of Lender hereunder and under the other Loan Documents to the Servicer upon notice by Lender to Borrower, whereupon any notice or consent from the Servicer to Borrower, and any action by Servicer on Lender’s behalf, shall have the same force and effect as if Servicer were Lender. Lender shall consult with Borrower with respect to Lender’s choice of master and special servicers; provided, however, that no such consultation shall be binding on Lender.

Section 9.23.No Fiduciary Duty.

(b)Borrower acknowledges that, in connection with this Agreement, the other Loan Documents and the Transaction, Lender has relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, accounting, tax and other information provided to, discussed with or reviewed by Lender for such purposes, and Lender does not assume any liability therefor or responsibility for the accuracy, completeness or independent verification thereof. Lender, its Affiliates and their respective stockholders and employees (for purposes of this Section, the “Lending Parties”) have no obligation to conduct any independent evaluation or appraisal of the assets or liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of Sponsor, Borrower or any other Person or any of their respective Affiliates or to advise or opine on any related solvency or viability issues.

(c)It is understood and agreed that (i) the Lending Parties shall act under this Agreement and the other Loan Documents as an independent contractor, (ii) the Transaction is an arm’s-length commercial transactions between the Lending Parties, on the one hand, and Borrower, on the other, (iii) each Lending Party is acting solely as principal and not as the agent or fiduciary of Borrower, Sponsor or their respective Affiliates, stockholders, employees or creditors or any other Person and (iv) nothing in this Agreement, the other Loan Documents, the Transaction or otherwise shall be deemed to create (a) a fiduciary duty (or other implied duty) on the party of any Lending Party to Sponsor, Borrower, any of their respective Affiliates, stockholders, employees or creditors, or any other Person or (b) a fiduciary or agency relationship between Sponsor, Borrower or any of their respective Affiliates, stockholders, employees or creditors, on the one hand, and the Lending Parties, on the other. Borrower agrees that neither it nor Sponsor nor any of their respective Affiliates shall make, and hereby waives, any claim against the Lending Parties based on an assertion that any Lending Party has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to Borrower, Sponsor of their respective Affiliates, stockholders, employees or creditors. Nothing in this Agreement or the other Loan Documents is intended to confer upon any other Person (including Affiliates, stockholders, employees or creditors of Borrower and Sponsor) any rights or remedies by reason of any fiduciary or similar duty.

(d)Borrower acknowledges that it has been advised that the Lending Parties are a full service financial services firm engaged, either directly or through Affiliates in various activities, including securities trading, investment banking and financial advisory, investment management, principal investment, hedging, financing and brokerage activities and financial

planning and benefits counseling for both companies and individuals. In the ordinary course of these activities, the Lending Parties may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and/or financial instruments (including loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and/or instruments. Such investment and other activities may involve securities and instruments of Affiliates of Borrower, including Sponsor, as well as of other Persons that may (i) be involved in transactions arising from or relating to the Transaction, (ii) be customers or competitors of Borrower, Sponsor and/or their respective Affiliates, or (iii) have other relationships with Borrower, Sponsor and/or their respective Affiliates. In addition, the Lending Parties may provide investment banking, underwriting and financial advisory services to such other Persons. The Lending Parties may also co-invest with, make direct investments in, and invest or co-invest client monies in or with funds or other investment vehicles managed by other parties, and such funds or other investment vehicles may trade or make investments in securities of Affiliates of Borrower, including Sponsor, or such other Persons. The Transaction may have a direct or indirect impact on the investments, securities or instruments referred to in this paragraph. Although the Lending Parties in the course of such other activities and relationships may acquire information about the Transaction or other Persons that may be the subject of the Transaction, the Lending Parties shall have no obligation to disclose such information, or the fact that the Lending Parties are in possession of such information, to Borrower, Sponsor or any of their respective Affiliates or to use such information on behalf of Borrower, Sponsor or any of their respective Affiliates.

(e)Borrower acknowledges and agrees that Borrower has consulted its own legal and financial advisors to the extent it deemed appropriate and that it is responsible for making its own independent judgment with respect to this Agreement, the other Loan Documents, the Transaction and the process leading thereto.

Section 9.24.Borrower Information. Borrower shall make available to Lender all information concerning its business and operations that Lender may reasonably request, provided that disclosure of such information does not and will not violate any securities laws or violate the terms of any confidentiality agreement between Borrower and/or any Affiliate of Borrower on the one hand, and any third party, on the other hand. Lender shall have the right to disclose any and all information provided to Lender by Borrower or Sponsor regarding Borrower, Sponsor, the Loan and the Properties (i) to Affiliates of Lender and to Lender’s agents and advisors, (ii) to any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer, participation or Securitization of all or any portion of the Loan or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) to any swap or derivative transaction relating to Borrower and its obligations, in each case, to the extent reasonably required by such Person, (iii) to any Rating Agency in connection with a Securitization or as otherwise required in connection with a disposition of the Loan, (iv) to any Person necessary or desirable in connection with the exercise of any remedies hereunder or under any other Loan Document, (v) to any governmental agency or representative thereof or by the National Association of Insurance Commissioners or pursuant to legal or judicial process and (vi) in any Disclosure Document (as defined in the Cooperation Agreement). In addition, Lender may disclose the existence of this Agreement and the

information about this Agreement to market data collectors, similar services providers to the lending industry, and service providers to Lender in connection with the administration and management of this Agreement and the other Loan Documents. Each party hereto (and each of their respective Affiliates, employees, representatives or other agents) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax treatment and tax structure. For the purpose of this Section 9.24, “tax structure” means any facts relevant to the federal income tax treatment of the Transaction but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates.

Section 9.25.PATRIOT Act Records. Lender hereby notifies Borrower that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies Borrower and Sponsor, which information includes the name and address of Borrower and Sponsor and other information that will allow Lender to identify Borrower or Sponsor in accordance with the PATRIOT Act.

Section 9.26.Prior Agreements. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONTAIN THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND THERETO IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND ALL PRIOR AGREEMENTS AMONG OR BETWEEN SUCH PARTIES, WHETHER ORAL OR WRITTEN, INCLUDING ANY TERM SHEETS, CONFIDENTIALITY AGREEMENTS AND COMMITMENT LETTERS, ARE SUPERSEDED BY THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT THAT ANY ORIGINATION FEE SPECIFIED IN ANY TERM SHEET, COMMITMENT LETTER OR FEE LETTER SHALL BE AN OBLIGATION OF BORROWER AND SHALL BE PAID AT CLOSING, AND ANY INDEMNIFICATIONS, FLEX PROVISION, EXIT FEES AND THE LIKE PROVIDED FOR THEREIN SHALL SURVIVE THE CLOSING).

Section 9.27.Publicity. If the Loan is made, Lender may issue press releases, advertisements and other promotional materials describing in general terms or in detail Lender’s participation in such transaction, and may utilize photographs of the Properties in such promotional materials; provided, however, that in the case of any press release, Borrower shall have the right to reasonably approve the same within one Business Day of its receipt of the text of any such press release (and Borrower’s failure to grant or withhold such consent within such one Business Day period shall be deemed consent by Borrower to such press release). Borrower shall not make any references to Lender in any press release, advertisement or promotional material issued by Borrower or Sponsor, unless Lender shall have approved of the same in writing prior to the issuance of such press release, advertisement or promotional material.

Section 9.28.Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or under any other instrument given as security therefor, shall operate as or

constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount.

Section 9.29.Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.

Section 9.30.Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

Section 9.31.Joint and Several Liability. The representations, covenants, warranties and obligations of Borrower hereunder are joint and several. In the event of (a) any payment by any one or more of the Borrowers of any amount in excess of its respective Proportional Amount, or (b) the foreclosure of, or the delivery of deeds in lieu of foreclosure relating to, any of the Collateral owned by one or more of the Borrowers, each Borrower (the “Overpaying Borrower”) that has paid more than its Proportional Amount or whose Collateral or assets have been utilized to satisfy obligations under the Loan or otherwise for the benefit of one or more other Borrowers shall be entitled, after payment in full of the Note and the satisfaction of all the Borrowers’ other obligations to the Lender under the Loan Documents, to contribution from each of the benefited Borrowers (i.e., the Borrowers, other than the Overpaying Borrower, who have paid less than their respective Proportional Amount or whose Collateral or assets have not been so utilized to satisfy obligations under the Loan) for the amounts so paid, advanced or benefited, up to such benefited Borrower’s then current Proportional Amount. Such right to contribution shall be subordinate in all respects to the Loan. As used herein, the “Proportional Amount” with respect to any Borrower shall equal the amount derived as follows: (a) the ratio of the aggregate amount of the Loan allocable to the Property or Properties in which such Borrower has an interest to the then outstanding Principal Amount; times (b) the aggregate amount paid or payable by the Borrowers under the Loan Documents (including interest).

[The remainder of this page is intentionally blank; signatures follow]

Lender and Borrower are executing this Agreement as of the date first above written.

LENDER:

GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership

By: Goldman Sachs Real Estate Funding Corp.,

      a New York corporation,

By: /s/ J. Theodore Borter

        Name: J. Theodore Borter
Title: Vice President

BORROWER:

371 SEVENTH AVENUE CO., LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

125 EAST 50th STREET CO., LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

215 EAST 64th STREET CO., LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. FeldermanTitle: Vice President

155 EAST 50th STREET CO., LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

303 LEXINGTON AVENUE CO., LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

JOINDER BY OPERATING LESSEE

The undersigned, Operating Lessee, hereby joins in and executes this Agreement solely for the purposes of acknowledging the representations and agreeing to its obligations expressly set forth therein. Operating Lessee shall under no circumstances be deemed to be a “Borrower” with respect to the Loan.

OPERATING LESSEE:

371 SEVENTH AVENUE CO., LESSEE LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

125 EAST 50th STREET CO., LESSEE LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

215 EAST 64th STREET CO., LESSEE LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

155 EAST 50th STREET CO., LESSEE LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

303 LEXINGTON AVENUE CO., LESSEE LLC,

   a Delaware limited liability company

By: /s/ Raymond D. Martz

Name: Raymond D. Martz
Title: Co-Chief Financial Officer

By: /s/ Thomas A. Felderman

Name: Thomas A. Felderman
Title: Vice President

Exhibit A

Organizational Chart

Exhibit B

Form of Tenant Notice

[BORROWER’S LETTERHEAD]

___________, 20__

Re:    Lease dated [________], 200_ between [________],

as Landlord, and [_____], as Tenant,

concerning premises known as [________] (the “Building”).

Dear Tenant:

[As of _______, 200_, ___________, the owner of the Building, has transferred the Building to _____________ (the “New Landlord”).] The undersigned hereby directs and authorizes you to make all rental payments and other amounts payable by you pursuant to your lease as follows:

(x)    If the payment is made by wire transfer, you shall transfer the applicable funds to the following account::

Bank:

Account Name

Account No.:

ABA No.:

Contact:

(y)    If the payment is made by check, you shall deliver your payment to the following address: [LOCKBOX ADDRESS].

[In addition, please amend the insurance policies that you are required to maintain under your lease to include the new owner as an additional insured thereon.]

The instructions set forth herein are irrevocable and are not subject to modification by us or the New Landlord in any manner. Only [name of then-current Lender], or its successors and assigns, may by written notice to you rescind or modify the instructions contained herein.

Thank you in advance for your cooperation and if you have any questions, please call _________ at (___) ___-_________.

Very truly yours,

Exhibit C

Summary Operating Statement

10th Edition USALI Summary Operating Statement

Revenue

Rooms

Food and Beverage

Other Operated Departments

Rentals and Other Income

Total Revenue

Departmental Expenses

Rooms

Food and Beverage

Other Operated Departments

Total Departmental Expenses

Total Departmental Income

Undistributed Operating Expenses

Administrative and General

Sales and Marketing

Property Operations and Maintenance

Utilities

Total Undistributed Expenses

Gross Operating Profit

Management Fees

Income Before Fixed Charges

Fixed Charges

Rent

Property and Other Taxes

Insurance

Fixed Charges

Net Operating Income

Less: Replacement Reserves

Adjusted Net Operating Income

EX-12.1

Exhibit 12.1

PEBBLEBROOK HOTEL TRUST

STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

(In thousands, except ratios)

	Year Ended December 31, 2012					Year Ended December 31, 2011					Year Ended December 31, 2010					For the period October 2, 2009 (inception) through December 31, 2009
Earnings
Add:
Pre-tax income(loss) from continuing operations before adjustment for income or loss from equity investees	$	22,404				$	13,427				$	(6,722	)			$	(147	)
Fixed charges	34,643					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	57,047					38,696					(5,034		)			(147		)
Subtract:
Interest capitalized	(236		)			—					—					—
Preference security dividend requirements of consolidated subsidiaries	(17,841		)			(10,427		)			—					—
Noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges	—					—					—					—
Total Earnings	$	38,970				$	28,269				$	(5,034	)			$	(147	)
Fixed Charges
Add:
Interest expensed	$	13,532				$	12,098				$	1,225				$	—
Interest capitalized	236					—					—					—
Amortized premiums, discounts and capitalized expenses related to indebtedness	1,400					1,555					415					—
Estimate of interest within rental expense	1,634					1,189					48					—
Total Fixed Charges	16,802					14,842					1,688					—
Preference security dividend requirements of consolidated subsidiaries	17,841					10,427					—					—
Combined Fixed Charges and Preferred Share Dividends	$	34,643				$	25,269				$	1,688				$	—
Ratio of Earnings to Fixed Charges and Preferred Share Dividends	1.12			(1	)	1.12			(2	)	—			(3	)	—			(4	)
______________

(1)	As of December 31, 2012, we had 5,600,000 7.875% Series A Cumulative Redeemable Preferred Shares (“Series A Preferred Shares”) and 3,400,000 8.00% Series B Cumulative Redeemable Preferred Shares (“Series B Preferred Shares”) outstanding. Both the Series A Preferred Shares and Series B Preferred Shares preferred share distributions were included in fixed charges for the year ended December 31, 2012.
(2)	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 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 Series B Preferred Shares and preferred share distributions from that date through December 31, 2011 are included in fixed charges for this period.
(3)	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.
(4)	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
7.	Huskies Owner LLC	Delaware
8.	Huskies Lessee LLC	Delaware
9.	Orangemen Owner LLC	Delaware
10.	Orangemen Lessee LLC	Delaware
11.	Gator Owner LLC	Delaware
12.	Gator Lessee LLC	Delaware
13.	Jayhawk Owner LLC	Delaware
14.	Jayhawk Lessee LLC	Delaware
15.	Blue Devils Owner LLC	Delaware
16.	Blue Devils Lessee LLC	Delaware
17.	Wildcats Owner LLC	Delaware
18.	Wildcats Lessee LLC	Delaware
19.	Terrapins Owner LLC	Delaware
20.	Skamania Lodge Furnishings LLC	Delaware
21.	Terrapins Lessee LLC	Delaware
22.	Spartans Owner LLC	Delaware
23.	Spartans Lessee LLC	Delaware
24.	South 17th Street OwnerCo Mezzanine, L.P.	Delaware
25.	South 17th Street OwnerCo, L.P.	Delaware
26.	South 17th Street LeaseCo LLC	Delaware
27.	South 17th Street LeaseCo Mezzanine LLC	Delaware
28.	Bruins Owner LLC	Delaware
29.	Bruins Hotel Owner L.P.	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
41.	Hoyas Owner LLC	Delaware

42.	Hoyas Lessee LLC	Delaware
43.	Wolfpack Owner LLC	Delaware
44.	Wolfpack Lessee LLC	Delaware
45.	Golden Eagles Owner LLC	Delaware
46.	Golden Eagles Lessee LLC	Delaware
47.	Miners Owner LLC	Delaware
48.	Miners Hotel Owner L.P.	Delaware
49.	Miners Lessee LLC	Delaware
50.	Ramblers Owner LLC	Delaware
51.	Ramblers Hotel Owner L.P.	Delaware
52.	Ramblers Lessee LLC	Delaware
53.	Bearcats Owner LLC	Delaware
54.	Bearcats Hotel Owner L.P.	Delaware
55.	Bearcats 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. 333-173468) and Form S-8 (File Nos. 333-163638 and 333-186324) of Pebblebrook Hotel Trust of our reports dated February 21, 2013, with respect to the consolidated balance sheets of Pebblebrook Hotel Trust as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of Pebblebrook Hotel Trust.

/s/ KPMG LLP

McLean, Virginia

February 21, 2013

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. 333-173468) and Form S-8 (File Nos. 333-163638 and 333-186324) of Pebblebrook Hotel Trust of our report dated February 18, 2013, with respect to the combined balance sheet of DP Fee Holding Co., LLC and DP Lease Holding, LLC as of December 31, 2012 and 2011, and the related combined statements of members’ equity (deficit), operations and comprehensive income and cash flows for the year ended December 31, 2012 and for the period July 29, 2011 to December 31, 2011, which appears in the December 31, 2012 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 18, 2013

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, 2013	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, 2013	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, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon E. Bortz, Chairman, President and Chief Executive Officer, 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, 2013	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, 2012 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, 2013	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

Exhibit 99.1

Independent Auditors' Report

To The Members

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

We have audited the accompanying combined financial statements of DP Fee Holding Co., LLC and DP Lease Holding, LLC, which comprise the combined balance sheets as of December 31, 2012 and 2011, and the related combined statements of operations and comprehensive income, members' equity (deficit), and cash flows for the year ended December 31, 2012 and the period July 29, 2011 to December 31, 2011, and the related notes to the combined financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of DP Fee Holding Co., LLC and DP Lease Holding, LLC as of December 31, 2012 and 2011, and the results of its combined operations and its cash flows for the year ended December 31, 2012 and the period July 29, 2011 to December 31, 2011 in accordance 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 18, 2013

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Balance Sheets

	December 31
	2012		2011
ASSETS
Current Assets
Cash and cash equivalents	$	39,880,893	$	80,903,724
Cash in escrow	12,216,435		32,913,676
Accounts receivable, net of allowance of $62,408 in 2012 and $3,026 in 2011	9,660,841		9,415,781
Inventory	362,925		352,710
Prepaid expenses	8,356,165		7,313,688
Total Current Assets	70,477,259		130,899,579
Property and equipment (net)	408,348,954		413,059,079
Deferred expenses (net)	7,041,312		4,803,030
Other assets	162,053		191,712
Total Assets	$	486,029,578	$	548,953,400
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable	$	3,642,853	$	3,498,883
Taxes payable	2,613,417		2,591,888
Accrued expenses	4,236,987		17,551,681
Security and deposits	2,039,118		2,085,936
Other liabilities	501,457		575,479
Total Current Liabilities	13,033,832		26,303,867
Long-term debt	410,000,000		580,979,455
Long-term debt-related party	50,000,000		—
Total Liabilities	473,033,832		607,283,322
Members' equity (deficit)	12,995,746		(58,329,922		)
Total Liabilities and Members' Equity (Deficit)	$	486,029,578	$	548,953,400
See notes to combined financial statements

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Statements of Operations and Comprehensive Income

	For the Year Ended December 31		For the Period July 29 to December 31
	2012		2011
REVENUES
Rooms	$	155,412,003	$	74,143,205
Food and beverage	13,684,564		5,366,389
Telephone	1,516,623		677,186
Other income	4,104,800		1,937,524
Total Revenues	174,717,990		82,124,304
EXPENSES
Rooms	45,218,517		19,215,710
Food and beverage	12,826,069		5,028,374
Telephone	772,062		305,314
Administrative and general	20,710,323		9,443,332
Advertising and marketing	9,995,562		4,219,840
Property operations and maintenance	5,921,382		2,425,805
Utilities	5,451,449		2,105,255
Pre-opening expenses	79,069		82,431
Rent expense	76,680		31,160
Real estate taxes	13,808,267		5,941,690
Interest expense	26,923,209		11,592,015
Insurance	704,235		355,633
Depreciation	15,907,439		6,655,248
Loss on disposals of assets	—		132,082
Reorganization costs	—		8,458,076
Total Expenses	158,394,263		75,991,965
Net Income	16,323,727		6,132,339
OTHER COMPREHENSIVE INCOME
Change in fair value of derivative asset	26,851		159,413
Comprehensive Income	$	16,350,578	$	6,291,752
See notes to combined financial statements

DP Fee Holding Co., LLC and DP Lease Holding, LLC

Combined Statements of Members' Equity (Deficit)

For the period July 29, 2011 to December 31, 2011 and the

Year Ended December 31, 2012

	Total			Accumulated Other Comprehensive Income (Loss)			Members' Equity (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 asset	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		)
Contributions	55,565,747			—			55,565,747
Distributions	(590,657		)	—			(590,657		)
Change in fair value of derivative asset	26,851			26,851			—
Net income	16,323,727			—			16,323,727
Balance at December 31, 2012	$	12,995,746		$	—		$	12,995,746
See notes to combined financial statements

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Combined Statements of Cash Flows

	For the Year Ended December 31			For the Period July 29 to December 31
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	16,323,727		$	6,132,339
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation	15,907,439			6,655,248
Amortization of deferred financing costs	4,945,381			2,297,451
Loss on disposal of assets	—			132,082
Changes in Certain Other Accounts
Cash in escrow	20,697,241			563,831
Accounts receivable	248,904			(278,869		)
Inventory	(10,215		)	(2,939		)
Prepaid expenses	(1,042,477		)	(592,125		)
Other assets	29,659			55,906
Accounts payable	(349,994		)	(3,718,768		)
Taxes payable	21,529			758,663
Accrued expenses	(13,314,694		)	1,766,458
Security and deposits	(46,818		)	(3,237,820		)
Other liabilities	(74,022		)	266,268
Total Adjustments	27,011,933			4,665,386
Net Cash Provided by Operating Activities	43,335,660			10,797,725
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(11,197,314		)	(7,698,127		)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of deferred expenses	(7,156,812		)	(6,365,602		)
Proceeds from long-term debt	460,000,000			—
Payment on long-term debt	(580,979,455		)	(15,577,472		)
Contributions	55,565,747			129,254,312
Distributions	(590,657		)	(37,278,923		)
Net Cash Provided (Used) by Financing Activities	(73,161,177		)	70,032,315
Net Increase (Decrease) in Cash and Cash Equivalents	(41,022,831		)	73,131,913
Cash and cash equivalents, beginning of period	80,903,724			7,771,811
Cash and cash equivalents, end of period	$	39,880,893		$	80,903,724
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	34,216,010		$	6,799,362
Supplemental Disclosure of Non-Cash Flow Information

The Company recorded a decrease in assets related to an interest rate cap agreement	$	(26,851	)	$	(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 during 2011.
See notes to combined financial statements

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

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. 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. After the later of (a) 27 months from July 29, 2011 or (b) the date on which Fee Holding refinances, modifies or extends its then existing 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 year ended December 31, 2012 and 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 table below reflects the change in the preferred capital account for the year ended December 31, 2012 and the period July 29, 2011 to December 31, 2011:

	2012			2011
Balance, beginning of period	$	76,613,241		$	84,420,262
Capital call	(57,833,673		)	(7,807,021		)
Balance, end of period	$	18,779,568		$	76,613,241

The Company prepares its financial statements in conformity with US GAAP. In combination, all significant intercompany accounts and transactions have been eliminated.

2.Summary of Significant Accounting Policies

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

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

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 Hotels' workforce employed by the management company at December 31, 2012 and 2011 is covered by collective bargaining agreements which expire on April 20, 2014 and June 30, 2019.

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.

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 6) 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. The carrying value of the related party long term debt is not readily determinable as no similar market exists.

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

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

At December 31, 2012 and 2011 property and equipment consists of the following:

	2012			2011
Land	$	81,182,501		$	81,182,503
Buildings and improvements	368,285,647			361,285,008
Furniture, fixtures and equipment	53,935,371			50,187,343
Total	503,403,519			492,654,854
Accumulated depreciation	(95,054,565		)	(79,595,775		)
Net	$	408,348,954		$	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. No impairment loss has been recognized during the year ended December 31, 2012 or the period July 29, 2011 to December 31, 2011.

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. $4,945,381 and $2,297,451 has been charged to interest expense for the year ended December 31, 2012 and for the period July 29, 2011 to December 31, 2011, respectively. Accumulated amortization amounted to $2,885,438 at December 31, 2011. All amounts related to the prior loan (see note 3) have been fully amortized during 2012. Costs associated with the new loan will begin amortization in 2013.

Accounting for Derivative Instruments and Hedging Activities

The Company applies the provisions of Accounting Standards Codification (ASC) 815-10 which 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 ASC 740, Income Taxes, which provides a recognition threshold and measurement attribute for the financial statement recognition of a tax

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

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.

Management has evaluated the Company's tax positions and has determined that it has no uncertain tax positions. Accordingly, at December 31, 2012 and 2011, a provision for uncertain income taxes is not reflected in the accompanying combined financial statements.

The Company's tax returns for 2012 and 2011 are open to examination by the respective taxing authorities.

Advertising Costs

Advertising costs are expensed as incurred.

Reclassification

Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 presentation.

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.

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 was cross collateralized among all of the properties. The mezzanine portion of the financing was secured by the Company's ownership interest in the properties and is reflected in the total long­term 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 was 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

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.

The Company purchased an interest rate cap agreement acceptable to the lender.

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

(see note 4)

All cash receipts were deposited into a lockbox and such receipts were disbursed in accordance with the agreement, which included amortization of debt principal calculated as defined.

The specified guarantors guaranteed the completion of specified renovation projects.

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 fixed the LIBOR rate at a maximum rate of 2% and had an expiration date of February 1, 2013.

On December 27, 2012, the Company refinanced its existing loans. The Company was financed with $460 million in debt obligations ($410 million in the form of mortgage debt and $50 million in the form of a member loan).

The $410 million loan bears interest of 3.673% per annum and matures on January 6, 2018. The loan is secured by the property of five Hotels (the Affinia Dumont is excluded). Under the terms of the agreement, the Company is required to fund the following escrows:

Furniture, fixtures and equipment

Real estate tax

Insurance

Debt service

Deferred Maintenance

Affinia Gardens capital reserve

Excess cash flows

The specified guarantors have guaranteed the completion of specified renovation projects.

The loan is 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 would become recourse to the guarantors if certain events occur, amongst which is any borrower filing a voluntary bankruptcy petition.

The $50 million loan bears interest at a rate of 9.75% per annum through February 4, 2018. The interest rate then increases 100 basis points for each successive 30 day period until the maximum interest rate of 13.5% is attained. The loan matures on the earlier of July 4, 2018, the refinance of mortgage loan or upon sale of the Hotels. The loan may be prepaid at any time, subject to certain provisions, as defined in the agreement.

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. A new interest rate cap agreement was entered into in connection with the loan extension in February 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.

Applying the provisions of ASC 815-10, the Company's derivative asset had no value as of December 31, 2012 and 2011. The difference between the carrying value and fair market value of the interest rate cap has been recorded through members' equity (deficit), as accumulated other comprehensive income as of December 31, 2012 and 2011.

The Company follows 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. The derivative asset was valued using level 2 inputs.

5.Operating Leases

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

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:

2013	$	2,560,161
2014	2,431,616
2015	1,268,076
2016	1,115,381
2017	753,356
Thereafter	1,954,416
Total	$	10,083,006

Certain leases contain provisions for additional rents and renewal options.

6.Related Party Transactions

The Company received financing from one of its members (see note 3).

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 $1,865,113 and $15,588,579, respectively, for the year ended December 31, 2012. 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, 2012 and 2011, amounts due from (to) related parties were included in the following balance sheet accounts:

	2012			2011
Accounts receivable	$	—		$	1,056,282
Accounts payable	$	(2,635,694	)	$	(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 year ended December 31, 2012, the Company incurred basic management fees of $5,230,901 and marketing fees of $2,610,828. 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. In addition, the Company also reimburses the management company for all costs incurred in the operation of the Hotels including payroll and payroll related costs. Certain management company employees who operate the Company's hotels are represented by the New York Hotel Trades Council and the Hotel Association of New York City, Inc. (the “Union”) and are subject to collective bargaining agreements. Costs reimbursed to the management company for pension and health benefits paid to the Union amounted to $2,121,316 and $5,343,509, respectively for the year ended December 31, 2012. For the period July 29, 2011 to December 31, 2011 the costs reimbursed for pension and health benefits amounted to $824,829 and $2,082,145, respectively.

7. Litigation

DP Fee Holding Co., LLC and

DP Lease Holding, LLC

Notes to Combined Financial Statements

December 31, 2012

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.

8. Commitments

During 2012, the Company entered into various contracts with contractors and other vendors for capital improvements. At December 31, 2012 the Company had commitments of $11,489,910, of which $8,500,200 had been incurred as of December 31, 2012 and is included in property and equipment in the accompanying combined balance sheet.

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Investment in Joint Venture (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summarized results of operations of investment in the Manhattan Collection joint venture
Equity in earnings (loss) in joint venture	$ 5,970	$ 2,336	$ 0
Manhattan Collection Joint Venture [Member]
Summarized results of operations of investment in the Manhattan Collection joint venture
Revenues	174,718	82,124
Total expenses	158,394	75,992
Net income (loss)	16,324	6,132
Company's 49% interest of net income (loss)	7,999	3,005
Basis Adjustment	(2,062)	(669)
Interest income elimination	33
Equity in earnings (loss) in joint venture	$ 5,970	$ 2,336

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Commitments and Contingencies Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
2013	$ 3,071
2014	3,105
2015	3,140
2016	3,175
2017	3,211
Thereafter	419,805
Operating Leases, Future Minimum Payments Due	$ 435,507

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Share-Based Compensation Plan (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended					0 Months Ended	12 Months Ended			0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended	0 Months Ended		12 Months Ended	0 Months Ended						12 Months Ended
	Dec. 31, 2012	Jul. 10, 2012	Jul. 09, 2012	Dec. 31, 2011	Dec. 14, 2009	Jan. 31, 2013 Restricted Stock [Member]	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member]	Dec. 31, 2010 Restricted Stock [Member]	Jan. 31, 2013 Restricted Stock [Member] Minimum [Member]	Dec. 31, 2012 Restricted Stock [Member] Minimum [Member]	Jan. 31, 2013 Restricted Stock [Member] Maximum [Member]	Dec. 31, 2012 Restricted Stock [Member] Maximum [Member]	Jan. 31, 2013 Performance Shares [Member]	Feb. 08, 2012 Performance Shares [Member]	Dec. 31, 2012 Performance Shares [Member] company	Feb. 08, 2012 Performance Shares [Member] Officer Awards [Member]	Feb. 08, 2012 Performance Shares [Member] Officer Awards [Member] Maximum [Member]	Feb. 08, 2012 Performance Shares [Member] Employee Awards [Member]	Feb. 08, 2012 Performance Shares [Member] Absolute TSR [Member]	Feb. 08, 2012 Performance Shares [Member] Relative TSR [Member]	Feb. 08, 2012 Performance Shares [Member] Hotel EBITDA [Member]	Dec. 31, 2012 Long Term Incentive Partnership Units [Member]	Dec. 31, 2011 Long Term Incentive Partnership Units [Member]	Dec. 31, 2010 Long Term Incentive Partnership Units [Member]
Share-Based Compensation Plan (Textual) [Abstract]
Share-based award vesting period										3 years	3 years	5 years	5 years			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		2,422,625	1,322,625
Number of common shares available for issuance under the 2009 Equity Incentive Plan	1,124,972
Share-based compensation expense							$ 1.5	$ 1.1	$ 0.5							$ 1.1							$ 1.6	$ 1.6	$ 1.6
Total unrecognized compensation cost							$ 1.6									$ 2.4							$ 3.1	$ 4.7
Weighted average remaining vesting period (in years)							1 year 7 months									2 years							2 years
Number of Companies in Designated Peer Group																7
Weight of performance component																				30.00%	30.00%	40.00%
Share-based equity award grant						59,245	52,545	79,330	70,110					72,118				120,016	12,102
Risk-free interest rate															0.34%
Dividend yield															2.20%
Expected volatility															33.00%
Granted, weighted average grant date fair value							$ 23.15	$ 22.03	$ 20.98						$ 23.15		$ 8.62		$ 17.23
Operating Partnership outstanding	381,109			929,099	929,099
Value of LTIP grants per share					$ 8.50
LTIP units, vested	547,990
Long Term Incentive Partnership Units Converted To Common Units	444,535
Long Term Incentive Partnership Units Converted to Cash	103,455

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Supplemental Information to Statements of Cash Flows (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Supplemental Information to Statements of Cash Flows
Interest Paid, net of capitalized interest	$ 13,440	$ 11,366	$ 956
Interest Capitalized	236	0	0
Income Taxes Paid	1,877	586	0
Cash Flow, Noncash Investing and Financing Activities Disclosure [Abstract]
Distributions payable on shares/units	11,274	10,032
Issuance of common shares for board of trustees compensation	199	182	12
Mortgage loan assumed in connection with acquisition	27,175	42,000	91,070
Over market rate contracts	9,170	0	0
Deposit applied to purchase price of acquisition	0	5,000	0
Accrued additions and improvements to hotel properties	1,203	2,171	0
Common Shares [Member]
Cash Flow, Noncash Investing and Financing Activities Disclosure [Abstract]
Distributions payable on shares/units	7,461	6,219	4,908
Preferred Shares [Member]
Cash Flow, Noncash Investing and Financing Activities Disclosure [Abstract]
Distributions payable on shares/units	$ 3,813	$ 3,813	$ 0

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Equity (Details Textual) (USD $)	12 Months Ended					12 Months Ended				0 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Sep. 28, 2012	Dec. 14, 2009	Dec. 31, 2012 7.875% Series A [Member]	Dec. 31, 2011 7.875% Series A [Member]	Dec. 31, 2012 8.00% Series B [Member]	Dec. 31, 2011 8.00% Series B [Member]	Jun. 19, 2012 OvernightProgram [Member]	Dec. 31, 2012 ATMProgram [Member]
Common Stock Disclosures [Abstract]
Common shares of beneficial interest, shares authorized	500,000,000	500,000,000
Common shares of beneficial interest, par value	$ 0.01	$ 0.01
Common shares issued, net of commissions										5,175,000	4,519,087
Common shares issued, net of commissions (per share)										$ 22.10	$ 23.72
April 2011 Shelf Registration Stmt Maximum	$ 125,000,000
Proceeds from Issuance of Common Stock	221,579,000	235,980,000	332,350,000							109,800,000	105,600,000
Sept 2012 Shelf Registration Stmt Maximum Amount				170,000,000							170,000,000
Prior Shelf Registration Statement Remaining Amount				17,800,000
Preferred Stock Disclosures [Abstract]
Preferred shares of beneficial interest, shares authorized	100,000,000	100,000,000
Preferred shares of beneficial interest, par value	$ 0.01	$ 0.01
Preferred shares of beneficial interest, shares outstanding	9,000,000	9,000,000				5,600,000	5,600,000	3,400,000	3,400,000
Percentage of dividend for redeemable preferred shares						7.875%	7.875%	8.00%	8.00%
Preferred shares of beneficial interest, redemption price per share	$ 25
Share cap on each preferred shares						2.3234		3.4483
LTIP Units Disclosures [Abstract]
Operating Partnership outstanding	381,109	929,099			929,099
LTIP units, vested	547,990
LTIP units converted to common units	444,535
Long Term Incentive Partnership Units Converted to Cash	103,455
Payments for Repurchase of Redeemable Noncontrolling Interest	$ 2,342,000	$ 0	$ 0

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Quarterly Operating Results (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

	Year Ended December 31, 2012
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	77,474		$	94,167	$	104,305	$	104,742
Net income (loss)	(2,837		)	10,027		12,105		7,213
Net income (loss) attributable to the Company	(2,791		)	9,864		11,918		7,088
Net income (loss) attributable to common shareholders	(7,247		)	5,407		7,462		2,632
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.14	)	$	0.10	$	0.13	$	0.04
	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

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Quarterly Operating Results (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Quarterly Financial Data [Abstract]
Total revenues	$ 104,742	$ 104,305	$ 94,167	$ 77,474	$ 84,409	$ 87,803	$ 73,110	$ 42,665	$ 380,688	$ 287,987	$ 57,761
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	7,213	12,105	10,027	(2,837)	8,106	5,838	4,299	(3,044)	26,508	15,199	(6,642)
Net Income (Loss) Attributable to Parent	7,088	11,918	9,864	(2,791)	7,962	5,724	4,214	(3,044)	26,079	14,856	(6,642)
Net income (loss) attributable to common shareholders	$ 2,632	$ 7,462	$ 5,407	$ (7,247)	$ 3,456	$ 2,825	$ 1,753	$ (3,591)	$ 8,254	$ 4,443	$ (6,642)
Earnings Per Share, Basic and Diluted	$ 0.04	$ 0.13	$ 0.10	$ (0.14)	$ 0.07	$ 0.05	$ 0.03	$ (0.09)	$ 0.14	$ 0.08	$ (0.23)

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Investment in Joint Venture (Tables)

12 Months Ended

Dec. 31, 2012

Equity Method Investments and Joint Ventures [Abstract]

Summarized results of operations of investment in the Manhattan Collection joint venture

The summarized results of operations of the Company’s investment in the Manhattan Collection joint venture for the years endedDecember 31, 2012 and 2011 are presented below (in thousands):

	For the year ended December 31,
	2012			2011
Revenues	$	174,718		$	82,124
Total expenses	158,394			75,992
Net income (loss)	$	16,324		$	6,132
Company’s 49% interest of net income (loss)	7,999			3,005
Basis adjustment	(2,062		)	(669		)
Interest income elimination	33			—
Equity in earnings (loss) in joint venture	$	5,970		$	2,336

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Income Taxes (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule Of Income Taxes [Line Items]
Tax Credit Carryforward, Deferred Tax Asset			$ 100,000
Income Tax Expense (Benefit)	1,866,000	564,000	(80,000)
Operating Partnership [Member]
Schedule Of Income Taxes [Line Items]
Income Tax Expense (Benefit)	$ (400,000)	$ 0	$ 0

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Debt (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Minimum [Member]	Dec. 31, 2012 Maximum [Member]	Dec. 31, 2012 Revolving facility [Member]	Dec. 31, 2012 Term Loan [Member]	Aug. 13, 2012 Term Loan [Member]
Line of Credit Facility [Line Items]
Senior unsecured revolving credit facility	$ 300,000,000				$ 200,000,000	$ 100,000,000
Credit facility maturity date	Jul. 31, 2016
Credit facility maturity extension option	1 year
Line of Credit Facility, Maximum Borrowing Capacity	600,000,000
Credit facility borrowings LIBOR rate plus			1.75%	2.50%
Annual rate of unused commitment fee			0.25%	0.35%
Long-term Line of Credit	0	0
Outstanding borrowings under the credit facility		0
Unused commitment fees	900,000	900,000
Unsecured Debt	100,000,000	0					100,000,000
Notional Amount of Interest Rate Cash Flow Hedge Derivatives	100,000,000
Debt Instrument, Interest Rate, Stated Percentage						2.55%
Derivative Liability, Fair Value, Gross Liability	300,000
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax	300,000
Other Comprehensive Income (Loss), Reclassification Adjustment on Derivatives Included in Net Income, Net of Tax	200,000
Estimated fair value of debt	$ 372,300,000	$ 251,200,000

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Acquisition of Hotel Properties (Details Textual) (USD $)	12 Months Ended									0 Months Ended	12 Months Ended		0 Months Ended
	Dec. 31, 2012 GuestRooms	Dec. 31, 2011	Dec. 31, 2010	Aug. 23, 2012	Apr. 04, 2012 Hotel Milano [Member] GuestRooms	Jul. 09, 2012 Hotel Vintage Park Seattle [Member] GuestRooms	Jul. 09, 2012 Hotel Vintage Plaza Portland [Member] GuestRooms	Jul. 09, 2012 HotelVintageParkSeattle and HotelVintagePlazaPortland [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member] GuestRooms	Oct. 25, 2012 Hotel Palomar San Francisco [Member] GuestRooms	Dec. 31, 2012 Hotel Palomar San Francisco [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member]	Oct. 25, 2012 First Mortgage [Member] Hotel Palomar San Francisco [Member]
Business Acquisition [Line Items]
Number Of Guest Rooms	4,615				108	125	117		258	196
Acquisition price					$ 29,800,000			$ 63,000,000	$ 125,000,000	$ 58,000,000
Renovation project in progress paid by seller				3,600,000
Proforma adjustment - Acquisition Costs	2,200,000	3,400,000
Acquisition, cash paid										30,800,000
Loans Assumed	27,175,000	42,000,000	91,070,000							(27,175,000)			27,200,000
Base Rent											1,600,000
Ground rent CPI minimum										2.00%
Ground Rent CPI Maximum										4.00%
Ground lease percentage rent on food and beverage revenues minimum										0.00%
Ground lease percentage rent on food and beverage revenues maximum										12.00%
Ground lease percentage rent gross revenues minimum										12.00%
Ground lease percentage rent gross revenues maximum										18.00%
Above Market Lease										6,600,000
Debt Instrument, Unamortized Premium	$ 2,498,000	$ 0										$ 2,600,000

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Earnings per Common Share (Details Textual)	12 Months Ended
	Dec. 31, 2010
Earnings Per Share (Textual) [Abstract]
Unvested awards excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive	78,440

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Share-Based Compensation Plan (Details) (USD $)	12 Months Ended	0 Months Ended	12 Months Ended			0 Months Ended
	Dec. 31, 2012	Jan. 31, 2013 Restricted Stock [Member]	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member]	Dec. 31, 2010 Restricted Stock [Member]	Jan. 31, 2013 Performance Shares [Member]	Feb. 08, 2012 Performance Shares [Member]
Summary of restricted share activity
Unvested shares, Beginning balance			128,664	78,440	15,000
Unvested weighted average grant date fair value, beginning balance			$ 21.59	$ 20.88	$ 20.00
Unvested shares, Granted		59,245	52,545	79,330	70,110	72,118
Granted, weighted average grant date fair value			$ 23.15	$ 22.03	$ 20.98		$ 23.15
Vested, shares			(52,587)	(26,874)	(4,170)
Vested, weighted average grant date fair value			$ 21.43	$ 20.83	$ 20.00
Forfeited, shares	0			(2,232)	(2,500)
Forfeited, weighted average grant date fair value	$ 0.00			$ 21.58	$ 20.00
Unvested shares, Ending balance			128,622	128,664	78,440
Unvested weighted average grant date fair value, ending balance			$ 22.19	$ 21.59	$ 20.88

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Acquisition of Hotel Properties

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

ACQUISITION OF HOTEL PROPERTIES

ACQUISITION OF HOTEL PROPERTIES

On April 4, 2012, the Company acquired the 108-room Hotel Milano located in San Francisco, California for $29.8 million. The Company selected Viceroy Hotel Group as manager for the hotel. In November 2012, the Hotel Milano was closed for a complete renovation and repositioning of the hotel. The Company expects to complete the renovation of the Hotel Milano in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.

On July 9, 2012, the Company acquired, in a single transaction, the 125-room Hotel Vintage Park located in Seattle, Washington and the 117-room Hotel Vintage Plaza located in Portland, Oregon for $63.0 million. Both of these hotels will continue to be managed by Kimpton Hotels and Restaurants.

On August 23, 2012, the Company acquired the 258-room W Los Angeles - Westwood hotel located in Los Angeles, California for $125.0 million. At the time of the acquisition, the hotel had certain capital improvement plans which the seller agreed to fund, therefore, at closing the seller contributed $3.6 million into an escrow account which will be used to fund these capital improvements as they are completed by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.

On October 25, 2012, the Company acquired a leasehold interest in the 196-room Hotel Palomar San Francisco located in San Francisco, California for $58.0 million. The acquisition was funded with $30.8 million of available cash and the assumption of a $27.2 million first mortgage loan. The hotel is subject to a long-term hotel lease agreement with an unaffiliated third party that expires in 2097. The hotel is required to pay the greater of an annual fixed rent (base plus basement rent) or a percentage of food and beverage revenues and gross hotel revenues excluding parking and food and beverage revenues in excess of certain thresholds, as defined in the agreement. The annual fixed rent is approximately $1.6 million, as adjusted for consumer price index "CPI" increases but in no event by less than 2% or more than 4% per year. The percentage rent based on food and beverage revenues ranges from 0% to 12% of food and beverage revenues and the percentage rent based on gross revenues ranges from 12% to 18% of gross revenues. The hotel will continue to be managed by Kimpton Hotels and Restaurants.

The Hotel Palomar San Francisco is subject to a long term lease of certain floors of the building. The rent due under the lease was determined to be above market, and, at acquisition, the Company recorded an above market rent lease liability of approximately $6.6 million that is amortized as a reduction to ground rent expense over the term of the lease. The Hotel Palomar San Francisco is also subject to a fixed rate mortgage that was determined to be above the current market interest rate. The Company recorded a $2.6 million mortgage loan premium for the above market interest that is amortized as a reduction in interest expense through the maturity date of the loan.

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

	Hotel Zetta (formerly Hotel Milano)		Hotel Vintage Park		Hotel Vintage Plaza		W Los Angeles - Westwood			Hotel Palomar San Francisco			Total
Land	$	7,294	$	8,170	$	6,222	$	24,403		$	—		$	46,089
Buildings and improvements	22,166		23,557		23,012		93,203			63,430			225,368
Furniture, fixtures and equipment	290		706		1,093		3,600			3,780			9,469
Above market rate contracts	—		—		—		—			(9,170		)	(9,170		)
Capital improvement reserve	—		—		—		3,600			—			3,600
Mortgage debt	—		—		—		—			(27,175		)	(27,175		)
Net working capital	7		118		123		(193		)	(265		)	(210		)
Net assets acquired	$	29,757	$	32,551	$	30,450	$	124,613		$	30,600		$	247,971

The results of operations of Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood and Hotel Palomar San Francisco 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 endedDecember 31, 2012 and 2011 as if the hotels and the interest in the joint venture acquired in 2012 and 2011 were acquired on January 1, 2011 and 2010, respectively. The following hotels pro forma results are included in the pro forma table below: Argonaut Hotel, Westin Gaslamp Quarter, San Diego, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami, W Boston, Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood, and Hotel Palomar San Francisco. The pro forma results below exclude acquisition costs of $2.2 million and $3.4 million for the years endedDecember 31, 2012 and 2011, respectively. Purchase accounting for the Embassy Suites San Diego Bay-Downtown, which was acquired on January 29, 2013, is not complete and therefore the Company is currently unable to estimate the pro forma effects of this acquisition. 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, 2011 or 2010 or the future results of operations (in thousands, except per-share data).

	For the year ended December 31,
	2012		2011
	(Unaudited)
Total revenues	$	426,869	$	401,044
Operating income (loss)	43,686		36,334
Net income (loss) attributable to common shareholders	12,954		9,486
Net income (loss) per share available to common shareholders — basic and diluted	$	0.23	$	0.16

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Debt (Details Textual 1) (USD $)	12 Months Ended			0 Months Ended		0 Months Ended			0 Months Ended				0 Months Ended		0 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jan. 11, 2012 Monaco Washington D C [Member] First Mortgage [Member]	Dec. 31, 2012 Monaco Washington D C [Member] First Mortgage [Member]	Jan. 11, 2012 Argonaut Hotel [Member] First Mortgage [Member]	Dec. 31, 2012 Argonaut Hotel [Member] First Mortgage [Member]	Feb. 15, 2012 Argonaut Hotel [Member] First Mortgage [Member]	May 18, 2012 Sofitel Philadelphia [Member] First Mortgage [Member]	Feb. 01, 2012 Sofitel Philadelphia [Member] First Mortgage [Member]	Dec. 31, 2012 Sofitel Philadelphia [Member] First Mortgage [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member] First Mortgage [Member]	Dec. 31, 2012 Hotel Palomar San Francisco [Member] First Mortgage [Member]	Dec. 28, 2012 Westin Gaslamp Quarter [Member] First Mortgage [Member]	Dec. 31, 2012 Westin Gaslamp Quarter [Member] First Mortgage [Member]	Dec. 27, 2012 Westin Gaslamp Quarter [Member] First Mortgage [Member]
Mortgage Loans on Real Estate [Line Items]
Principal of mortgage loan	$ 366,010,000	$ 251,539,000		$ 46,000,000				$ 47,000,000	$ 50,000,000								$ 81,000,000
Repayments of mortgage debt	136,704,000	1,031,000	0	35,000,000		42,000,000				56,100,000
Term of mortgage loan				5 years		5 years			5 years				5 years		7 years
Interest Rate				4.36%	4.36%	4.25%	4.25%		3.90%		3.90%		5.94%	5.94%		3.69%	3.69%
Debt instrument, monthly principal and interest payments				200,000		300,000			300,000				200,000		400,000
Debt Instrument, Unamortized Premium	2,498,000	0										2,600,000
Five Year Schedule of Maturities of Debt of Parent Company [Abstract]
2013	6,813,000
2014	7,444,000
2015	7,779,000
2016	117,313,000
2017	255,901,000
Thereafter	70,760,000
Total Debt	468,508,000	251,539,000
Total Debt Principal Payments	$ 466,010,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

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

	For the year ended December 31,
	2012		2011		2010
Federal
Current	$	1,048	$	374	$	—
Deferred	—		70		(70		)
State and local
Current	412		110		—
Deferred	—		10		(10		)
Income tax expense (benefit)	$	1,460	$	564	$	(80	)

Schedule of Effective Income Tax Rate Reconciliation

	For the year ended December 31,
	2012		2011		2010
Statutory federal tax expense (benefit)	$	1,048	$	444	$	(70	)
State income tax expense (benefit)	412		120		(10		)
Income tax expense (benefit)	$	1,460	$	564	$	(80	)

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Share-Based Compensation Plan (Tables)

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of restricted share activity

The following table provides a summary of service condition restricted share activity as of December 31, 2012:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2010	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
Granted	52,545		$	23.15
Vested	(52,587	)	$	21.43
Forfeited	—		$	—
Unvested at December 31, 2012	128,622		$	22.19

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Subsequent Events (Details) (USD $)	12 Months Ended			0 Months Ended		12 Months Ended			0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended
	Dec. 31, 2012 GuestRooms	Dec. 31, 2011	Dec. 31, 2010	Jan. 29, 2013 Embassy Suites San Diego [Member] GuestRooms	Jan. 31, 2013 Restricted Stock [Member]	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member]	Dec. 31, 2010 Restricted Stock [Member]	Jan. 31, 2013 Restricted Stock [Member] Maximum [Member]	Dec. 31, 2012 Restricted Stock [Member] Maximum [Member]	Jan. 31, 2013 Restricted Stock [Member] Minimum [Member]	Dec. 31, 2012 Restricted Stock [Member] Minimum [Member]	Jan. 31, 2013 Performance Shares [Member]	Dec. 31, 2012 Performance Shares [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period									5 years	5 years	3 years	3 years		3 years
Subsequent Events (Textual) [Abstract]
Total number of guest rooms	4,615			337
Acquisition price				$ 112,500,000
Acquisition, cash paid				45,700,000
Loans Assumed	$ 27,175,000	$ 42,000,000	$ 91,070,000	$ 66,800,000
Share-based equity award grant					59,245	52,545	79,330	70,110					72,118

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Equity (Details) (Common Shares [Member], USD $)	3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
Common Shares [Member]
Dividends on common shares/units
Dividend per Share/Unit	$ 0.12	$ 0.12	$ 0.12	$ 0.12
Record Date	Dec. 31, 2012	Sep. 28, 2012	Jun. 29, 2012	Mar. 30, 2012
Payable Date	Jan. 15, 2013	Oct. 15, 2012	Jul. 16, 2012	Apr. 16, 2012

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Earnings per Common Share (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Reconciliation of basic and diluted earnings per common share

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

	For the year ended December 31,
	2012			2011			2010
Numerator:
Net income (loss) attributable to common shareholders	$	8,254		$	4,443		$	(6,642	)
Less: dividends paid on unvested share-based compensation	(310		)	(398		)	(9		)
Undistributed earnings attributable to share-based compensation	—			—			—
Net income (loss) available to common shareholders	$	7,944		$	4,045		$	(6,651	)
Denominator:
Weighted-average number of common shares — basic	55,806,543			47,921,200			28,669,851
Effect of dilutive share-based compensation	148,954			45,107			—
Weighted-average number of common shares — diluted	55,955,497			47,966,307			28,669,851
Net income (loss) per share available to common shareholders — basic	$	0.14		$	0.08		$	(0.23	)
Net income (loss) per share available to common shareholders — diluted	$	0.14		$	0.08		$	(0.23	)

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

2013	$	3,071
2014	3,105
2015	3,140
2016	3,175
2017	3,211
Thereafter	419,805
Total	$	435,507

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 (“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.

Use of Estimates

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

Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, 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

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

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

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

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

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

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 6 for disclosures on the fair value of debt and derivative instruments.

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, assumed liabilities and leasehold interests, as applicable. 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 recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.

Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 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 value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss 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 its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

The Company will classify a hotel as held for sale when a binding agreement to sell 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 value 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 recorded at fair value on the balance sheet date. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense.

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 for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, 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. 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, 2012 and 2011, 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. Share-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

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) attributable to common shareholders as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.

Comprehensive Income

The purpose of reporting comprehensive income is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.  Comprehensive income consists of all components of income, including other comprehensive income, which is excluded from net income.  For the years ended December 31, 2012, 2011 and 2010, comprehensive income (loss) was $26.2 million, $15.2 million and $(6.6) million, respectively. As of December 31, 2012 and 2011, the Company's accumulated other comprehensive income (loss) was $(0.3) million and $0, respectively.  

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted ASU 2011-05 as of January 1, 2012 and disclosed comprehensive income in our consolidated statements of operations and comprehensive income. ASU 2011-05 affects financial statement presentation and has no impact on the Company's results of consolidated financial statements.

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Supplemental Information to Statements of Cash Flows (Tables)

12 Months Ended

Dec. 31, 2012

Supplemental Cash Flow Elements [Abstract]

Summary of Supplemental Information to Statements of Cash Flows

	For the year ended December 31,
	2012		2011		2010
	(in thousands)
Interest paid, net of capitalized interest	$	13,440	$	11,366	$	956
Interest capitalized	$	236	$	—	$	—
Income taxes paid	$	1,877	$	586	$	—
Non-Cash Investing and Financing Activities:
Distributions payable on common shares/units	$	7,461	$	6,219	$	4,908
Distributions payable on preferred shares	$	3,813	$	3,813	$	—
Issuance of common shares for board of trustees compensation	$	199	$	182	$	12
Mortgage loan assumed in connection with acquisition	$	27,175	$	42,000	$	91,070
Above market rate contracts	$	9,170	$	—	$	—
Deposit applied to purchase price of acquisition	$	—	$	5,000	$	—
Accrued additions and improvements to hotel properties	$	1,203	$	2,171	$	—

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Investment in Joint Venture (Details Textual) (USD $)			0 Months Ended				0 Months Ended
	Dec. 31, 2012 properties	Dec. 31, 2011	Dec. 28, 2012 Manhattan Collection Joint Venture [Member]	Dec. 31, 2012 Manhattan Collection Joint Venture [Member] properties	Dec. 27, 2012 Manhattan Collection Joint Venture [Member]	Jul. 29, 2011 Manhattan Collection Joint Venture [Member] properties	Dec. 28, 2012 Manhattan Collection Joint Venture [Member] Hotel [Member] First Mortgage [Member] properties	Dec. 27, 2012 Manhattan Collection Joint Venture [Member] Hotel [Member] First Mortgage [Member]	Dec. 26, 2012 Manhattan Collection Joint Venture [Member] Hotel [Member] First Mortgage [Member]
Investment in Joint Venture (Textual) [Abstract]
Equity interest issued in a joint venture				49.00%		49.00%
Number of properties owned	25			6		6
Transaction value						$ 908,000,000
Secured loan principal	366,010,000	251,539,000						410,000,000	553,200,000
Number of properties used as collateral for secured loan							5
Interest Rate								3.67%
Special loan					50,000,000
Special loan interest rate			9.75%
Additional equity contribution to joint venture			54,900,000
Total assets of joint venture				486,000,000
Total debt	468,508,000	251,539,000		410,000,000
Special Loan				50,000,000
Preferred capital				$ 18,800,000

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Commitments and Contingencies (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Management Agreements [Line Items]
Combined base and incentive management fees	$ 11,500,000	$ 8,100,000	$ 1,700,000
Commitments and Contingencies (Textual) [Abstract]
Reserve funds allowed for hotel maintenance from hotel revenue	4.00%
Restricted cash	12,034,000	9,469,000
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 range	0
Base management fee from hotel revenues	1.00%
Maximum [Member]
Management Agreements [Line Items]
Terms of management agreements not including renewals	20 years
Terms of management agreements including renewals	40 years
Termination fees range	6
Base management fee from hotel revenues	4.00%
Monaco Washington D C [Member]
Commitments and Contingencies (Textual) [Abstract]
Ground lease expiry period	2059
Base rent	200,000
Argonaut Hotel [Member]
Commitments and Contingencies (Textual) [Abstract]
Ground lease expiry period	2059
Base rent	$ 1,200,000
Hotel Palomar San Francisco [Member]
Commitments and Contingencies (Textual) [Abstract]
Ground lease expiry period	2097

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Investment in hotel properties, net	$ 1,417,229	$ 1,127,484
Investment in joint venture	283,011	171,765
Ground lease asset, net	10,283	10,502
Cash and cash equivalents	85,900	65,684
Restricted cash	12,034	9,469
Hotel receivables (net of allowance for doubtful accounts of $28 and $71, respectively)	13,463	11,312
Deferred financing costs, net	5,753	3,487
Prepaid expenses and other assets	18,489	16,929
Total assets	1,846,162	1,416,632
LIABILITIES AND EQUITY
Senior unsecured revolving credit facility	0	0
Term loan	100,000	0
Mortgage debt (including mortgage loan premium of $2,498 and $0, respectively)	368,508	251,539
Accounts payable and accrued expenses	47,364	33,333
Advance deposits	4,596	4,380
Accrued interest	1,328	1,000
Distribution payable	11,274	10,032
Total liabilities	533,070	300,284
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred shares of beneficial interest, $.01 par value (liquidation preference of $225,000 at December 31, 2012 and December 31, 2011), 100,000,000 shares authorized; 9,000,000 shares issued and outstanding at December 31, 2012 and at December 31, 2011	90	90
Common shares of beneficial interest, $.01 par value, 500,000,000 shares authorized; 60,955,090 issued and outstanding at December 31, 2012 and 50,769,024 issued and outstanding at December 31, 2011	610	508
Additional paid-in capital	1,362,349	1,142,905
Accumulated Other Comprehensive Income (Loss)	(300)	0
Distributions in excess of retained earnings	(49,798)	(30,252)
Total shareholders' equity	1,312,951	1,113,251
Non-controlling interests	141	3,097
Total equity	1,313,092	1,116,348
Total liabilities and equity	$ 1,846,162	$ 1,416,632

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Equity (Details 1) (USD $)	3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012
7.875% Series A [Member]
Dividends on preferred shares/units
Dividend per Share/Unit	$ 0.49	$ 0.49	$ 0.49	$ 0.49
Record Date	Dec. 31, 2012	Sep. 28, 2012	Jun. 29, 2012	Mar. 30, 2012
Payable Date	Jan. 15, 2013	Oct. 15, 2012	Jul. 16, 2012	Apr. 16, 2012
8.00% Series B [Member]
Dividends on preferred shares/units
Dividend per Share/Unit	$ 0.50	$ 0.50	$ 0.50	$ 0.50
Record Date	Dec. 31, 2012	Sep. 28, 2012	Jun. 29, 2012	Mar. 30, 2012
Payable Date	Jan. 15, 2013	Oct. 15, 2012	Jul. 16, 2012	Apr. 16, 2012

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating activities:
Net income (loss)	$ 26,508	$ 15,199	$ (6,642)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	42,794	30,945	5,776
Share-based compensation	4,215	2,654	2,042
Amortization of deferred financing costs and mortgage loan premium	1,400	1,555	415
Amortization of ground lease	219	219	69
Equity in earnings (loss) from joint venture	(5,970)	(2,336)	0
Other	240	225	80
Changes in assets and liabilities:
Restricted cash, net	(1,547)	(408)	(1,886)
Hotel receivables	(1,321)	(6,426)	(2,712)
Prepaid expenses and other assets	2,679	(4,481)	(4,192)
Accounts payable and accrued expenses	7,740	10,715	10,491
Advance deposits	216	215	13
Net cash provided by (used in) operating activities	77,173	48,076	3,454
Investing activities:
Acquisition of hotel properties	(247,971)	(467,135)	(518,730)
Improvements and additions to hotel properties	(53,156)	(40,468)	(3,307)
Investment in joint venture	(105,277)	(169,430)	0
Deposit on hotel properties	(4,000)	0	(5,000)
Redemption of certificates of deposits	0	0	70,000
Purchase of corporate office equipment, software, and furniture	(47)	(148)	(497)
Restricted cash, net	2,582	(4,576)	(2,600)
Net cash provided by (used in) investing activities	(407,869)	(681,757)	(460,134)
Financing activities:
Gross proceeds from issuance of common shares	221,579	235,980	332,350
Gross proceeds from issuance of preferred shares	0	225,150	0
Payment of offering costs - common and preferred shares	(6,708)	(17,243)	(23,434)
Payment of deferred financing costs	(3,765)	(2,324)	(3,133)
Contributions from non-controlling interest	0	95	0
Borrowings under senior credit facility	120,000	42,000	0
Repayments under senior credit facility	(120,000)	(42,000)	0
Proceeds from term loan	100,000	0	0
Proceeds from mortgage debt	224,000	67,000	52,500
Repayments of mortgage debt	(136,704)	(1,031)	0
Repurchase of common shares	(321)	(140)	0
Redemption of non-controlling interests	(2,342)	0	0
Distributions - common shares/units	(27,002)	(22,244)	0
Distributions - preferred shares	(17,825)	(6,600)	0
Net cash provided by (used in) financing activities	350,912	478,643	358,283
Net change in cash and cash equivalents	20,216	(155,038)	(98,397)
Cash and cash equivalents, beginning of year	65,684	220,722	319,119
Cash and cash equivalents, end of period	$ 85,900	$ 65,684	$ 220,722

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Schedule III - Real Estate and Accumulated Depreciation (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Real Estate and Accumulated Depreciation Disclosure [Abstract]
Balance	$ 1,495,167	$ 1,163,552	$ 605,382	$ 0
Acquisitions	280,927	515,531	602,075
Capital Expenditures	50,688	42,639	3,307
Balance	77,938	36,068	5,668	0
Depreciation	$ 41,870	$ 30,400	$ 5,668

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Summary of Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies (Textual) [Abstract]
Minimum percentage of adjusted taxable income to be distributed to shareholders as a real estate investment trust	90.00%
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	$ 26,208	$ 15,199	$ (6,642)
Accumulated Other Comprehensive Income (Loss)	$ (300)	$ 0
Minimum [Member] | Land, Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years
Minimum [Member] | Furniture Fixtures And Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	1 year
Maximum [Member] | Land, Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	40 years
Maximum [Member] | Furniture Fixtures And Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

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 (“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.

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 and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.

Risks and Uncertainties

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

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

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

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

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

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

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. See Note 6 for disclosures on the fair value of debt and derivative instruments.

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, assumed liabilities and leasehold interests, as applicable. 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 recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.

Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of 10 to 40 years for buildings, land improvements, and building improvements and 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 value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss 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 its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.

The Company will classify a hotel as held for sale when a binding agreement to sell 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 value 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 recorded at fair value on the balance sheet date. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense.

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 for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, 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. 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, 2012 and 2011, 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. Share-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.

Non-Controlling Interests of Common Units of 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) attributable to common shareholders as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.

Comprehensive Income

Comprehensive Income

The purpose of reporting comprehensive income is to report a measure of all changes in equity of an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners.  Comprehensive income consists of all components of income, including other comprehensive income, which is excluded from net income.  For the years ended December 31, 2012, 2011 and 2010, comprehensive income (loss) was $26.2 million, $15.2 million and $(6.6) million, respectively. As of December 31, 2012 and 2011, the Company's accumulated other comprehensive income (loss) was $(0.3) million and $0, respectively.  

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted ASU 2011-05 as of January 1, 2012 and disclosed comprehensive income in our consolidated statements of operations and comprehensive income. ASU 2011-05 affects financial statement presentation and has no impact on the Company's results of consolidated financial statements.

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Acquisition of Hotel Properties (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended																								0 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 Land [Member]	Dec. 31, 2012 Building and Building Improvements [Member]	Dec. 31, 2012 Furniture Fixtures And Equipment [Member]	Dec. 31, 2012 Construction in Progress [Member]	Apr. 04, 2012 Hotel Milano [Member]	Apr. 04, 2012 Hotel Milano [Member] Land [Member]	Apr. 04, 2012 Hotel Milano [Member] Building and Building Improvements [Member]	Apr. 04, 2012 Hotel Milano [Member] Furniture Fixtures And Equipment [Member]	Jul. 09, 2012 Hotel Vintage Park Seattle [Member]	Jul. 09, 2012 Hotel Vintage Park Seattle [Member] Land [Member]	Jul. 09, 2012 Hotel Vintage Park Seattle [Member] Building and Building Improvements [Member]	Jul. 09, 2012 Hotel Vintage Park Seattle [Member] Furniture Fixtures And Equipment [Member]	Jul. 09, 2012 Hotel Vintage Plaza Portland [Member]	Jul. 09, 2012 Hotel Vintage Plaza Portland [Member] Land [Member]	Jul. 09, 2012 Hotel Vintage Plaza Portland [Member] Building and Building Improvements [Member]	Jul. 09, 2012 Hotel Vintage Plaza Portland [Member] Furniture Fixtures And Equipment [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member] Land [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member] Building and Building Improvements [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member] Furniture Fixtures And Equipment [Member]	Aug. 23, 2012 W Los Angeles-Westwood [Member] Construction in Progress [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member]	Aug. 23, 2012 Hotel Palomar San Francisco [Member]	Aug. 23, 2012 Hotel Palomar San Francisco [Member] Building and Building Improvements [Member]	Aug. 23, 2012 Hotel Palomar San Francisco [Member] Furniture Fixtures And Equipment [Member]
Business Acquisition, Purchase Price Allocation, Assets Acquired (Liabilities Assumed), Net [Abstract]
Business Acquisition, Purchase Price Allocation, Property, Plant and Equipment				$ 46,089	$ 225,368	$ 9,469	$ 3,600		$ 7,294	$ 22,166	$ 290		$ 8,170	$ 23,557	$ 706		$ 6,222	$ 23,012	$ 1,093		$ 24,403	$ 93,203	$ 3,600	$ 3,600			$ 63,430	$ 3,780
Loans Assumed	27,175	42,000	91,070																						(27,175)
Above market rate contracts																										(9,170)
Business Acquisition Purchase Price Allocation Increase Decrease Net Working Capital	(210)							7				118				123				(193)						(265)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net	247,971							29,757				32,551				30,450				124,613						30,600
Business acquisition, unaudited proforma information
Total revenues	426,869	401,044
Operating income (loss)	43,686	36,334
Net income (loss) attributable to common shareholders	$ 12,954	$ 9,486
Net income (loss) per share attributable to common shareholders - basic and diluted	$ 0.23	$ 0.16

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Investment in Hotel Properties (Tables)

12 Months Ended

Dec. 31, 2012

Real Estate [Abstract]

Schedule of Investment in hotel properties

Investment in hotel properties as of December 31, 2012 and 2011 consisted of the following (in thousands):

	December 31, 2012			December 31, 2011
Land	$	236,287		$	190,197
Buildings and improvements	1,141,347			887,217
Furniture, fixtures and equipment	107,938			86,138
Construction in progress	9,595			—
Investment in hotel properties	$	1,495,167		$	1,163,552
Less: Accumulated depreciation	(77,938		)	(36,068		)
Investment in hotel properties, net	$	1,417,229		$	1,127,484

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Organization

12 Months Ended

Dec. 31, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

ORGANIZATION

Pebblebrook Hotel Trust (the “Company”) was formed as a Maryland real estate investment trust in October 2009, to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.

As of December 31, 2012, the Company owned interests in 25 hotels, including 19 wholly owned hotels with a total of 4,615 guest rooms and a 49% interest in a joint venture that owns six hotels with 1,733 guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Bethesda, Maryland; Boston, Massachusetts; Los Angeles, California; Miami, Florida; Minneapolis, Minnesota; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; 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, 2012, the Company owned 99.4% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 0.6% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, “PHL”), 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.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 28	$ 71
Debt Instrument, Unamortized Premium	2,498	0
Preferred shares of beneficial interest, liquidation preference value	$ 225,000	$ 225,000
Preferred shares of beneficial interest, par value	$ 0.01	$ 0.01
Preferred shares of beneficial interest, shares authorized	100,000,000	100,000,000
Preferred shares of beneficial interest, shares issued	9,000,000	9,000,000
Preferred shares of beneficial interest, shares outstanding	9,000,000	9,000,000
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	60,955,090	50,769,024
Common shares of beneficial interest, shares outstanding	60,955,090	50,769,024

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Management Agreements

The Company’s hotel properties are operated pursuant to management agreements with various management companies. The terms of these management agreements range 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 1% 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, exceed 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 endedDecember 31, 2012, 2011 and 2010, base and incentive management fees were $11.5 million, $8.1 million and $1.7 million, 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, 2012 and 2011, the Company had $12.0 million and $9.5 million, respectively, in restricted cash, which consisted 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 and Hotel Leases

The Hotel 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 Argonaut Hotel 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 $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.

The Hotel Palomar San Francisco is subject to a long-term hotel lease for the right to use certain floors of the building. The hotel lease expires in 2097. The hotel is required to pay an annual fixed rent and percentage rent based on gross hotel and gross food and beverage revenues in excess of certain thresholds, as defined in the agreement.

Future minimum annual rental payments under operating leases, which assumes base or fixed rent for all periods and no assumptions for CPI adjustments, as of December 31, 2012 is as follows (in thousands):

2013	$	3,071
2014	3,105
2015	3,140
2016	3,175
2017	3,211
Thereafter	419,805
Total	$	435,507

Litigation

The nature of the operations of hotels exposes the Company's 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 certain 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.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 18, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q4
Entity Registrant Name	Pebblebrook Hotel Trust
Entity Central Index Key	0001474098
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		61,419,586
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 1,336,493,512

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Supplemental Information to Statements of Cash Flows

12 Months Ended

Dec. 31, 2012

Supplemental Cash Flow Elements [Abstract]

SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2012		2011		2010
	(in thousands)
Interest paid, net of capitalized interest	$	13,440	$	11,366	$	956
Interest capitalized	$	236	$	—	$	—
Income taxes paid	$	1,877	$	586	$	—
Non-Cash Investing and Financing Activities:
Distributions payable on common shares/units	$	7,461	$	6,219	$	4,908
Distributions payable on preferred shares	$	3,813	$	3,813	$	—
Issuance of common shares for board of trustees compensation	$	199	$	182	$	12
Mortgage loan assumed in connection with acquisition	$	27,175	$	42,000	$	91,070
Above market rate contracts	$	9,170	$	—	$	—
Deposit applied to purchase price of acquisition	$	—	$	5,000	$	—
Accrued additions and improvements to hotel properties	$	1,203	$	2,171	$	—

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Consolidated Statements of Operations and Comprehensive Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenues:
Room	$ 239,218	$ 177,479	$ 32,804
Food and beverage	117,752	92,898	21,984
Other operating	23,718	17,610	2,973
Total revenues	380,688	287,987	57,761
Hotel operating expenses:
Room	63,213	47,570	9,718
Food and beverage	86,369	65,783	15,113
Other direct	12,236	8,353	1,288
Other indirect	99,766	79,648	16,724
Total hotel operating expenses	261,584	201,354	42,843
Depreciation and amortization	42,794	30,945	5,776
Real estate taxes, personal property taxes and property insurance	17,576	12,895	2,220
Ground rent	2,611	1,814	124
General and administrative	16,777	11,460	8,319
Hotel acquisition costs	2,234	3,392	6,581
Total operating expenses	343,576	261,860	65,863
Operating income (loss)	37,112	26,127	(8,102)
Interest income	224	868	3,020
Interest expense	(14,932)	(13,653)	(1,640)
Other	0	85	0
Equity in earnings (loss) of joint venture	5,970	2,336	0
Income (loss) before income taxes	28,374	15,763	(6,722)
Income tax (expense) benefit	(1,866)	(564)	80
Net income (loss)	26,508	15,199	(6,642)
Net income (loss) attributable to non-controlling interests	429	343	0
Net income (loss) attributable to the Company	26,079	14,856	(6,642)
Distributions to preferred shareholders	(17,825)	(10,413)	0
Net income (loss) attributable to common shareholders	8,254	4,443	(6,642)
Net income (loss) per share available to common shareholders, basic and diluted	$ 0.14	$ 0.08	$ (0.23)
Weighted-average number of common shares, basic	55,806,543	47,921,200	28,669,851
Weighted-average number of common shares, diluted	55,955,497	47,966,307	28,669,851
Comprehensive Income:
Net income (loss)	26,508	15,199	(6,642)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments	(300)	0	0
Comprehensive income (loss)	26,208	15,199	(6,642)
Comprehensive income (loss) attributable to non-controlling interests	427	0	0
Comprehensive income (loss) attributable to the Company	$ 25,781	$ 15,199	$ (6,642)

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Debt

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Debt

DEBT

Senior Unsecured Credit Facility

On July 13, 2012, the Company amended and restated the credit agreement that governs the Company's senior unsecured credit facility and the Company's unsecured term loan to increase the aggregate borrowing capacity to $300.0 million. The credit agreement provides for a $200.0 million unsecured revolving credit facility and a $100.0 million unsecured term loan. The revolving credit facility matures in July 2016, and the Company has a one-year extension option. The Company has the ability to increase the aggregate borrowing capacity under the credit agreement up to $600.0 million, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus 1.75% to 2.50%, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of 0.25% or 0.35% of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a maximum debt service coverage ratio, a minimum fixed charge coverage ratio, and a minimum net worth. As of December 31, 2012 and 2011, the Company had no outstanding borrowings under the revolving credit facility. As of December 31, 2012, the Company was in compliance with the credit agreement debt covenants. For the years endedDecember 31, 2012 and 2011, the Company incurred unused commitment fees of $0.9 million and $0.9 million, respectively.

Term Loan

On August 13, 2012, the Company drew the entire $100.0 million unsecured term loan provided for under its amended senior unsecured credit facility. The five-year term loan matures in July 2017 and bears interest at a variable rate, but was swapped to an effective fixed interest rate for the full five-year term (see “Derivative and Hedging Activities” below). As of December 31, 2012, the Company was in compliance with the credit agreement debt covenants.

Derivative and Hedging Activities

The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. Effective August 13, 2012, the Company entered into three interest rate swap agreements with an aggregate notional amount of $100.0 million for the term loan's full five-year term, resulting in an effective fixed interest rate of 2.55% at the Company's current leverage ratio (as defined in the agreement). The Company has designated its pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

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

As of December 31, 2012, the Company's interest rate swap derivative instruments were in a liability position, with an aggregate fair value of $0.3 million which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. As of December 31, 2012, there was $0.3 million in unrealized loss included in accumulated other comprehensive loss. During the year endedDecember 31, 2012, the Company reclassified $0.2 million from accumulated other comprehensive income to interest expense. The Company had an interest rate cap associated with the mortgage debt on the Sofitel Philadelphia at December 31, 2011. The estimated fair value of the interest rate cap was immaterial. The Sofitel Philadelphia mortgage was repaid during 2012 and the interest rate cap was terminated.

Mortgage Debt

Each of the Company’s mortgage loans is secured by a first mortgage lien or by leasehold interests under a ground or hotel lease on the underlying property. The mortgages are non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.

On January 11, 2012, the Company obtained a $46.0 million first mortgage loan secured by the Company's leasehold interest under the ground lease on the Monaco Washington DC. A portion of the proceeds from this loan was used to repay the existing $35.0 million mortgage on this property. The loan has a term of five years, bears interest at 4.36% and requires monthly principal and interest payments of $0.2 million.

On January 11, 2012, the Company repaid the $42.0 million loan on the Argonaut Hotel with cash on hand and borrowings from the Company's senior unsecured revolving credit facility. On February 15, 2012, the Company obtained a $47.0 million first-mortgage loan secured by the Company's leasehold interest under the ground lease on the Argonaut Hotel. The loan has a term of five years, bears interest at 4.25% and requires monthly principal and interest payments of $0.3 million.

On February 1, 2012, the Company repaid the $56.1 million first mortgage loan on the Sofitel Philadelphia. On May 18, 2012, the Company obtained a $50.0 million first mortgage loan on the Sofitel Philadelphia. The loan has a term of five years, bears interest at 3.90% and requires monthly principal and interest payments of $0.3 million.

In conjunction with the Company's acquisition of the Hotel Palomar San Francisco on October 25, 2012, the Company assumed a $27.2 million first mortgage loan. The loan has a remaining term of five years, bears interest at 5.94% and requires monthly principal and interest payments of $0.2 million. As the loan's interest rate is above market for loans with comparable terms, the Company recorded a loan premium of $2.6 million, which is amortized to interest expense over the remaining term of the loan.

On December 27, 2012, the Company obtained a $81.0 million first mortgage loan secured by the Westin Gaslamp Quarter, San Diego. The loan has a term of seven years, bears interest at 3.69% and requires monthly principal and interest payments of $0.4 million.

Debt Summary

Debt as of December 31, 2012 and 2011 consisted of the following (dollars in thousands):

			Balance Outstanding as of
	Interest Rate	Maturity Date	December 31, 2012		December 31, 2011
Senior unsecured revolving credit facility	Floating	July 2016	$	—	$	—
Term loan	Floating (1)	July 2017	100,000		—
Mortgage loans
InterContinental Buckhead	4.88%	January 2016	51,022		51,805
Skamania Lodge	5.44%	February 2016	30,252		30,664
DoubleTree by Hilton Bethesda-Washington DC	5.28%	February 2016	35,602		36,000
Hotel Monaco Washington DC	4.36%	February 2017	45,368		35,000
Argonaut Hotel	4.25%	March 2017	46,223		42,000
Sofitel Philadelphia	3.90%	June 2017	49,419		56,070
Hotel Palomar San Francisco	5.94%	September 2017	27,124		—
Westin Gaslamp Quarter, San Diego	3.69%	January 1, 2020	81,000		—
Mortgage loans at stated value			366,010		251,539
Mortgage loan premium			2,498		—
Total mortgage loans			$	368,508	$	251,539
Total debt			$	468,508	$	251,539
(1) We entered into interest rate swaps to effectively fix the interest rate for the full five-year term.

 The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within level 2 of the fair value hierarchy. The estimated fair value of the Company’s mortgage loans as of December 31, 2012 and 2011 was $372.3 million and $251.2 million, respectively.

The Company was in compliance with all debt covenants as of December 31, 2012.

Future scheduled debt principal payments for the Company's mortgage debt and term loan as of December 31, 2012 are as follows (in thousands):

2013	$	6,813
2014	7,444
2015	7,779
2016	117,313
2017	255,901
Thereafter	70,760
Total debt principal payments	466,010
Premium on mortgage loan	2,498
Total debt	$	468,508

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Investment in Joint Venture

12 Months Ended

Dec. 31, 2012

Equity Method Investments and Joint Ventures [Abstract]

Investment in Joint Venture

INVESTMENT IN JOINT VENTURE

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. The transaction valued 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.

On December 27, 2012, the joint venture refinanced its existing loans totaling approximately $553.2 million with a new single $410.0 million loan, secured by five of the properties owned by the joint venture. The new loan bears interest at an annual fixed interest rate of 3.67% and requires interest-only payments through maturity on January 5, 2018. In conjunction with the refinancing, the Company provided the joint venture a $50.0 million unsecured special loan which matures at the earlier of July 4, 2018, the closing of any refinancing of the secured loan or the closing date of a portfolio sale (as defined in the loan agreement). The unsecured special loan bears a fixed interest rate of 9.75% and requires interest-only payments through maturity. The unsecured special loan is pre-payable by the joint venture at any time. The balance of the capital for the refinancing and closing costs was provided by the Company and the joint venture partner with the Company's pro-rata equity contribution of $54.9 million. The Company's investment in the unsecured special loan to the joint venture is included in the investment in joint venture on the consolidated balance sheets. Interest income is recorded on the accrual basis and the Company's 49% pro-rata portion of the loan and related interest income is eliminated in consolidation.

As of December 31, 2012, the joint venture reported approximately $486.0 million in total assets, which represents the basis of the hotels prior to our investment. The joint venture's total liabilities and members' deficit include approximately $410.0 million in existing first mortgage debt, a $50 million unsecured special loan, and approximately $18.8 million of preferred capital which may be distributed to the Company's joint venture partner after October 29, 2013. 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 in 2011, 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 venture 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 (loss) of joint venture (referred to as the basis adjustment in the table below).

The summarized results of operations of the Company’s investment in the Manhattan Collection joint venture for the years endedDecember 31, 2012 and 2011 are presented below (in thousands):

	For the year ended December 31,
	2012			2011
Revenues	$	174,718		$	82,124
Total expenses	158,394			75,992
Net income (loss)	$	16,324		$	6,132
Company’s 49% interest of net income (loss)	7,999			3,005
Basis adjustment	(2,062		)	(669		)
Interest income elimination	33			—
Equity in earnings (loss) in joint venture	$	5,970		$	2,336

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Acquisition of Hotel Properties (Tables)

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

Schedule of Purchase Price Allocation

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

	Hotel Zetta (formerly Hotel Milano)		Hotel Vintage Park		Hotel Vintage Plaza		W Los Angeles - Westwood			Hotel Palomar San Francisco			Total
Land	$	7,294	$	8,170	$	6,222	$	24,403		$	—		$	46,089
Buildings and improvements	22,166		23,557		23,012		93,203			63,430			225,368
Furniture, fixtures and equipment	290		706		1,093		3,600			3,780			9,469
Above market rate contracts	—		—		—		—			(9,170		)	(9,170		)
Capital improvement reserve	—		—		—		3,600			—			3,600
Mortgage debt	—		—		—		—			(27,175		)	(27,175		)
Net working capital	7		118		123		(193		)	(265		)	(210		)
Net assets acquired	$	29,757	$	32,551	$	30,450	$	124,613		$	30,600		$	247,971

Business acquisition, unaudited proforma information

	For the year ended December 31,
	2012		2011
	(Unaudited)
Total revenues	$	426,869	$	401,044
Operating income (loss)	43,686		36,334
Net income (loss) attributable to common shareholders	12,954		9,486
Net income (loss) per share available to common shareholders — basic and diluted	$	0.23	$	0.16

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

On January 29, 2013, the Company acquired the 337-suite Embassy Suites San Diego Bay-Downtown located in San Diego, California for $112.5 million. The acquisition was funded with $45.7 million of available cash and the assumption of a $66.8 million first mortgage loan.

On January 30, 2013, the Board of Trustees granted an aggregate of 59,245 service condition restricted share awards to executive officers and employees of the Company. These service condition restricted shares will vest over approximately 3 to 5 years based on the terms of the award.

On January 30, 2013, the Board of Trustees granted 72,118 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, 2013 through December 31, 2015 and will be determined in early 2016.

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

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.

For the years ended December 31, 2012, 2011 and 2010, the Company's Operating Partnership income tax expense was $0.4 million, $0 and $0, respectively.

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

	For the year ended December 31,
	2012		2011		2010
Federal
Current	$	1,048	$	374	$	—
Deferred	—		70		(70		)
State and local
Current	412		110		—
Deferred	—		10		(10		)
Income tax expense (benefit)	$	1,460	$	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 (in thousands):

	For the year ended December 31,
	2012		2011		2010
Statutory federal tax expense (benefit)	$	1,048	$	444	$	(70	)
State income tax expense (benefit)	412		120		(10		)
Income tax expense (benefit)	$	1,460	$	564	$	(80	)

For the year endedDecember 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.

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Equity

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

EQUITY

EQUITY

Common Shares

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

During the year endedDecember 31, 2012, the Company issued 4,519,087 common shares at an average price of $23.72 per share under its $125.0 million at-the-market ("ATM") offering program and raised $105.6 million, net of commissions. On September 28, 2012, the Company filed a prospectus supplement with the SEC to sell up to $170.0 million in common shares under a new $170.0 million ATM program. At the same time, the Company terminated the $125.0 million ATM program which had $17.8 million in common shares remaining available for issuance. As of December 31, 2012, $170.0 million of common shares remained available for issuance under the $170.0 million ATM program.

On June 19, 2012, the Company issued 5,175,000 common shares at a price of $22.10 per share in an underwritten public offering and raised $109.8 million, net of the underwriting discount.

Common Dividends

The Company declared the following dividends on common shares/units for the year endedDecember 31, 2012:

Dividend per Share/Unit		For the Quarter Ended	Record Date	Payable Date
$	0.12	March 31, 2012	March 30, 2012	April 16, 2012
$	0.12	June 30, 2012	June 29, 2012	July 16, 2012
$	0.12	September 30, 2012	September 28, 2012	October 15, 2012
$	0.12	December 31, 2012	December 31, 2012	January 15, 2013

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares of beneficial interest, $.01 par value per share (“preferred shares”).

As of December 31, 2012 and 2011, the Company had 5,600,000 shares of its 7.875% Series A Cumulative Redeemable Preferred Shares ("Series A Preferred Shares") and 3,400,000 shares of its 8.00% Series B Cumulative Redeemable Preferred Shares ("Series B Preferred Shares") outstanding.

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 and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares 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 declared the following dividends on preferred shares for the year endedDecember 31, 2012:

Security Type	Dividend  per Share/Unit		For the quarter Ended	Record Date	Payable Date
7.875% Series A	$	0.49	March 31, 2012	March 30, 2012	April 16, 2012
7.875% Series A	$	0.49	June 30, 2012	June 29, 2012	July 16, 2012
7.875% Series A	$	0.49	September 30, 2012	September 28, 2012	October 15, 2012
7.875% Series A	$	0.49	December 31, 2012	December 31, 2012	January 15, 2013
8.00% Series B	$	0.50	March 31, 2012	March 30, 2012	April 16, 2012
8.00% Series B	$	0.50	June 30, 2012	June 29, 2012	July 16, 2012
8.00% Series B	$	0.50	September 30, 2012	September 28, 2012	October 15, 2012
8.00% Series B	$	0.50	December 31, 2012	December 31, 2012	January 15, 2013

Non-controlling Interest of Common Units in 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, 2012 and 2011, the Operating Partnership had 381,109 and 929,099 long-term incentive partnership units (“LTIP units”) outstanding, respectively, all of which have reached parity with other common Operating Partnership units. As of December 31, 2012, 547,990 of these LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above. On December 31, 2012, 444,535 LTIP units were redeemed for the same number of common shares and 103,455 LTIP units were redeemed for $2.3 million in cash.

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Share-Based Compensation Plan

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION PLAN

SHARE-BASED COMPENSATION PLAN

The Company maintains the 2009 Equity Incentive Plan, as amended (the "Plan") to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan generally vest over three to five years. The Company pays dividends on unvested shares. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. On July 10, 2012, the Company's shareholders approved an amendment and restatement of the Plan to increase the number of shares available to be issued under the Plan from 1,322,625 shares to 2,422,625 shares and extend the term of the Plan from December 6, 2019 to February 8, 2022. As of December 31, 2012, there were 1,124,972 common shares available for issuance under the Plan.

Service Condition Share Awards

The following table provides a summary of service condition restricted share activity as of December 31, 2012:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2010	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
Granted	52,545		$	23.15
Vested	(52,587	)	$	21.43
Forfeited	—		$	—
Unvested at December 31, 2012	128,622		$	22.19

The fair value of each service condition restricted share award is determined based on the closing price of the Company’s common shares on the grant date. For the years endedDecember 31, 2012, 2011 and 2010 the Company recognized approximately $1.5 million, $1.1 million and $0.5 million, respectively, of share-based compensation expense related to these restricted shares in the consolidated statements of operations. As of December 31, 2012, there was $1.6 million of total unrecognized share-based compensation expense related to unvested restricted shares. The unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.6 years.

Performance-Based Equity Awards

Performance-based equity awarded to officers and employees cliff vest after three years if certain performance measurements are met. These awards also require continued employment and are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. The actual number of common shares that ultimately vest will be determined in 2015 based on certain share price and operating performance metrics for the period from January 1, 2012 through December 31, 2014. Performance-based equity awards granted to certain officers are subject to a maximum award cap; however, there is no maximum or cap of the number of shares which may vest on the employee awards.

The performance measurements include share price and operating metrics which consist of: (1) the Company's total shareholder return relative to the total shareholder return of seven companies in a designated peer group ("Relative TSR"); (2) the Company's total shareholder return to established total shareholder return thresholds ("Absolute TSR"); and (3) the change in the gap between the Company's hotel-level earnings before interest, taxes, depreciation and amortization ("Hotel EBITDA") margin compared to that of a peer company. Dividends accumulate over the vesting period and are paid to the grantee once the number of vested shares is determined.

The Relative TSR and Absolute TSR measurements each represent 30 percent of the award and the Hotel EBITDA margin measurement represents 40 percent of the award. The Relative TSR and Absolute TSR measurements are market conditions and the Hotel EBITDA measurement is a performance condition as market and performance conditions are defined in ASC Topic 718.

On February 8, 2012, the Board of Trustees approved a grant of up to a maximum of 120,016 performance-based equity awards to certain officers of the Company (“officer awards”) and approved a target award of 12,102 performance-based equity awards to employees of the Company (“employee awards”). The fair values of the market conditions were determined using a Monte Carlo simulation method performed by a third-party valuation firm. The assumptions for determining the fair value of the Relative TSR and Absolute TSR components included: risk-free interest rate of 0.34%, dividend yield of 2.2%, and expected volatility of 33%. The simulations also considered the actual TSR performance of the Company's shares and the share performance of the peer group. The total grant date fair value per share of the market conditions for the officer awards and employee awards was $8.62 and $17.23, respectively. The grant date fair value of the performance condition was determined based on the closing share price on the date of grant times the target number of shares for this component of the award. The grant date fair value per share of the performance condition for both the officer awards and employee awards was $23.15. Compensation expense on the Hotel EBITDA component will be reassessed at each reporting date to determine whether and at what level the achievement of the target performance condition is probable, and the accrual of compensation expense will be adjusted as appropriate.

At December 31, 2012, the Company assessed the probable achievement of the performance condition and adjusted compensation expense to reflect the expected level of achievement. As of December 31, 2012, there was approximately $2.4 million of unrecognized compensation expense related to these awards, which is expected to be recognized over 2 years. For the year endedDecember 31, 2012, the Company recognized $1.1 million in expense related to these awards.

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 Operating Partnership units with respect to liquidating distributions. If such parity is reached, vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership.

On December 14, 2009, concurrent with the Company's initial public offering, the Company granted 929,099 LTIP units to executives and employees of the Company. These LTIP units vest ratably on each of the first five anniversaries of their dates of grant. All LTIP units will vest upon a change in control. The LTIP units were valued using a Monte Carlo simulation method model. The LTIP unit grants were valued at $8.50 per LTIP unit. 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 Internal Revenue Code, and all the LTIP units achieved full parity with the common Operating Partnership units with respect to liquidating distributions and all other purposes. These LTIP units are allocated their pro-rata share of the Company’s net income (loss).

As of December 31, 2012, the Company had 381,109 LTIP units outstanding, all of which have reached parity with common units but none have vested. All of the LTIP units were held by officers of the Company as of December 31, 2012. On December 31, 2012, the Company was notified that the LTIP unit holders had elected to redeem 547,990 vested LTIP units effective December 31, 2012. At the Company's election, on December 31, 2012, 444,535 vested LTIP units were redeemed for common shares and 103,455 vested LTIP units were redeemed for cash.

The Company recognized $1.6 million in share-based compensation expense related to the LTIP units for each of the years endedDecember 31, 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011 there was $3.1 million and $4.7 million, respectively, of total unrecognized share-based compensation expense related to LTIP units. The unrecognized share-based compensation expense at December 31, 2012 is expected to be recognized over the weighted-average remaining vesting period of 2 years. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s consolidated balance sheets.

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Earnings per Common Share

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

EARNINGS PER COMMON SHARE

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 basic and diluted earnings per common share (in thousands, except share and per-share data):

	For the year ended December 31,
	2012			2011			2010
Numerator:
Net income (loss) attributable to common shareholders	$	8,254		$	4,443		$	(6,642	)
Less: dividends paid on unvested share-based compensation	(310		)	(398		)	(9		)
Undistributed earnings attributable to share-based compensation	—			—			—
Net income (loss) available to common shareholders	$	7,944		$	4,045		$	(6,651	)
Denominator:
Weighted-average number of common shares — basic	55,806,543			47,921,200			28,669,851
Effect of dilutive share-based compensation	148,954			45,107			—
Weighted-average number of common shares — diluted	55,955,497			47,966,307			28,669,851
Net income (loss) per share available to common shareholders — basic	$	0.14		$	0.08		$	(0.23	)
Net income (loss) per share available to common shareholders — diluted	$	0.14		$	0.08		$	(0.23	)

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

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Organization (Details)	Dec. 31, 2012 GuestRooms properties	Jul. 29, 2011 properties
Organization (Textual) [Abstract]
Number of hotels owned by the company	25
Number of wholly owned real estate properties	19
Total number of guest rooms	4,615
Percentage of Operating Partnership units owned by company	99.40%
Percentage of Operating Partnership units owned by other limited partners	0.60%
Manhattan Collection Joint Venture [Member]
Organization (Textual) [Abstract]
Number of hotels owned by the company	6	6
Equity interest issued in a joint venture	49.00%	49.00%
Number of guest rooms in joint ventured real estate properties	1,733

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Earnings per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Numerator:
Net income (loss) attributable to common shareholders	$ 2,632	$ 7,462	$ 5,407	$ (7,247)	$ 3,456	$ 2,825	$ 1,753	$ (3,591)	$ 8,254	$ 4,443	$ (6,642)
Less: dividends paid on unvested share-based compensation									(310)	(398)	(9)
Undistributed earnings attributable to share-based compensation									0	0	0
Net income (loss) available to common shareholders									$ 7,944	$ 4,045	$ (6,651)
Denominator:
Weighted-average number of common shares-basic									55,806,543	47,921,200	28,669,851
Effect of dilutive share-based compensation									148,954	45,107	0
Weighted-average number of common shares-diluted									55,955,497	47,966,307	28,669,851
Net income (loss) per share attributable to common shareholders-basic									$ 0.14	$ 0.08	$ (0.23)
Net income (loss) per share attributable to common shareholders-diluted									$ 0.14	$ 0.08	$ (0.23)

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Schedule III - Real Estate and Accumulated Depreciation

12 Months Ended

Dec. 31, 2012

Real Estate and Accumulated Depreciation [Line Items]

Real Estate and Accumulated Depreciation Disclosure [Text Block]

Pebblebrook Hotel Trust Schedule III--Real Estate and Accumulated Depreciation As of December 31, 2012 (In thousands)
			Initial Costs								Gross Amount at End of Year
Description	Encumb-rances		Land		Building and Improvements		Furniture, Fixtures and Equipment		Costs 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	$	35,602	$	10,065	$	53,000	$	4,035	$	6,624	$	10,065	$	57,225	$	6,434	$	73,724	$	5,858	$	67,866	1971	6/4/2010	3-40 years
Sir Francis Drake	—		22,500		60,547		6,953		13,798		22,500		68,802		12,496		103,798		8,084		95,714		1928	6/22/2010	1-40 years
InterContinental Buckhead	51,022		25,000		68,844		11,000		8,212		25,000		72,110		15,946		113,056		9,416		103,640		2004	7/1/2010	3-40 years
Hotel Monaco Washington DC	45,368		—		60,630		2,441		3,625		—		63,118		3,578		66,696		4,518		62,178		1839	9/9/2010	3-40 years
The Grand Hotel Minneapolis	—		4,950		26,616		300		7,673		4,950		30,629		3,960		39,539		3,200		36,339		1912	9/29/2010	1-40 years
Skamania Lodge	30,252		7,129		44,987		3,523		3,173		7,130		46,868		4,814		58,812		3,906		54,906		1993	11/3/2010	3-40 years
Sheraton Delfina Santa Monica	—		18,784		81,580		2,295		8,139		18,784		85,239		6,775		110,798		5,776		105,022		1972	11/19/2010	3-40 years
Sofitel Philadelphia	49,419		18,000		64,256		4,639		2,944		18,000		65,532		6,307		89,839		4,872		84,967		2000	12/3/2010	3-40 years
Argonaut Hotel	46,223		—		79,492		4,247		4,178		—		81,550		6,367		87,917		5,263		82,654		1907	2/16/2011	3-40 years
Westin Gaslamp Quarter, San Diego	81,000		25,537		86,089		6,850		16,929		25,537		100,471		9,397		135,405		7,771		127,634		1987	4/6/2011	1-40 years
Hotel Monaco Seattle	—		10,105		38,888		2,073		5,526		10,105		41,484		5,003		56,592		2,761		53,831		1969	4/7/2011	3-40 years
Mondrian Los Angeles	—		20,306		110,283		6,091		6,219		20,306		113,632		8,961		142,899		6,212		136,687		1959	5/3/2011	3-40 years
Viceroy Miami	—		8,368		24,246		3,723		1,376		8,368		24,702		4,643		37,713		2,472		35,241		2009	5/26/2011	1-40 years
W Boston	—		19,453		63,893		5,887		1,526		19,453		64,566		6,740		90,759		4,599		86,160		2009	6/8/2011	2-40 years
Hotel Zetta (formerly Hotel Milano)	—		7,294		22,166		290		6,448		7,294		25,728		3,176		36,198		718		35,480		1913	4/4/2012	1-40 years
Hotel Vintage Park	—		8,170		23,557		706		74		8,170		23,561		776		32,507		511		31,996		1922	7/9/2012	3-40 years
Hotel Vintage Plaza	—		6,222		23,012		1,093		—		6,222		23,012		1,093		30,327		451		29,876		1894	7/9/2012	3-40 years
W Los Angeles - Westwood	—		24,403		93,203		3,600		172		24,403		93,203		3,772		121,378		1,108		120,270		1969	8/23/2012	3-40 years
Hotel Palomar San Francisco (1)	27,124		—		63,430		3,780		—		—		63,430		3,780		67,210		442		66,768		1907	10/25/2012	3-40 years
	$	366,010	$	236,286	$	1,088,719	$	73,526	$	96,636	$	236,287	$	1,144,862	$	114,018	$	1,495,167	$	77,938	$	1,417,229

⁽¹⁾ Encumbrance on the Hotel Palomar San Francisco is presented at face value, which excludes loan premium of $2,498 at December 31, 2012.

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
Acquisitions	280,927
Capital Expenditures	50,688
Balance at December 31, 2012	$	1,495,167
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
Depreciation	41,870
Balance at December 31, 2012	$	77,938

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Debt (Tables)

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Debt summary

Debt as of December 31, 2012 and 2011 consisted of the following (dollars in thousands):

			Balance Outstanding as of
	Interest Rate	Maturity Date	December 31, 2012		December 31, 2011
Senior unsecured revolving credit facility	Floating	July 2016	$	—	$	—
Term loan	Floating (1)	July 2017	100,000		—
Mortgage loans
InterContinental Buckhead	4.88%	January 2016	51,022		51,805
Skamania Lodge	5.44%	February 2016	30,252		30,664
DoubleTree by Hilton Bethesda-Washington DC	5.28%	February 2016	35,602		36,000
Hotel Monaco Washington DC	4.36%	February 2017	45,368		35,000
Argonaut Hotel	4.25%	March 2017	46,223		42,000
Sofitel Philadelphia	3.90%	June 2017	49,419		56,070
Hotel Palomar San Francisco	5.94%	September 2017	27,124		—
Westin Gaslamp Quarter, San Diego	3.69%	January 1, 2020	81,000		—
Mortgage loans at stated value			366,010		251,539
Mortgage loan premium			2,498		—
Total mortgage loans			$	368,508	$	251,539
Total debt			$	468,508	$	251,539
(1) We entered into interest rate swaps to effectively fix the interest rate for the full five-year term.

Future scheduled debt payments

Future scheduled debt principal payments for the Company's mortgage debt and term loan as of December 31, 2012 are as follows (in thousands):

2013	$	6,813
2014	7,444
2015	7,779
2016	117,313
2017	255,901
Thereafter	70,760
Total debt principal payments	466,010
Premium on mortgage loan	2,498
Total debt	$	468,508

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule Of Income Taxes [Line Items]
Income Tax Expense (Benefit)	$ 1,866	$ 564	$ (80)
PHL [Member]
Schedule Of Income Taxes [Line Items]
Federal - Current	1,048	374	0
Federal - Deferred		70	(70)
State and Local - Current	412	110
State and Local - Deferred		10	(10)
Statutory Federal Tax Expense (Benefit)	1,048	444	(70)
State Income Tax Expense (Benefit)	412	120	(10)
Income Tax Expense (Benefit)	$ 1,460	$ 564	$ (80)

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Debt (Details) (USD $)			12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended			12 Months Ended				12 Months Ended				12 Months Ended		12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Inter Continental Buckhead Hotel [Member] First Mortgage [Member]	Dec. 31, 2011 Inter Continental Buckhead Hotel [Member] First Mortgage [Member]	Dec. 31, 2012 Skamania Lodge [Member] First Mortgage [Member]	Dec. 31, 2011 Skamania Lodge [Member] First Mortgage [Member]	Dec. 31, 2012 Double Tree By Hilton Bethesda Washington Dc [Member] First Mortgage [Member]	Dec. 31, 2011 Double Tree By Hilton Bethesda Washington Dc [Member] First Mortgage [Member]	Dec. 31, 2012 Monaco Washington D C [Member] First Mortgage [Member]	Jan. 11, 2012 Monaco Washington D C [Member] First Mortgage [Member]	Dec. 31, 2011 Monaco Washington D C [Member] First Mortgage [Member]	Dec. 31, 2012 Argonaut Hotel [Member] First Mortgage [Member]	Feb. 15, 2012 Argonaut Hotel [Member] First Mortgage [Member]	Jan. 11, 2012 Argonaut Hotel [Member] First Mortgage [Member]	Dec. 31, 2011 Argonaut Hotel [Member] First Mortgage [Member]	Dec. 31, 2012 Sofitel Philadelphia [Member] First Mortgage [Member]	May 18, 2012 Sofitel Philadelphia [Member] First Mortgage [Member]	Dec. 31, 2011 Sofitel Philadelphia [Member] First Mortgage [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member]	Dec. 31, 2012 Hotel Palomar San Francisco [Member] First Mortgage [Member]	Oct. 25, 2012 Hotel Palomar San Francisco [Member] First Mortgage [Member]	Dec. 31, 2012 Westin Gaslamp Quarter [Member] First Mortgage [Member]	Dec. 27, 2012 Westin Gaslamp Quarter [Member] First Mortgage [Member]
Debt
Long-term Line of Credit	$ 0	$ 0
Unsecured Debt	100,000,000	0
Interest Rate			4.88%		5.44%		5.28%		4.36%	4.36%		4.25%		4.25%		3.90%	3.90%			5.94%	5.94%	3.69%	3.69%
Debt Instrument, Maturity Date			Jan. 01, 2016		Feb. 01, 2016		Feb. 01, 2016		Feb. 01, 2017			Mar. 01, 2017				Jun. 01, 2017				Sep. 01, 2017		Jan. 01, 2020
Mortgage debt	368,508,000	251,539,000	51,022,000	51,805,000	30,252,000	30,664,000	35,602,000	36,000,000	45,368,000		35,000,000	46,223,000			42,000,000	49,419,000		56,070,000		27,124,000		81,000,000
Mortgage loans at stated value	366,010,000	251,539,000								46,000,000			47,000,000				50,000,000						81,000,000
Debt Instrument, Unamortized Premium	2,498,000	0																	2,600,000
Total debt	$ 468,508,000	$ 251,539,000

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Consolidated Statements of Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Preferred Shares [Member]	Common Shares [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]
Beginning Balance at Dec. 31, 2009	$ 379,500		$ 203	$ 379,370		$ (147)	$ 379,426	$ 74
Beginning Balance Common Shares at Dec. 31, 2009			20,260,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares, net of offering costs, shares			19,550,000
Issuance of shares, net of offering costs	318,448		195	318,253			318,448
Issuance of common shares for Board of Trustee compensation, shares			590
Issuance of common shares for Board of Trustee compensation	12			12			12
Share-based compensation, shares			4,170
Share-based compensation	2,042			465			465	1,577
Distributions on common shares/units	(4,908)					(4,797)	(4,797)	(111)
Unrealized gain (loss) on derivative instruments	0
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	(6,642)					(6,642)	(6,642)
Ending Balance at Dec. 31, 2010	688,452		398	698,100		(11,586)	686,912	1,540
Ending Balance Common Shares at Dec. 31, 2010			39,814,760
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares, net of offering costs, shares		9,000,000	10,925,000
Issuance of shares, net of offering costs	443,888	90	110	443,688			443,888
Issuance of common shares for Board of Trustee compensation, shares			8,886
Issuance of common shares for Board of Trustee compensation	182			182			182
Repurchase of common shares, shares			(6,496)
Repurchase of common shares	140			(140)			(140)
Share-based compensation, shares			26,874
Share-based compensation	2,654			1,075			1,075	1,579
Distributions on common shares/units	(23,555)					(23,109)	(23,109)	(446)
Distributions on preferred shares	(10,427)					(10,413)	(10,413)	(14)
Net contribution from non-controlling interests	(95)							(95)
Unrealized gain (loss) on derivative instruments	0
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	15,199					14,856	14,856	343
Preferred Stock, Shares Outstanding	9,000,000	9,000,000
Ending Balance at Dec. 31, 2011	1,116,348	90	508	1,142,905		(30,252)	1,113,251	3,097
Ending Balance Common Shares at Dec. 31, 2011	50,769,024		50,769,024
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares, net of offering costs, shares			9,694,087
Issuance of shares, net of offering costs	214,871		97	214,774			214,871
Issuance of common shares for Board of Trustee compensation, shares			10,361
Issuance of common shares for Board of Trustee compensation	199			199			199
Repurchase of common shares, shares			(15,706)
Repurchase of common shares	(321)			(321)			(321)
Share-based compensation, shares			52,789
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures			1
Share-based compensation	4,215			2,635			2,636	1,579
Distributions on common shares/units	(28,246)					(27,800)	(27,800)	(446)
Distributions on preferred shares	(17,840)					(17,825)	(17,825)	(15)
Redemption of non-controlling interests, shares			444,535
Redemption of non-controlling interests	(2,342)		4	2,157			2,161	(4,503)
Unrealized gain (loss) on derivative instruments	(300)				(300)		(300)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	26,508					26,079	26,079	429
Preferred Stock, Shares Outstanding	9,000,000	9,000,000
Ending Balance at Dec. 31, 2012	1,313,092	90	610	1,362,349	(300)	(49,798)	1,312,951	141
Ending Balance Common Shares at Dec. 31, 2012	60,955,090		60,955,090
Beginning Balance at Sep. 30, 2012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	7,213
Preferred Stock, Shares Outstanding	9,000,000	9,000,000
Ending Balance at Dec. 31, 2012	$ 1,313,092	$ 90
Ending Balance Common Shares at Dec. 31, 2012	60,955,090

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Investment in Hotel Properties

12 Months Ended

Dec. 31, 2012

Real Estate [Abstract]

INVESTMENT IN HOTEL PROPERTIES

INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of December 31, 2012 and 2011 consisted of the following (in thousands):

	December 31, 2012			December 31, 2011
Land	$	236,287		$	190,197
Buildings and improvements	1,141,347			887,217
Furniture, fixtures and equipment	107,938			86,138
Construction in progress	9,595			—
Investment in hotel properties	$	1,495,167		$	1,163,552
Less: Accumulated depreciation	(77,938		)	(36,068		)
Investment in hotel properties, net	$	1,417,229		$	1,127,484

In November 2012, the Company closed the Hotel Milano for a complete renovation and repositioning of the hotel, including all guestrooms, public areas and the restaurant. The Company expects to complete the renovation of the hotel in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.

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Schedule III - Real Estate and Accumulated Depreciation (Details) (USD $) In Thousands, unless otherwise specified			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Double Tree By Hilton Bethesda Washington Dc [Member]	Dec. 31, 2012 Sir Francis Drake [Member]	Dec. 31, 2012 Inter Continental Buckhead Hotel [Member]	Dec. 31, 2012 Monaco Washington D C [Member]	Dec. 31, 2012 The Grand Hotel Minneapolis [Member]	Dec. 31, 2012 Skamania Lodge [Member]	Dec. 31, 2012 Sheraton Delfina Santa Monica Hotel [Member]	Dec. 31, 2012 Sofitel Philadelphia [Member]	Dec. 31, 2012 Argonaut Hotel [Member]	Dec. 31, 2012 Westin Gaslamp Quarter [Member]	Dec. 31, 2012 Monaco Seattle [Member]	Dec. 31, 2012 Mondrian Los Angeles [Member]	Dec. 31, 2012 Viceroy Miami [Member]	Dec. 31, 2012 W Boston [Member]	Dec. 31, 2012 Hotel Zetta (formerly Hotel Milano) [Member]	Dec. 31, 2012 Hotel Vintage Park Seattle [Member]	Dec. 31, 2012 Hotel Vintage Plaza Portland [Member]	Dec. 31, 2012 W Los Angeles-Westwood [Member]	Dec. 31, 2012 Hotel Palomar San Francisco [Member]		Dec. 31, 2012 Minimum [Member] Double Tree By Hilton Bethesda Washington Dc [Member]	Dec. 31, 2012 Minimum [Member] Sir Francis Drake [Member]	Dec. 31, 2012 Minimum [Member] Inter Continental Buckhead Hotel [Member]	Dec. 31, 2012 Minimum [Member] Monaco Washington D C [Member]	Dec. 31, 2012 Minimum [Member] The Grand Hotel Minneapolis [Member]	Dec. 31, 2012 Minimum [Member] Skamania Lodge [Member]	Dec. 31, 2012 Minimum [Member] Sheraton Delfina Santa Monica Hotel [Member]	Dec. 31, 2012 Minimum [Member] Sofitel Philadelphia [Member]	Dec. 31, 2012 Minimum [Member] Argonaut Hotel [Member]	Dec. 31, 2012 Minimum [Member] Westin Gaslamp Quarter [Member]	Dec. 31, 2012 Minimum [Member] Monaco Seattle [Member]	Dec. 31, 2012 Minimum [Member] Mondrian Los Angeles [Member]	Dec. 31, 2012 Minimum [Member] Viceroy Miami [Member]	Dec. 31, 2012 Minimum [Member] W Boston [Member]	Dec. 31, 2012 Minimum [Member] Hotel Zetta (formerly Hotel Milano) [Member]	Dec. 31, 2012 Minimum [Member] Hotel Vintage Park Seattle [Member]	Dec. 31, 2012 Minimum [Member] Hotel Vintage Plaza Portland [Member]	Dec. 31, 2012 Minimum [Member] W Los Angeles-Westwood [Member]	Dec. 31, 2012 Minimum [Member] Hotel Palomar San Francisco [Member]	Dec. 31, 2012 Maximum [Member] Double Tree By Hilton Bethesda Washington Dc [Member]	Dec. 31, 2012 Maximum [Member] Sir Francis Drake [Member]	Dec. 31, 2012 Maximum [Member] Inter Continental Buckhead Hotel [Member]	Dec. 31, 2012 Maximum [Member] Monaco Washington D C [Member]	Dec. 31, 2012 Maximum [Member] The Grand Hotel Minneapolis [Member]	Dec. 31, 2012 Maximum [Member] Skamania Lodge [Member]	Dec. 31, 2012 Maximum [Member] Sheraton Delfina Santa Monica Hotel [Member]	Dec. 31, 2012 Maximum [Member] Sofitel Philadelphia [Member]	Dec. 31, 2012 Maximum [Member] Argonaut Hotel [Member]	Dec. 31, 2012 Maximum [Member] Westin Gaslamp Quarter [Member]	Dec. 31, 2012 Maximum [Member] Monaco Seattle [Member]	Dec. 31, 2012 Maximum [Member] Mondrian Los Angeles [Member]	Dec. 31, 2012 Maximum [Member] Viceroy Miami [Member]	Dec. 31, 2012 Maximum [Member] W Boston [Member]	Dec. 31, 2012 Maximum [Member] Hotel Zetta (formerly Hotel Milano) [Member]	Dec. 31, 2012 Maximum [Member] Hotel Vintage Park Seattle [Member]	Dec. 31, 2012 Maximum [Member] Hotel Vintage Plaza Portland [Member]	Dec. 31, 2012 Maximum [Member] W Los Angeles-Westwood [Member]	Dec. 31, 2012 Maximum [Member] Hotel Palomar San Francisco [Member]
Real Estate and Accumulated Depreciation [Line Items]
Debt Instrument, Unamortized Premium	$ 2,498	$ 0
Depreciation Life																							3 years	1 year	3 years	3 years	1 year	3 years	3 years	3 years	3 years	1 year	3 years	3 years	1 year	2 years	1 year	3 years	3 years	3 years	3 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years	40 years
Encumbrances	366,010		35,602		51,022	45,368		30,252		49,419	46,223	81,000									27,124	[1]
Initial Cost of Land	236,286		10,065	22,500	25,000		4,950	7,129	18,784	18,000		25,537	10,105	20,306	8,368	19,453	7,294	8,170	6,222	24,403
Initial Cost of Buildings and Improvements	1,088,719		53,000	60,547	68,844	60,630	26,616	44,987	81,580	64,256	79,492	86,089	38,888	110,283	24,246	63,893	22,166	23,557	23,012	93,203	63,430
Initial Cost of Furniture Fixtures And Equipment	73,526		4,035	6,953	11,000	2,441	300	3,523	2,295	4,639	4,247	6,850	2,073	6,091	3,723	5,887	290	706	1,093	3,600	3,780
Costs Capitalized Subsequent to Acquisition	96,636		6,624	13,798	8,212	3,625	7,673	3,173	8,139	2,944	4,178	16,929	5,526	6,219	1,376	1,526	6,448	74		172
Gross Amount of Land	236,287		10,065	22,500	25,000		4,950	7,130	18,784	18,000		25,537	10,105	20,306	8,368	19,453	7,294	8,170	6,222	24,403
Gross Amount of Buildings and Improvements	1,144,862		57,225	68,802	72,110	63,118	30,629	46,868	85,239	65,532	81,550	100,471	41,484	113,632	24,702	64,566	25,728	23,561	23,012	93,203	63,430
Gross Amount Of Furniture Fixtures And Equipment	114,018		6,434	12,496	15,946	3,578	3,960	4,814	6,775	6,307	6,367	9,397	5,003	8,961	4,643	6,740	3,176	776	1,093	3,772	3,780
Total	1,495,167		73,724	103,798	113,056	66,696	39,539	58,812	110,798	89,839	87,917	135,405	56,592	142,899	37,713	90,759	36,198	32,507	30,327	121,378	67,210
Accumulated Depreciation	77,938		5,858	8,084	9,416	4,518	3,200	3,906	5,776	4,872	5,263	7,771	2,761	6,212	2,472	4,599	718	511	451	1,108	442
Net Book Value	$ 1,417,229		$ 67,866	$ 95,714	$ 103,640	$ 62,178	$ 36,339	$ 54,906	$ 105,022	$ 84,967	$ 82,654	$ 127,634	$ 53,831	$ 136,687	$ 35,241	$ 86,160	$ 35,480	$ 31,996	$ 29,876	$ 120,270	$ 66,768
Year of Original Construction			1971	1928	2004	1839	1912	1993	1972	2000	1907	1987	1969	1959	2009	2009	1913	1922	1894	1969	1907
Date of Acquisition			Jun. 04, 2010	Jun. 22, 2010	Jul. 01, 2010	Sep. 09, 2010	Sep. 29, 2010	Nov. 03, 2010	Nov. 19, 2010	Dec. 03, 2010	Feb. 16, 2011	Apr. 06, 2011	Apr. 07, 2011	May 03, 2011	May 26, 2011	Jun. 08, 2011	Apr. 04, 2012	Jul. 09, 2012	Jul. 09, 2012	Aug. 23, 2012	Oct. 25, 2012

[1] Encumbrance on the Hotel Palomar San Francisco is presented at face value, which excludes loan premium of $2,498 at December 31, 2012.

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Equity (Tables)

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

Dividends on common shares/units

The Company declared the following dividends on common shares/units for the year endedDecember 31, 2012:

Dividend per Share/Unit		For the Quarter Ended	Record Date	Payable Date
$	0.12	March 31, 2012	March 30, 2012	April 16, 2012
$	0.12	June 30, 2012	June 29, 2012	July 16, 2012
$	0.12	September 30, 2012	September 28, 2012	October 15, 2012
$	0.12	December 31, 2012	December 31, 2012	January 15, 2013

Dividends on preferred shares/units

The Company declared the following dividends on preferred shares for the year endedDecember 31, 2012:

Security Type	Dividend  per Share/Unit		For the quarter Ended	Record Date	Payable Date
7.875% Series A	$	0.49	March 31, 2012	March 30, 2012	April 16, 2012
7.875% Series A	$	0.49	June 30, 2012	June 29, 2012	July 16, 2012
7.875% Series A	$	0.49	September 30, 2012	September 28, 2012	October 15, 2012
7.875% Series A	$	0.49	December 31, 2012	December 31, 2012	January 15, 2013
8.00% Series B	$	0.50	March 31, 2012	March 30, 2012	April 16, 2012
8.00% Series B	$	0.50	June 30, 2012	June 29, 2012	July 16, 2012
8.00% Series B	$	0.50	September 30, 2012	September 28, 2012	October 15, 2012
8.00% Series B	$	0.50	December 31, 2012	December 31, 2012	January 15, 2013

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Investment in Hotel Properties (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investment in hotel properties
Land	$ 236,287	$ 190,197
Buildings and improvements	1,141,347	887,217
Furniture, fixtures and equipment	107,938	86,138
Construction in progress	9,595	0
Investment in hotel properties	1,495,167	1,163,552
Less: Accumulated depreciation	(77,938)	(36,068)
Investment in hotel properties, net	$ 1,417,229	$ 1,127,484

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Quarterly Operating Results

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL INFORMATION

QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the years endedDecember 31, 2012 and 2011 (in thousands, except per-share data) is below. 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, 2012
	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Total revenues	$	77,474		$	94,167	$	104,305	$	104,742
Net income (loss)	(2,837		)	10,027		12,105		7,213
Net income (loss) attributable to the Company	(2,791		)	9,864		11,918		7,088
Net income (loss) attributable to common shareholders	(7,247		)	5,407		7,462		2,632
Net income (loss) per share available to common shareholders, basic and diluted	$	(0.14	)	$	0.10	$	0.13	$	0.04
	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