LaSalle Hotel Properties - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - LaSalle Hotel Properties	lho-2017x0930x10qxex321.htm
EX-31.2 - EXHIBIT 31.2 - LaSalle Hotel Properties	lho-2017x0930x10qxex312.htm
EX-31.1 - EXHIBIT 31.1 - LaSalle Hotel Properties	lho-2017x0930x10qxex311.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________



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

For the Quarterly Period Ended September 30, 2017



¨	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 1-14045

___________________________________

LASALLE HOTEL PROPERTIES

(Exact name of registrant as specified in its charter)

___________________________________



Maryland		36-4219376
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

7550 Wisconsin Avenue, 10^th Floor Bethesda, Maryland		20814
(Address of principal executive offices)		(Zip Code)

(301) 941-1500

(Registrant’s telephone number, including area code)

___________________________________

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. Yes x 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). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common and preferred shares as of the latest practicable date.



Class		Outstanding at October 19, 2017
Common Shares of Beneficial Interest ($0.01 par value)		113,231,780
6.375% Series I Cumulative Redeemable Preferred Shares ($0.01 par value)		4,400,000
6.3% Series J Cumulative Redeemable Preferred Shares ($0.01 par value)		6,000,000

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LASALLE HOTEL PROPERTIES

INDEX



PART I.	Financial Information	1

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	43


PART II.	Other Information	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

	SIGNATURE	46

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PART I.	Financial Information


Item 1.	Financial Statements

LASALLE HOTEL PROPERTIES

Consolidated Balance Sheets

(in thousands, except share data)



	September 30, 2017			December 31, 2016
	(unaudited)
Assets:
Investment in hotel properties, net (Note 3)	$	3,271,918		$	3,672,209
Property under development	41,639			21,078
Assets held for sale (Note 3)	0			23,283
Cash and cash equivalents	444,285			134,652
Restricted cash reserves (Note 5)	14,654			15,035
Hotel receivables (net of allowance for doubtful accounts of $397 and $279, respectively)	43,495			35,403
Debt issuance costs for borrowings under credit facilities, net	3,547			1,699
Deferred tax assets	1,730			1,902
Prepaid expenses and other assets	49,285			38,818
Total assets	$	3,870,553		$	3,944,079
Liabilities:
Borrowings under credit facilities (Note 4)	$	0		$	0
Term loans, net of unamortized debt issuance costs (Note 4)	853,049			852,758
Bonds payable, net of unamortized debt issuance costs (Note 4)	42,484			42,455
Mortgage loan, net of unamortized debt issuance costs (Note 4)	224,200			223,494
Accounts payable and accrued expenses	153,620			171,965
Liabilities of assets held for sale (Note 3)	0			247
Advance deposits	31,684			33,232
Accrued interest	2,219			2,209
Distributions payable	55,135			56,360
Total liabilities	1,362,391			1,382,720
Commitments and contingencies (Note 5)
Equity:
Shareholders’ Equity:
Preferred shares of beneficial interest, $0.01 par value (liquidation preference of $260,000 and $328,750, respectively), 40,000,000 shares authorized; 10,400,000 and 13,150,000 shares issued and outstanding, respectively (Note 6)	104			132
Common shares of beneficial interest, $0.01 par value, 200,000,000 shares authorized; 113,251,427 shares issued and 113,231,780 shares outstanding, respectively, and 113,115,442 shares issued and 113,088,074 shares outstanding, respectively (Note 6)	1,132			1,131
Treasury shares, at cost (Note 6)	(553		)	(739		)
Additional paid-in capital, net of offering costs of $82,842 and $85,223, respectively	2,766,385			2,830,740
Accumulated other comprehensive income (Note 4)	4,358			2,365
Distributions in excess of retained earnings	(266,607		)	(275,564		)
Total shareholders’ equity	2,504,819			2,558,065
Noncontrolling Interests:
Noncontrolling interests in consolidated entities	17			17
Noncontrolling interests of common units in Operating Partnership (Note 6)	3,326			3,277
Total noncontrolling interests	3,343			3,294
Total equity	2,508,162			2,561,359
Total liabilities and equity	$	3,870,553		$	3,944,079

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

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LASALLE HOTEL PROPERTIES

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share data)

(unaudited)



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Hotel operating revenues:
Room	$	209,019		$	237,757		$	609,769		$	664,463
Food and beverage	50,191			61,718			161,803			197,090
Other operating department	24,243			25,892			66,728			70,992
Total hotel operating revenues	283,453			325,367			838,300			932,545
Other income	2,403			1,569			9,005			5,582
Total revenues	285,856			326,936			847,305			938,127
Expenses:
Hotel operating expenses:
Room	55,474			59,342			163,068			170,596
Food and beverage	37,628			44,307			116,908			137,209
Other direct	2,793			4,562			9,631			13,218
Other indirect (Note 8)	69,207			78,734			212,040			230,932
Total hotel operating expenses	165,102			186,945			501,647			551,955
Depreciation and amortization	43,355			48,022			134,684			144,491
Real estate taxes, personal property taxes and insurance	16,663			13,913			46,867			47,023
Ground rent (Note 5)	4,788			4,570			11,996			12,491
General and administrative	6,475			6,076			19,946			19,549
Other expenses	3,179			1,007			6,656			5,512
Total operating expenses	239,562			260,533			721,796			781,021
Operating income	46,294			66,403			125,509			157,106
Interest income	951			167			1,408			3,497
Interest expense	(10,026		)	(10,332		)	(29,276		)	(33,681		)
Loss from extinguishment of debt (Note 4)	0			0			(1,706		)	0
Income before income tax expense	37,219			56,238			95,935			126,922
Income tax expense (Note 9)	(1,978		)	(3,109		)	(2,208		)	(5,099		)
Income before net gain on sale of properties and sale of note receivable	35,241			53,129			93,727			121,823
Net gain on sale of properties and sale of note receivable (Note 3)	31			104,549			85,545			104,549
Net income	35,272			157,678			179,272			226,372
Net income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities	0			0			(8		)	(8		)
Noncontrolling interests of common units in Operating Partnership (Note 6)	(49		)	(203		)	(242		)	(299		)
Net income attributable to noncontrolling interests	(49		)	(203		)	(250		)	(307		)
Net income attributable to the Company	35,223			157,475			179,022			226,065
Distributions to preferred shareholders	(4,116		)	(5,405		)	(13,908		)	(12,802		)
Issuance costs of redeemed preferred shares (Note 6)	0			0			(2,401		)	0
Net income attributable to common shareholders	$	31,107		$	152,070		$	162,713		$	213,263

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LASALLE HOTEL PROPERTIES

Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share data)

(unaudited)



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Earnings per Common Share - Basic (Note 11):
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.27		$	1.34		$	1.44		$	1.89
Earnings per Common Share - Diluted (Note 11):
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.27		$	1.34		$	1.43		$	1.88
Weighted average number of common shares outstanding:
Basic	113,007,475			112,811,403			112,961,365			112,781,732
Diluted	113,383,360			113,159,844			113,343,711			113,138,897

Comprehensive Income:
Net income	$	35,272		$	157,678		$	179,272		$	226,372
Other comprehensive income:
Unrealized gain (loss) on interest rate derivative instruments (Note 4)	517			3,172			(34		)	(17,051		)
Reclassification adjustment for amounts recognized in net income (Note 4)	547			1,637			2,030			5,147
	36,336			162,487			181,268			214,468
Comprehensive income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities	0			0			(8		)	(8		)
Noncontrolling interests of common units in Operating Partnership (Note 6)	(51		)	(209		)	(245		)	(284		)
Comprehensive income attributable to noncontrolling interests	(51		)	(209		)	(253		)	(292		)
Comprehensive income attributable to the Company	$	36,285		$	162,278		$	181,015		$	214,176

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

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LASALLE HOTEL PROPERTIES

Consolidated Statements of Equity

(in thousands, except per share/unit data)

(unaudited)



	Preferred Shares of Beneficial Interest			Common Shares of Beneficial Interest		Treasury Shares			Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Distributions in Excess of Retained Earnings			Total Shareholders’ Equity			Noncontrolling Interests in Consolidated Entities			Noncontrolling Interests of Common Units in Operating Partnership			Total Noncontrolling Interests			Total Equity
Balance, December 31, 2015	$	72		$	1,131	$	(4,798	)	$	2,684,010		$	(97	)	$	(306,051	)	$	2,374,267		$	18		$	3,198		$	3,216		$	2,377,483
Issuance of shares, net of offering costs	60			0		3,196			142,208			0			0			145,464			0			0			0			145,464
Repurchase of common shares into treasury	0			0		(2,145		)	0			0			0			(2,145		)	0			0			0			(2,145		)
Deferred compensation, net	0			0		2,971			2,918			0			0			5,889			0			0			0			5,889
Distributions on earned shares from share awards with market conditions	0			0		0			0			0			(365		)	(365		)	0			0			0			(365		)
Distributions on common shares/units ($1.35 per share/unit)	0			0		0			0			0			(152,785		)	(152,785		)	0			(196		)	(196		)	(152,981		)
Distributions on preferred shares	0			0		0			0			0			(12,802		)	(12,802		)	(9		)	0			(9		)	(12,811		)
Net income	0			0		0			0			0			226,065			226,065			8			299			307			226,372
Other comprehensive income:
Unrealized loss on interest rate derivative instruments	0			0		0			0			(17,029		)	0			(17,029		)	0			(22		)	(22		)	(17,051		)
Reclassification adjustment for amounts recognized in net income	0			0		0			0			5,140			0			5,140			0			7			7			5,147
Balance, September 30, 2016	$	132		$	1,131	$	(776	)	$	2,829,136		$	(11,986	)	$	(245,938	)	$	2,571,699		$	17		$	3,286		$	3,303		$	2,575,002

Balance, December 31, 2016	$	132		$	1,131	$	(739	)	$	2,830,740		$	2,365		$	(275,564	)	$	2,558,065		$	17		$	3,277		$	3,294		$	2,561,359
Issuance of shares, net of offering costs	0			0		3,776			(2,536		)	0			0			1,240			0			0			0			1,240
Redemption of preferred shares	(28		)	0		0			(66,341		)	0			(2,401		)	(68,770		)	0			0			0			(68,770		)
Repurchase of common shares into treasury	0			0		(4,241		)	0			0			0			(4,241		)	0			0			0			(4,241		)
Deferred compensation, net	0			1		651			4,522			0			0			5,174			0			0			0			5,174
Distributions on earned shares from share awards with market conditions	0			0		0			0			0			(780		)	(780		)	0			0			0			(780		)
Distributions on common shares/units ($1.35 per share/unit)	0			0		0			0			0			(152,976		)	(152,976		)	0			(196		)	(196		)	(153,172		)
Distributions on preferred shares	0			0		0			0			0			(13,908		)	(13,908		)	(8		)	0			(8		)	(13,916		)
Net income	0			0		0			0			0			179,022			179,022			8			242			250			179,272
Other comprehensive income:
Unrealized loss on interest rate derivative instruments	0			0		0			0			(34		)	0			(34		)	0			0			0			(34		)
Reclassification adjustment for amounts recognized in net income	0			0		0			0			2,027			0			2,027			0			3			3			2,030
Balance, September 30, 2017	$	104		$	1,132	$	(553	)	$	2,766,385		$	4,358		$	(266,607	)	$	2,504,819		$	17		$	3,326		$	3,343		$	2,508,162

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

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LASALLE HOTEL PROPERTIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	For the nine months ended
	September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	179,272		$	226,372
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	134,684			144,491
Amortization of debt issuance costs	2,098			2,554
Loss from extinguishment of debt	1,706			0
Net gain on sale of properties and sale of note receivable	(85,545		)	(104,549		)
Amortization of deferred compensation	5,174			5,889
Deferred income tax expense	172			1,499
Allowance for doubtful accounts	118			38
Other	1,352			221
Changes in assets and liabilities:
Restricted cash reserves	237			3,090
Hotel receivables	(13,114		)	(10,835		)
Prepaid expenses and other assets	(16,548		)	(6,372		)
Accounts payable and accrued expenses	7,088			7,651
Advance deposits	2,772			7,459
Accrued interest	10			(1,193		)
Net cash provided by operating activities	219,476			276,315
Cash flows from investing activities:
Additions to properties	(67,023		)	(61,006		)
Improvements to properties	0			(14,147		)
Purchase of office furniture and equipment	(14		)	(22		)
Proceeds from sale of note receivable	0			79,712
Restricted cash reserves	(1,356		)	8,134
Proceeds from sale of properties	402,400			166,736
Property insurance proceeds	2,735			1,602
Net cash provided by investing activities	336,742			181,009
Cash flows from financing activities:
Borrowings under credit facilities	0			431,496
Repayments under credit facilities	0			(452,496		)
Repayments of mortgage loans	0			(286,294		)
Payment of debt issuance costs	(4,626		)	(5		)
Purchase of treasury shares	(4,241		)	(2,145		)
Proceeds from issuance of preferred shares	0			150,000
Payment of preferred offering costs	0			(4,922		)
Payment of common offering costs	0			(94		)
Distributions on earned shares from share awards with market conditions	(780		)	(365		)
Redemption of preferred shares	(68,750		)	0
Distributions on preferred shares	(15,205		)	(10,448		)
Distributions on common shares/units	(152,983		)	(152,783		)
Net cash used in financing activities	(246,585		)	(328,056		)
Net change in cash and cash equivalents	309,633			129,268
Cash and cash equivalents, beginning of period	134,652			5,700
Cash and cash equivalents, end of period	$	444,285		$	134,968

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

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LASALLE HOTEL PROPERTIES

Notes to Consolidated Financial Statements

(in thousands, except share/unit data)

(unaudited)


1.	Organization

LaSalle Hotel Properties (the “Company”), a Maryland real estate investment trust organized on January 15, 1998, primarily buys, owns, redevelops and leases upscale and luxury full-service hotels located in convention, resort and major urban business markets. The Company is a self-administered and self-managed real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company is generally not subject to federal corporate income tax on that portion of its net income that is currently distributed to its shareholders. The income of LaSalle Hotel Lessee, Inc. (together with its wholly owned subsidiaries, “LHL”), the Company’s wholly owned taxable REIT subsidiary, is subject to taxation at normal corporate rates.

As of September 30, 2017, the Company owned interests in 41 hotels with approximately 10,450 guest rooms located in seven states and the District of Columbia. Each hotel is leased to LHL (see Note 8) under a participating lease that provides for rental payments equal to the greater of (i) a base rent or (ii) a participating rent based on hotel revenues. The LHL leases expire between December 2017 and December 2019. Lease revenue from LHL is eliminated in consolidation. A third-party non-affiliated hotel operator manages each hotel pursuant to a hotel management agreement.

Substantially all of the Company’s assets are held directly or indirectly by, and all of its operations are conducted through, LaSalle Hotel Operating Partnership, L.P. (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. The Company owned, through a combination of direct and indirect interests, 99.9% of the common units of the Operating Partnership at September 30, 2017. The remaining 0.1% is held by limited partners who held 145,223 common units of the Operating Partnership at September 30, 2017. See Note 6 for additional disclosures related to common units of the Operating Partnership.


2.	Summary of Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. As such, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. These unaudited consolidated financial statements, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the consolidated balance sheets, consolidated statements of operations and comprehensive income (loss), consolidated statements of equity and consolidated statements of cash flows for the periods presented. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 due to seasonal and other factors. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Basis of Presentation

The consolidated financial statements include the accounts of the Company, the Operating Partnership, LHL and their subsidiaries in which they have a controlling interest, including joint ventures. All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Substantially all of the Company’s revenues and expenses are generated by the operations of the individual hotels. The Company records revenues and expenses that are estimated by the hotel operators and reviewed by the Company to produce quarterly financial statements because the management contracts do not require the hotel operators to submit actual results within a time frame that permits the Company to use actual results when preparing its Quarterly Reports on Form 10-Q for filing by the deadline prescribed by the SEC. Generally, the Company records actual revenue and expense amounts for the first two months of each quarter and estimated revenue and expense amounts for the last month of each quarter. Each quarter, the Company reviews

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the estimated revenue and expense amounts provided by the hotel operators for reasonableness based upon historical results for prior periods and internal Company forecasts. The Company records any differences between recorded estimated amounts and actual amounts in the following quarter; historically, these differences have not been material. The Company believes the quarterly revenues and expenses, recorded on the Company’s consolidated statements of operations and comprehensive income (loss) based on an aggregate estimate, are fairly stated.

Investment in Hotel Properties

Upon acquisition, the Company determines the fair value of the acquired long-lived assets, assumed debt and intangible assets and liabilities. The Company’s investments in hotel properties are carried at cost and depreciated using the straight-line method over an estimated useful life of 30 to 40 years for buildings, 15 years for building improvements, the shorter of the useful life of the improvement or the term of the related tenant lease for tenant improvements, seven years for land improvements, 20 years for golf course land improvements, 20 years for swimming pool assets and three to five years for furniture, fixtures and equipment. For investments subject to land and building leases that qualify as capital leases, assets are recorded at the estimated fair value of the right to use the leased property at acquisition and depreciated over the shorter of the useful lives of the assets or the term of the respective lease. Renovations and/or replacements that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives.

The Company is required to make subjective assessments as to the useful lives and classification of its properties for purposes of determining the amount of depreciation expense to reflect each year with respect to those properties. These assessments have a direct impact on the Company’s net income. Should the Company change the expected useful life or classification of particular assets, it would result in a change in depreciation expense and annual net income.

Share-Based Compensation

From time to time, the Company awards shares under the 2014 Equity Incentive Plan, as amended (“2014 Plan”), which has approximately six years remaining, as compensation to executives, employees and members of the Board of Trustees (see Note 7). The shares issued to executives and employees generally vest over three years. The shares issued to members of the Board of Trustees vest immediately upon issuance. The Company recognizes compensation expense for nonvested shares with service conditions or service and market conditions on a straight-line basis over the vesting period based upon the fair value of the shares on the date of issuance, adjusted for forfeitures. Compensation expense for nonvested shares with service and performance conditions is recognized based on the fair value of the estimated number of shares expected to vest, as revised throughout the vesting period, adjusted for forfeitures. The 2014 Plan replaced the 2009 Equity Incentive Plan (“2009 Plan”) in May 2014.

Noncontrolling Interests

The Company’s consolidated financial statements include entities in which the Company has a controlling financial interest. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations and comprehensive income (loss), revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Income or loss is allocated to noncontrolling interests based on their weighted average ownership percentage for the applicable period. Consolidated statements of equity include beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

However, the Company’s noncontrolling interests that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company evaluates whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.

As of September 30, 2017, the consolidated results of the Company include the following ownership interests held by owners other than the Company: (i) the common units in the Operating Partnership held by third parties, (ii) the outside preferred ownership interests in a subsidiary and (iii) the outside ownership interest in a joint venture.

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Variable Interest Entities

The Operating Partnership is a variable interest entity. The Company’s significant asset is its investment in the Operating Partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Company’s debt is an obligation of the Operating Partnership.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. By working in conjunction with its hotel operators, the Company has completed its evaluation of the effect that ASU No. 2014-09 will have on its consolidated financial statements and its evaluation of each of its revenue streams under the new standard. Because of the short-term, day-to-day nature of the Company’s hotel revenues the Company has determined that the pattern of revenue recognition will not change significantly. Additionally, the Company does not sell hotel properties to customers as defined by FASB, but has historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations, and therefore, ASU No. 2014-09 will not impact the recognition of hotel sales. The Company is currently finalizing its expanded disclosure for the notes to the consolidated financial statements pursuant to the new requirements. The Company will adopt the new standard on its effective date of January 1, 2018 under the cumulative effect transition method.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not initial direct leasing costs. This standard will be effective for the first annual reporting period beginning after December 15, 2018. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. The Company is creating an inventory of its leases and is analyzing its current ground lease obligations. The Company anticipates recording assets and liabilities on its consolidated balance sheets associated with the ground lease obligations under ASU No. 2016-02.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this standard on January 1, 2017.

In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. ASU No. 2017-05 will impact the recognition of gains and losses from hotel sales. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company is evaluating the effect that ASU No. 2017-05 will have on its consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplifies the application of hedge accounting. This standard will be effective for the first annual period beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The Company is evaluating the effect that ASU No. 2017-12 will have on its consolidated financial statements and related disclosures.

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3.	Investment in Hotel Properties

Investment in hotel properties as of September 30, 2017 and December 31, 2016 consists of the following:



	September 30, 2017			December 31, 2016
Land	$	624,782		$	727,176
Buildings and improvements	3,263,572			3,531,280
Furniture, fixtures and equipment	733,459			769,671
Investment in hotel properties, gross	4,621,813			5,028,127
Accumulated depreciation	(1,349,895		)	(1,355,918		)
Investment in hotel properties, net	$	3,271,918		$	3,672,209

As of September 30, 2017, buildings and improvements included capital lease assets of $149,457 and accumulated depreciation included amounts related to capital lease assets of $25,890. As of December 31, 2016, buildings and improvements included capital lease assets of $183,503 and accumulated depreciation included amounts related to capital lease assets of $26,230. Depreciation of the capital lease assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations and comprehensive income for all periods presented.

Depreciation expense was $43,205 and $134,264 for the three and nine months ended September 30, 2017, respectively, and $47,888 and $144,088 for the three and nine months ended September 30, 2016, respectively.

Dispositions

Upon the sale of a hotel, the Company determines its profit from the sale under the full accrual method provided the following applicable criteria are met: (i) a sale is consummated; (ii) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (iii) the Company’s receivable, if applicable, is not subject to future subordination; (iv) the Company has transferred to the buyer the usual risks and rewards of ownership; and (v) the Company does not have a substantial continuing involvement with the property. If all of these conditions are met, the Company will recognize the full profit on the sale.

During the nine months ended September 30, 2016, the Company sold Indianapolis Marriott Downtown. During the nine months ended September 30, 2017, the Company sold Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton and Westin Philadelphia. These dispositions do not represent a strategic shift in the Company’s business plan or primary markets, and therefore, do not qualify as discontinued operations. The sale of each property was recorded on the full accrual method.

On July 14, 2016, the Company sold Indianapolis Marriott Downtown for $165,000. The Company recognized a gain of $104,837 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2016.

On January 19, 2017, the Company sold Hotel Deca for $55,000. As of December 31, 2016, Hotel Deca qualified as held for sale. Substantially all of the assets held for sale consisted of investment in hotel properties, net and immaterial prepaid expenses and other assets and the liabilities of assets held for sale consisted of accounts payable and accrued expenses. The Company recognized a gain of zero and $30,656 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The proceeds were used for general corporate purposes.

On March 22, 2017, the Company sold Lansdowne Resort for $133,000. The Company recognized a gain of zero and $10,253 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The proceeds were used for general corporate purposes and the redemption of the 7.5% Series H Cumulative Redeemable Preferred Shares (the “Series H Preferred Shares”) on May 4, 2017 (see Note 6).

On March 31, 2017, the Company sold Alexis Hotel for $71,625. The Company recognized a gain of zero and $33,420 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The proceeds were used for general corporate purposes and the redemption of the Series H Preferred Shares on May 4, 2017 (see Note 6).

On April 11, 2017, the Company sold Hotel Triton for $14,250. The Company recognized a gain of zero and $6,739 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The proceeds were used for general corporate purposes and the redemption of the Series H Preferred Shares on May 4, 2017 (see Note 6).

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On June 29, 2017, the Company sold Westin Philadelphia for $135,000. The Company recognized a gain of $31 and $4,477 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The proceeds were used for general corporate purposes.

Note Receivable

On July 20, 2015, the Company provided a junior mezzanine loan (the “Mezzanine Loan”) secured by pledges of equity interests in the entities that own the hotel properties, Shutters on the Beach and Casa Del Mar, in Santa Monica, CA. The Company entered into the Mezzanine Loan for a total purchase price of $80,000 before closing costs. On July 8, 2016, the Company sold the Mezzanine Loan at face value for $80,000 less costs associated with the sale of $288, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2016.


4.	Long-Term Debt

Debt Summary

Debt as of September 30, 2017 and December 31, 2016 consisted of the following:



			Balance Outstanding as of
Debt	Interest Rate	Maturity Date	September 30, 2017			December 31, 2016
Credit facilities
Senior unsecured credit facility	Floating ^(a)	January 2021 ^(a)	$	0		$	0
LHL unsecured credit facility	Floating ^(b)	January 2021 ^(b)	0			0
Total borrowings under credit facilities			0			0
Term loans
First Term Loan	Floating/Fixed ^(c)	January 2022	300,000			300,000
Second Term Loan	Floating/Fixed ^(c)	January 2021	555,000			555,000
Debt issuance costs, net			(1,951		)	(2,242		)
Total term loans, net of unamortized debt issuance costs			853,049			852,758
Massport Bonds
Hyatt Regency Boston Harbor (taxable)	Floating ^(d)	March 2018	5,400			5,400
Hyatt Regency Boston Harbor (tax exempt)	Floating ^(d)	March 2018	37,100			37,100
Debt issuance costs, net			(16		)	(45		)
Total bonds payable, net of unamortized debt issuance costs			42,484			42,455
Mortgage loan
Westin Copley Place	Floating ^(e)	August 2018 ^(e)	225,000			225,000
Debt issuance costs, net			(800		)	(1,506		)
Total mortgage loan, net of unamortized debt issuance costs			224,200			223,494
Total debt			$	1,119,733		$	1,118,707

^(a)

Borrowings bear interest at floating rates equal to, at the Company’s option, either (i) LIBOR plus an applicable margin, or (ii) an Adjusted Base Rate (as defined in the credit agreement) plus an applicable margin. There were no borrowings outstanding at September 30, 2017 and December 31, 2016. The Company has the option, pursuant to certain terms and conditions, to extend the maturity date for two six-month extensions.

^(b)

Borrowings bear interest at floating rates equal to, at LHL’s option, either (i) LIBOR plus an applicable margin, or (ii) an Adjusted Base Rate (as defined in the credit agreement) plus an applicable margin. There were no borrowings outstanding at September 30, 2017 and December 31, 2016. LHL has the option, pursuant to certain terms and conditions, to extend the maturity date for two six-month extensions.

^(c)

Term loans bear interest at floating rates equal to LIBOR plus an applicable margin. The Company entered into interest rate swaps to effectively fix the interest rates for the First Term Loan (as defined below) and the Second Term Loan (as defined below). At September 30, 2017 and December 31, 2016, the Company had interest rate swaps on the full amounts outstanding. See “Derivative and Hedging Activities” below. At September 30, 2017, the fixed all-in interest rates for the First Term Loan and Second Term Loan were 3.23% and 2.95%, respectively, at the Company’s current leverage ratio (as defined in the swap agreements). At December 31, 2016, the fixed all-in interest rates for the First Term Loan and Second Term Loan were 2.38% and 2.95%, respectively, at the Company’s current leverage ratio (as defined in the swap agreements).

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^(d)

The Massport Bonds are secured by letters of credit issued by U.S. Bank National Association and the letters of credit are secured by the Hyatt Regency Boston Harbor. In August 2017, the Company exercised its final extension option to extend the letters of credit through March 1, 2018, the Massport Bonds’ maturity date. The bonds bear interest based on weekly floating rates. The interest rates as of September 30, 2017 were 1.19% and 0.98% for the $5,400 and $37,100 bonds, respectively. The interest rates as of December 31, 2016 were 0.75% and 0.76% for the $5,400 and $37,100 bonds, respectively. The Company incurs an annual letter of credit fee of 1.35%.

^(e)

The mortgage loan matures on August 14, 2018 with three options to extend the maturity date to January 5, 2021, pursuant to certain terms and conditions. The interest-only mortgage loan bears interest at a variable rate ranging from LIBOR plus 1.75% to LIBOR plus 2.00%, depending on Westin Copley Place’s net cash flow (as defined in the loan agreement). The interest rate as of September 30, 2017 was LIBOR plus 1.75%, which equaled 2.99%. The interest rate as of December 31, 2016 was LIBOR plus 1.75%, which equaled 2.46%. The mortgage loan allows for prepayments without penalty, subject to certain terms and conditions.

Future scheduled debt principal payments as of September 30, 2017 (refer to previous table for extension options) are as follows:



2017	$	0
2018	267,500
2019	0
2020	0
2021	555,000
Thereafter	300,000
Total debt	$	1,122,500

A summary of the Company’s interest expense and weighted average interest rates for unswapped variable rate debt for the three and nine months ended September 30, 2017 and 2016 is as follows:



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Interest Expense:
Interest incurred	$	9,561		$	9,552		$	27,553		$	31,421
Amortization of debt issuance costs	669			841			2,098			2,554
Capitalized interest	(204		)	(61		)	(375		)	(294		)
Interest expense	$	10,026		$	10,332		$	29,276		$	33,681

Weighted Average Interest Rates for Unswapped Variable Rate Debt:
Senior unsecured credit facility	N/A			2.17		%	N/A			2.14		%
LHL unsecured credit facility	N/A			N/A			N/A			2.13		%
Massport Bonds	0.95		%	0.55		%	0.84		%	0.36		%
Mortgage loan (Westin Copley Place)	2.97		%	2.25		%	2.76		%	2.20		%

Credit Facilities

On January 10, 2017, the Company refinanced its $750,000 senior unsecured credit facility with a syndicate of banks. As amended, the credit facility now matures on January 8, 2021, subject to two six-month extensions that the Company may exercise at its option, pursuant to certain terms and conditions, including payment of an extension fee. The credit facility, with a current commitment of $750,000, includes an accordion feature which, subject to certain conditions, entitles the Company to request additional lender commitments, allowing for total commitments of up to $1,250,000. Borrowings under the credit facility bear interest at floating rates equal to, at the Company’s option, either (i) LIBOR plus an applicable margin, or (ii) an Adjusted Base Rate (as defined in the credit agreement) plus an applicable margin. Additionally, the Company is required to pay a variable unused commitment fee of 0.20% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the credit facility.

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On January 10, 2017, LHL also refinanced its $25,000 unsecured revolving credit facility to be used for working capital and general lessee corporate purposes. As amended, the LHL credit facility matures on January 10, 2021, subject to two six-month extensions that LHL may exercise at its option, pursuant to certain terms and conditions, including payment of an extension fee. Borrowings under the LHL credit facility bear interest at floating rates equal to, at LHL’s option, either (i) LIBOR plus an applicable margin, or (ii) an Adjusted Base Rate (as defined in the credit agreement) plus an applicable margin. Additionally, LHL is required to pay a variable unused commitment fee of 0.20% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the LHL unsecured credit facility.

The Company’s senior unsecured credit facility and LHL’s unsecured credit facility contain certain financial and other covenants, including covenants relating to net worth requirements, debt ratios and fixed charge coverage ratios. In addition, pursuant to the terms of the agreements, if a default or event of default occurs or is continuing, the Company may be precluded from paying certain distributions or other payments to its shareholders.

The Company and certain of its subsidiaries guarantee the obligations under the Company’s senior unsecured credit facility. While the senior unsecured credit facility does not initially include any pledges of equity interests in the Company’s subsidiaries, in connection with the January 10, 2017 refinancing, such pledges and additional subsidiary guarantees would be required in the event that the Company’s leverage ratio later exceeds 6.50:1.00 for two consecutive fiscal quarters. In the event that such pledge and guarantee requirement is triggered, the pledges and additional guarantees would ratably benefit the Company’s senior unsecured credit facility, the First Term Loan and the Second Term Loan. If at any time the Company’s leverage ratio falls below 6.50:1.00 for two consecutive fiscal quarters, such pledges and additional guarantees may be released.

Term Loans

On January 10, 2017, the Company refinanced its $300,000 unsecured term loan (the “First Term Loan”) that matures on January 10, 2022. The First Term Loan includes an accordion feature, which subject to certain conditions, entitles the Company to request additional lender commitments, allowing for total commitments of up to $500,000. The First Term Loan bears interest at variable rates.

On January 10, 2017, the Company amended and restated its $555,000 unsecured term loan (the “Second Term Loan”) that matures on January 29, 2021. The Second Term Loan includes an accordion feature, which subject to certain conditions, entitles the Company to request additional lender commitments, allowing for total commitments of up to $700,000. The Second Term Loan bears interest at variable rates.

The Company has entered into interest rate swap agreements to effectively fix the LIBOR rates for the term loans (see “Derivative and Hedging Activities” below).

The Company’s term loans contain certain financial and other covenants, including covenants relating to net worth requirements, debt ratios and fixed charge coverage ratios. In addition, pursuant to the terms of the agreements, if a default or event of default occurs or is continuing, the Company may be precluded from paying certain distributions or other payments to its shareholders.

The Company and certain of its subsidiaries guarantee the obligations under the Company’s term loans. While the term loans do not initially include any pledges of equity interests in the Company’s subsidiaries, in connection with the January 10, 2017 refinancing, such pledges and additional subsidiary guarantees would be required in the event that the Company’s leverage ratio later exceeds 6.50:1.00 for two consecutive fiscal quarters. In the event that such pledge and guarantee requirement is triggered, the pledges and additional guarantees would ratably benefit the Company’s senior unsecured credit facility, the First Term Loan and the Second Term Loan. If at any time the Company’s leverage ratio falls below 6.50:1.00 for two consecutive fiscal quarters, such pledges and additional guarantees may be released.

Derivative and Hedging Activities

The Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Unrealized gains and losses on the effective portion of hedging instruments are reported in other comprehensive income (loss) (“OCI”). Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. Amounts reported in accumulated other comprehensive income (loss) (“AOCI”) related to currently outstanding derivatives are recognized as an adjustment to income (loss) as interest payments are made on the Company’s variable rate debt. Effective August 2, 2012, the Company entered into five interest rate swap agreements with an aggregate notional amount of $300,000 to hedge the variable interest rate on the First Term Loan through August 2, 2017. Effective August 2, 2017, the Company entered into six new interest rate swap agreements

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with an aggregate notional amount of $300,000 to hedge the variable interest rate on the First Term Loan through January 10, 2022, resulting in a fixed all-in interest rate based on the Company’s current leverage ratio (as defined in the swap agreements), which interest rate was 3.23% at September 30, 2017. As of September 30, 2017, the Company has interest rate swaps with an aggregate notional amount of $555,000 to hedge the variable interest rate on the Second Term Loan and, as a result, the fixed all-in interest rate based on the Company’s current leverage ratio (as defined in the swap agreements) is 2.95% through May 16, 2019. From May 16, 2019 through the term of the Second Term Loan, the Company has interest rate swaps with an aggregate notional amount of $377,500 to hedge a portion of the variable interest rate debt on the Second Term Loan. The Company has designated its pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges. The interest rate swaps were entered into with the intention of eliminating the variability of the terms loans, but can also limit the exposure to any amendments, supplements, replacements or refinancings of the Company’s debt.

The following tables present the effect of derivative instruments on the Company’s accompanying consolidated statements of operations and comprehensive income, including the location and amount of unrealized gain (loss) on outstanding derivative instruments in cash flow hedging relationships, for the three and nine months ended September 30, 2017 and 2016:



	Amount of Gain Recognized in OCI on Derivative Instruments				Location of Loss Reclassified from AOCI into Net Income	Amount of Loss Reclassified from AOCI into Net Income
	(Effective Portion)				(Effective Portion)	(Effective Portion)
	For the three months ended					For the three months ended
	September 30,					September 30,
	2017		2016			2017		2016
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	517	$	3,172	Interest expense	$	547	$	1,637



	Amount of Loss Recognized in OCI on Derivative Instruments						Location of Loss Reclassified from AOCI into Net Income	Amount of Loss Reclassified from AOCI into Net Income
	(Effective Portion)						(Effective Portion)	(Effective Portion)
	For the nine months ended							For the nine months ended
	September 30,							September 30,
	2017			2016				2017		2016
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(34	)	$	(17,051	)	Interest expense	$	2,030	$	5,147

During the nine months ended September 30, 2017 and 2016, the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.

As of September 30, 2017, there was $4,364 in cumulative unrealized gain of which $4,358 was included in AOCI and $6 was attributable to noncontrolling interests. As of December 31, 2016, there was $2,368 in cumulative unrealized gain of which $2,365 was included in AOCI and $3 was attributable to noncontrolling interests. The Company expects that approximately $3,119 will be reclassified from AOCI and noncontrolling interests and recognized as a reduction to income in the next 12 months, calculated as estimated interest expense using the interest rates on the derivative instruments as of September 30, 2017.

Extinguishment of Debt

As discussed above, on January 10, 2017, the Company refinanced its senior unsecured credit facility and First Term Loan and LHL refinanced its unsecured revolving credit facility. The refinancing arrangements for the senior unsecured credit facility and First Term Loan were considered substantial modifications. The Company recognized a loss from extinguishment of debt of zero and $1,706, which is included in the accompanying consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017, respectively. The loss from extinguishment of debt represents a portion of the unamortized debt issuance costs incurred for the senior unsecured credit facility when the original agreement was executed and the debt issuance costs incurred in connection with the refinancing of the First Term Loan.

Mortgage Loan

The Company’s mortgage loan is secured by the property. The mortgage is non-recourse to the Company except for fraud or misapplication of funds.

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The Company’s mortgage loan contains debt service coverage ratio tests related to the mortgaged property. If the debt service coverage ratio for the property fails to exceed a threshold level specified in the mortgage, cash flows from that hotel may automatically be directed to the lender to (i) satisfy required payments, (ii) fund certain reserves required by the mortgage and (iii) fund additional cash reserves for future required payments, including final payment. Cash flows may be directed to the lender (“cash trap”) until such time as the property again complies with the specified debt service coverage ratio or the mortgage is paid off.

Financial Covenants

Failure of the Company to comply with financial and other covenants contained in its credit facilities, term loans and non-recourse secured mortgage could result from, among other things, changes in its results of operations, the incurrence of additional debt or changes in general economic conditions.

If the Company violates financial and other covenants contained in any of its credit facilities or term loans described above, the Company may attempt to negotiate waivers of the violations or amend the terms of the applicable credit facilities or term loans with the lenders thereunder; however, the Company can make no assurance that it would be successful in any such negotiations or that, if successful in obtaining waivers or amendments, such amendments or waivers would be on terms attractive to the Company. If a default under the credit facilities or term loans were to occur, the Company would possibly have to refinance the debt through additional debt financing, private or public offerings of debt securities, or additional equity financings. If the Company is unable to refinance its debt on acceptable terms, including at maturity of the credit facilities and term loans, it may be forced to dispose of hotel properties on disadvantageous terms, potentially resulting in losses that reduce cash flow from operating activities. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates upon refinancing, increases in interest expense would lower the Company’s cash flow, and, consequently, cash available for distribution to its shareholders.

A cash trap associated with a mortgage loan may limit the overall liquidity for the Company as cash from the hotel securing such mortgage would not be available for the Company to use. If the Company is unable to meet mortgage payment obligations, including the payment obligation upon maturity of the mortgage borrowing, the mortgage securing the specific property could be foreclosed upon by, or the property could be otherwise transferred to, the mortgagee with a consequent loss of income and asset value to the Company.

As of September 30, 2017, the Company is in compliance with all debt covenants, current on all loan payments and not otherwise in default under the credit facilities, term loans, bonds payable and mortgage loan.


5.	Commitments and Contingencies

Ground, Land and Building, and Air Rights Leases

A summary of the Company’s hotels subject to non-cancelable operating leases as of September 30, 2017 is as follows:



Lease Properties	Lease Type	Lease Expiration Date
Southernmost Beach Resort Key West (Restaurant facility)	Ground lease	April 2019 ⁽¹⁾
Hyatt Regency Boston Harbor	Ground lease	March 2026 ⁽²⁾
The Hilton San Diego Resort and Spa	Ground lease	December 2045
San Diego Paradise Point Resort and Spa	Ground lease	May 2050
Hotel Vitale	Ground lease	March 2056 ⁽³⁾
Viceroy Santa Monica	Ground lease	September 2065
Westin Copley Place ⁽⁴⁾	Air rights lease	December 2077
The Liberty Hotel	Ground lease	May 2080
Hotel Solamar	Ground lease	December 2102

⁽¹⁾ The Company can begin negotiating a renewal one year in advance of the lease expiration date.

⁽²⁾ The Company has options, subject to certain terms and conditions, to extend the ground lease for 51 years to 2077.

⁽³⁾The Company has the option, subject to certain terms and conditions, to extend the ground lease for 14 years to 2070.

⁽⁴⁾ No payments are required through maturity.

The ground leases at Viceroy Santa Monica, The Liberty Hotel and Hotel Vitale are subject to minimum annual rent increases, resulting in noncash straight-line rent expense of $459 and $1,384 for the three and nine months ended September 30, 2017,

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respectively, and $472 and $1,420 for the three and nine months ended September 30, 2016, respectively, which is included in total ground rent expense. Total ground rent expense for the three and nine months ended September 30, 2017 was $4,788 and $11,996, respectively. Total ground rent expense for the three and nine months ended September 30, 2016 was $4,570 and $12,491, respectively. Certain rent payments are based on the hotel’s performance. Actual payments of rent may exceed the minimum required rent due to meeting specified thresholds.

A summary of the Company’s hotels subject to capital leases of land and building as of September 30, 2017 is as follows:



Lease Properties	Estimated Present Value of Remaining Rent Payments ⁽¹⁾		Lease Expiration Date
The Roger	$	4,892	December 2044
Harbor Court Hotel	$	18,424	April 2048

⁽¹⁾ At acquisition, the estimated present value of the remaining rent payments were recorded as capital lease obligations. These obligations, net of amortization, are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Actual base and participating ground rent payments related to The Roger and Harbor Court Hotel were $99 and $335 for the three months ended September 30, 2017, respectively, and $298 and $921 for the nine months ended September 30, 2017, respectively. Actual base and participating ground rent payments related to The Roger and Harbor Court Hotel were $99 and $334 for the three months ended September 30, 2016, respectively, and $298 and $1,004 for the nine months ended September 30, 2016, respectively.

As of September 30, 2017, future minimum rent payments, including capital lease payments, (without reflecting future applicable Consumer Price Index increases) are as follows:



2017	$	2,836
2018	11,442
2019	11,389
2020	11,730
2021	11,850
Thereafter	487,362
	$	536,609

Reserve Funds for Future Capital Expenditures

Certain of the Company’s agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, generally 4.0% of hotel revenues, sufficient to cover the cost of (i) certain non-routine repairs and maintenance to the hotels and (ii) replacements and renewals to the hotels’ capital assets. Certain of the agreements require that the Company reserve this cash in separate accounts. As of September 30, 2017, $12,929 was available in restricted cash reserves for future capital expenditures. The Company has sufficient cash on hand and availability on its credit facilities to cover capital expenditures under agreements that do not require that the Company separately reserve cash.

Restricted Cash Reserves

At September 30, 2017, the Company held $14,654 in restricted cash reserves. Included in such amounts are $12,929 of reserve funds for future capital expenditures and $1,725 held by insurance and management companies on the Company’s behalf to be refunded or applied to future liabilities.

Litigation

The nature of hotel operations exposes the Company and its hotels to the risk of claims and litigation in the normal course of their business. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any litigation threatened against the Company, 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 the liquidity, results of operations, business or financial condition of the Company.

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6.	Equity

Common Shares of Beneficial Interest

On January 1, 2017, the Company issued 16,010 common shares of beneficial interest and authorized an additional 9,103 deferred shares to the independent members of its Board of Trustees for their 2016 compensation. These common shares of beneficial interest were issued under the 2014 Plan.

On January 31, 2017, the Company issued 27,767 common shares of beneficial interest related to the resignation of a former member of its Board of Trustees for his accumulated deferred shares granted as compensation for 2001 through 2016. These common shares of beneficial interest were issued under the 2009 Plan and 2014 Plan.

On March 2, 2017, the Company issued 38,599 common shares of beneficial interest to executives related to the nonvested share awards with either market or performance conditions granted on March 20, 2014 (see Note 7 for additional details, including vesting information). These common shares of beneficial interest were issued under the 2009 Plan.

On March 23, 2017, the Company issued 122,816 nonvested shares with service conditions to the Company’s executives and employees. The nonvested shares will vest in three annual installments starting January 1, 2018, subject to continued employment. These common shares of beneficial interest were issued under the 2014 Plan.

On July 1, 2017, the Company issued 40,000 common shares of beneficial interest to an executive related to the nonvested share awards with market conditions granted on May 31, 2008 (see Note 7 for additional details including vesting information). All of the shares vested immediately on July 1, 2017. These common shares of beneficial interest were issued under the 2009 Plan.

On August 11, 2017, the Company issued 38,260 common shares of beneficial interest to executives related to the nonvested share awards with either market or performance conditions granted on March 20, 2014 (see Note 7 for additional details, including vesting information). These common shares of beneficial interest were issued under the 2009 Plan.

Common Dividends

The Company paid the following dividends on common shares/units during the nine months ended September 30, 2017:



Dividend per Share/Unit		For the Quarter Ended	Record Date	Date Paid
$	0.45	December 31, 2016	December 30, 2016	January 17, 2017
$	0.45	March 31, 2017	March 31, 2017	April 17, 2017
$	0.45	June 30, 2017	June 30, 2017	July 17, 2017

Treasury Shares

Treasury shares are accounted for under the cost method. During the nine months ended September 30, 2017, the Company received 143,147 common shares of beneficial interest related to employees surrendering shares to pay minimum withholding taxes on the vesting date and forfeiting nonvested shares upon resignation.

The Company’s Board of Trustees has authorized an expanded share repurchase program (the “Repurchase Program”) to acquire up to $600,000 of the Company’s common shares of beneficial interest, with repurchased shares recorded at cost in treasury. As of September 30, 2017, the Company has availability under the Repurchase Program to acquire up to $569,807 of common shares of beneficial interest. The timing, manner, price and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The Repurchase Program may be suspended, modified or terminated at any time for any reason without prior notice. The Repurchase Program does not obligate the Company to acquire any specific number of shares, and all open market repurchases will be made in accordance with applicable rules and regulations setting forth certain restrictions on the method, timing, price and volume of open market share repurchases.

During the nine months ended September 30, 2017, the Company re-issued 16,010 treasury shares related to earned 2016 compensation for the Board of Trustees, 27,767 treasury shares related to the resignation of a former member of the Board of Trustees for his accumulated deferred shares granted as compensation for 2001 through 2016, 84,316 treasury shares related to the earned share awards with market or performance conditions and 22,775 treasury shares related to the grants of nonvested shares with service conditions.

At September 30, 2017, there were 19,647 common shares of beneficial interest in treasury.

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Preferred Shares

The following preferred shares of beneficial interest were outstanding as of September 30, 2017:



Security Type		Number of Shares
6.375% Series I Preferred Shares		4,400,000
6.3% Series J Preferred Shares		6,000,000

On May 4, 2017, the Company redeemed all of the outstanding Series H Preferred Shares for $68,750 ($25.00 per share) plus $272 of accrued and unpaid dividends through the redemption date. The redemption value of the Series H Preferred Shares exceeded their carrying value by $2,401, which is included in the determination of net income attributable to common shareholders for the nine months ended September 30, 2017. The $2,401 represents the offering costs related to the redeemed Series H Preferred Shares.

The 6.375% Series I Cumulative Redeemable Preferred Shares (the “Series I Preferred Shares”) and the 6.3% Series J Cumulative Redeemable Preferred Shares (the “Series J 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 Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares of beneficial interest unless it has also paid (or set aside for payment) the full cumulative distributions on the Preferred Shares for all past dividend periods. The outstanding Preferred Shares do not have any maturity date, and are not subject to mandatory redemption. The difference between the carrying value and the redemption amount of the Preferred Shares are the offering costs. In addition, the Company is not required to set aside funds to redeem the Preferred Shares.

The Company may not optionally redeem the Series I Preferred Shares and the Series J Preferred Shares prior to March 4, 2018 and May 25, 2021, 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. In addition, upon the occurrence of a change of control (as defined in the Company’s declaration of trust), the result of which the Company’s common shares of beneficial interest and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE American LLC or the NASDAQ Stock Market, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within 120 days after the change of control occurred, by paying $25.00 per share, plus any accrued and unpaid distributions. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of Series I Preferred Shares and Series J Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares of beneficial interest based on a defined formula subject to a cap of 8,835,200 common shares and 12,842,400 common shares, respectively.

Preferred Dividends

The Company paid the following dividends on preferred shares during the nine months ended September 30, 2017:



Security Type	Dividend per Share ⁽¹⁾		For the Quarter Ended	Record Date	Date Paid
7.5% Series H	$	0.47	December 31, 2016	December 30, 2016	January 17, 2017
6.375% Series I	$	0.40	December 31, 2016	December 30, 2016	January 17, 2017
6.3% Series J	$	0.39	December 31, 2016	December 30, 2016	January 17, 2017
7.5% Series H	$	0.47	March 31, 2017	March 31, 2017	April 17, 2017
6.375% Series I	$	0.40	March 31, 2017	March 31, 2017	April 17, 2017
6.3% Series J	$	0.39	March 31, 2017	March 31, 2017	April 17, 2017
6.375% Series I	$	0.40	June 30, 2017	June 30, 2017	July 17, 2017
6.3% Series J	$	0.39	June 30, 2017	June 30, 2017	July 17, 2017

⁽¹⁾ Amounts are rounded to the nearest whole cent for presentation purposes.

In addition, the final dividend payment of $0.10 per Series H Preferred Share for the period April 15, 2017 through the redemption date of May 4, 2017 was included in the redemption price.

Noncontrolling Interests of Common Units in Operating Partnership

As of September 30, 2017, the Operating Partnership had 145,223 common units of limited partnership interest outstanding, representing a 0.1% partnership interest, held by the limited partners. As of September 30, 2017, approximately $4,211 of cash or

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the equivalent value in common shares, at the Company’s option, would be paid to the limited partners of the Operating Partnership if the partnership were terminated. The approximate value of $4,211 is based on the Company’s closing common share price of $29.00 on September 30, 2017, which is assumed to be equal to the value provided to the limited partners upon liquidation of the Operating Partnership. Subject to certain limitations, the outstanding common units of limited partnership interest are redeemable for cash, or at the Company’s option, for a like number of common shares of beneficial interest of the Company.


7.	Equity Incentive Plan

The 2014 Plan permits the Company to issue equity-based awards to executives, employees, non-employee members of the Board of Trustees and any other persons providing services to or for the Company and its subsidiaries. The 2014 Plan provides for a maximum of 2,900,000 common shares of beneficial interest to be issued in the form of share options, share appreciation rights, restricted or unrestricted share awards, phantom shares, performance awards, incentive awards, other share-based awards, or any combination of the foregoing. In addition, the maximum number of common shares subject to awards of any combination that may be granted under the 2014 Plan during any fiscal year to any one individual is limited to 500,000 shares. The 2014 Plan terminates on February 17, 2024. The 2014 Plan authorized, among other things: (i) the grant of share options that qualify as incentive options under the Code, (ii) the grant of share options that do not so qualify, (iii) the grant of common shares in lieu of cash for trustees’ fees, (iv) grants of common shares in lieu of cash compensation and (v) the making of loans to acquire common shares in lieu of compensation (to the extent permitted by law and applicable provisions of the Sarbanes Oxley Act of 2002). The exercise price of share options is determined by the Compensation Committee of the Board of Trustees, but may not be less than 100% of the fair value of the common shares on the date of grant. Restricted share awards and options under the 2014 Plan vest over a period determined by the Compensation Committee of the Board of Trustees, generally a three year period. The duration of each option is also determined by the Compensation Committee, subject to applicable laws and regulations. At September 30, 2017, there were 2,512,958 common shares available for future grant under the 2014 Plan. The 2014 Plan replaced the 2009 Plan. The Company will no longer make any grants under the 2009 Plan (although awards previously made under the 2009 Plan that are outstanding will remain in effect in accordance with the terms of that plan and the applicable award agreements).

Nonvested Share Awards with Service Conditions

From time to time, the Company awards nonvested shares under the 2014 Plan to executives, employees and members of the Board of Trustees. The nonvested shares issued to executives and employees generally vest over three years based on continued employment. The shares issued to the members of the Board of Trustees vest immediately upon issuance. The Company determines the grant date fair value of the nonvested shares based upon the closing price of its common shares on the New York Stock Exchange on the date of grant and number of shares per the award agreements. Compensation costs are recognized on a straight-line basis over the requisite service period and are included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive income.

A summary of the Company’s nonvested share awards with service conditions as of September 30, 2017 is as follows:



	Number of Shares		Weighted - Average Grant Date Fair Value
Nonvested at January 1, 2017	236,759		$	30.78
Granted	126,217		29.04
Vested	(147,272	)	30.98
Forfeited	(443	)	28.72
Nonvested at September 30, 2017	215,261		$	29.14

As of September 30, 2017 and December 31, 2016, there were $3,914 and $2,798, respectively, of total unrecognized compensation costs related to nonvested share awards with service conditions. As of September 30, 2017 and December 31, 2016, these costs were expected to be recognized over a weighted-average period of 1.4 years and 1.2 years, respectively. The total intrinsic value of shares vested (calculated as number of shares multiplied by vesting date share price) during the three and nine months ended September 30, 2017 was $20 and $4,437, respectively, and during the three and nine months ended September 30, 2016 was zero and $2,256, respectively. Compensation costs (net of forfeitures) related to nonvested share awards with service conditions that have been included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive income were $732 and $2,415 for the three and nine months ended September 30, 2017, respectively, and $700 and $2,289 for the three and nine months ended September 30, 2016, respectively.

On April 9, 2016, the Company finalized the former Chief Financial Officer’s severance package and the termination date was set to be no later than April 29, 2016. Pursuant to the terms of the award agreements, all of his nonvested share awards with service conditions would vest upon termination. Accordingly, the Company accelerated the recognition of previously unrecognized

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compensation costs related to his nonvested share awards with service conditions over the estimated remaining service period. On May 6, 2016, all of his nonvested share awards with service conditions vested with all remaining previously unrecognized compensation costs recognized. The compensation cost (net of forfeitures) that has been included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive income was zero and $538 for the three and nine months ended September 30, 2016, respectively.

Nonvested Share Awards with Market or Performance Conditions

On January 26, 2012, the Company’s Board of Trustees granted a target of 79,823 nonvested share awards with market conditions to executives (the “January 26, 2012 Awards”). On January 1, 2015, the executives earned 136.3% of the 79,823 target number of shares, or 108,779 shares. Of the shares earned, 36,261 and 36,260 shares vested on January 1, 2015 and January 1, 2016, respectively. On May 6, 2016, upon his termination, all of the former Chief Financial Officer’s 6,882 earned shares vested immediately. The remaining 29,376 earned shares vested on January 4, 2017. The executives received a cash payment of $334 on the earned shares equal to the value of all dividends paid on common shares from January 1, 2012 until the determination date, January 1, 2015. As of January 1, 2015, the executives are entitled to receive dividends as declared and paid on the earned shares and to vote the shares.

On March 20, 2014, the Company’s Board of Trustees granted a target of 57,385 nonvested share awards, exclusive of the 14,582 shares granted to the former Chief Financial Officer, with either market or performance conditions to executives (the “March 20, 2014 Awards”). On February 24, 2017, the executives earned 134.5% of the 28,692 target number of shares, or 38,599 shares, and all of the earned shares vested immediately. The executives also received a cash payment of $190 on the shares equal to the value of all dividends paid on common shares from January 1, 2014 until the determination date, February 24, 2017. As of February 25, 2017, the executives are entitled to receive dividends as declared and paid on the earned shares and to vote the shares. On August 11, 2017, the executives earned 133.3% of the 28,693 target number of shares, or 38,260 shares, and all of the earned shares vested immediately. The executives also received a cash payment of $223 on the shares equal to the value of all dividends paid on common shares from January 1, 2014 until the determination date, August 11, 2017. As of August 11, 2017, the executives are entitled to receive dividends as declared and paid on the earned shares and to vote the shares.

On July 1, 2017, the Company issued 40,000 nonvested shares to an executive who earned 80.0% of the 50,000 target number of shares from the nonvested share awards with market conditions granted on May 31, 2008. All of the shares earned vested immediately on July 1, 2017. The executive received a cash payment of $367 on the earned shares equal to the value of all dividends paid on common shares from May 31, 2008 until the determination date, July 1, 2017. As of July 1, 2017, the executive is entitled to receive dividends as declared and paid on the earned shares and to vote the shares. These common shares of beneficial interest were issued under the 2009 Plan.

On March 23, 2017, the Company’s Board of Trustees granted a target of 124,526 nonvested share awards with either market or performance conditions to executives (the “March 23, 2017 Awards”). The actual amounts of the shares awarded with respect to 62,264 of the 124,526 shares will be determined on or about January 1, 2020, based on the performance measurement period of January 1, 2017 through December 31, 2019, in accordance with the terms of the agreements. The actual amounts of the shares awarded with respect to the remaining 62,262 of the 124,526 shares will be determined on or about July 1, 2020, based on the performance measurement period of July 1, 2017 through June 30, 2020, in accordance with the terms of the agreements. The actual amounts of the shares awarded will range from 0% to 200% of the target amounts, depending on the performance analysis stipulated in the agreements, and none of the shares are outstanding until issued in accordance with award agreements based on performance. After the actual amounts of the awards are determined (or earned) at the end of the respective performance measurement period, all of the earned shares will be issued and outstanding on those dates. The executives will receive cash payments on the earned shares equal to the value of all dividends paid on common shares from the grant date through the respective determination date. Such amounts will be paid to the awardees on or about January 1, 2020 and July 1, 2020, respectively. Thereafter, the executives will be entitled to receive dividends as declared and paid on the earned shares and to vote the shares. With respect to 62,264 shares, amortization commenced on March 23, 2017, the beginning of the requisite service period, and, with respect to 62,262 shares, amortization commenced on July 1, 2017, the beginning of the requisite service period.

The terms stipulated in the March 23, 2017 Awards used to determine the total amount of the shares consist of the following three tranches: (1) a comparison of the Company’s total return to the total returns’ of up to seven companies in a designated peer group of the Company, (2) the Company’s actual total return as compared to a Board-established total return goal and (3) a comparison of the Company’s return on invested capital to the return on invested capital of up to seven companies in a designated peer group of the Company.

The tranches described in (1) and (2) are nonvested share awards with market conditions. For the March 23, 2017 Awards, the grant date fair value of the awards with market conditions were estimated by the Company using historical data under the

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Monte Carlo valuation method provided by a third party consultant. The final values were determined during the second quarter of 2017 with an insignificant cumulative adjustment to compensation cost recorded. The third tranche is based on “return on invested capital” discussed below, which is a performance condition. The grant date fair values of the tranches with performance conditions were calculated based on the targeted awards, and the valuation is adjusted on a periodic basis.

The capital market assumptions used in the valuations consisted of the following:


•	Factors associated with the underlying performance of the Company’s share price and shareholder returns over the term of the awards including total share return volatility and risk-free interest.


•	Factors associated with the relative performance of the Company’s share price and shareholder returns when compared to those companies which compose the index including beta as a means to breakdown total volatility into market-related and company specific volatilities.


•	The valuation has been performed in a risk-neutral framework.


•	Return on invested capital is a performance condition award measurement. The estimated value was calculated based on the initial face value at the date of grant. The valuation will be adjusted on a periodic basis as the estimated number of awards expected to vest is revised.

The assumptions used were as follows for each performance measure:



	Volatility		Interest Rates		Dividend Yield	Stock Beta	Fair Value of Components of Award		Weighting of Total Awards
March 23, 2017 Awards (performance period starting January 1, 2017)
Target amounts	27.30	%	1.52	%	N/A	N/A	$	21.13	33.40	%
Return on invested capital	N/A		N/A		N/A	N/A	$	29.03	33.30	%
Peer companies	27.30	%	1.52	%	N/A	0.987	$	31.12	33.30	%
March 23, 2017 Awards (performance period starting July 1, 2017)
Target amounts	27.30	%	1.52	%	N/A	N/A	$	25.34	33.40	%
Return on invested capital	N/A		N/A		N/A	N/A	$	29.03	33.30	%
Peer companies	27.30	%	1.52	%	N/A	0.987	$	30.82	33.30	%

A summary of the Company’s nonvested share awards with either market or performance conditions as of September 30, 2017 is as follows:



	Number of Shares		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2017	276,183		$	27.36
Granted ⁽¹⁾	144,000		28.33
Vested	(146,235	)	34.25
Forfeited	(10,000	)	37.48
Nonvested at September 30, 2017	263,948		$	27.04


⁽¹⁾	Amount includes 9,907 shares and 9,567 shares that were issued on February 24, 2017 and August 11, 2017, respectively, from the March 20, 2014 grant, which were earned in excess of the target amount.

As of September 30, 2017 and December 31, 2016, there were $5,780 and $3,757, respectively, of total unrecognized compensation costs related to nonvested share awards with market or performance conditions. As of September 30, 2017 and December 31, 2016, these costs were expected to be recognized over a weighted-average period of 2.1 years and 1.8 years, respectively. As of September 30, 2017 and December 31, 2016, there were 609,767 and 463,532 share awards with market or performance conditions vested, respectively. Additionally, there were zero and 29,376 nonvested share awards with market or performance conditions earned but nonvested due to a service condition as of September 30, 2017 and December 31, 2016, respectively. Compensation costs (net of forfeitures) related to nonvested share awards with market or performance conditions that have been included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive income were $798 and $2,638 for the three and nine months ended September 30, 2017, respectively, and $930 and $2,966 for the three and nine months ended September 30, 2016, respectively.

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with market or performance conditions would vest upon termination. Accordingly, the Company accelerated the recognition of previously unrecognized compensation costs on his nonvested share awards with market or performance conditions over the estimated remaining service period. On May 6, 2016 and May 9, 2016, a portion of his nonvested share awards with market or performance conditions vested, a portion was forfeited and additional shares were earned for awards valued at over 100% of the target, with all remaining previously unrecognized compensation costs recognized. The compensation cost (net of forfeitures) related to his nonvested share awards with market or performance conditions that has been included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive income was zero and $96 for the three and nine months ended September 30, 2016, respectively.

For the three and nine months ended September 30, 2016, severance expense related to the former Chief Financial Officer’s termination totaled zero and $1,576, respectively, and included cash compensation and benefits, compensation for shares with service conditions and shares with market or performance conditions and cash payments related to dividends on restricted shares that vested.


8.	LHL

Substantially all of the Company’s revenues are derived from operating revenues generated by the hotels, all of which are leased by LHL.

Other indirect hotel operating expenses consist of the following expenses incurred by the hotels:



	For the three months ended				For the nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
General and administrative	$	23,325	$	26,362	$	72,885	$	78,004
Sales and marketing	16,246		18,443		51,813		56,932
Repairs and maintenance	9,115		9,908		28,073		29,655
Management and incentive fees	9,962		11,394		28,131		29,951
Utilities and insurance	7,807		8,914		22,912		25,443
Franchise fees	2,084		2,724		6,422		8,246
Other expenses	668		989		1,804		2,701
Total other indirect expenses	$	69,207	$	78,734	$	212,040	$	230,932

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As of September 30, 2017, LHL leased all 41 hotels owned by the Company as follows:



	Hotel Properties	Location
1.	Hotel Amarano Burbank	Burbank, CA
2.	L’Auberge Del Mar	Del Mar, CA
3.	Hilton San Diego Gaslamp Quarter	San Diego, CA
4.	Hotel Solamar	San Diego, CA
5.	San Diego Paradise Point Resort and Spa	San Diego, CA
6.	The Hilton San Diego Resort and Spa	San Diego, CA
7.	Harbor Court Hotel	San Francisco, CA
8.	Hotel Vitale	San Francisco, CA
9.	Park Central San Francisco	San Francisco, CA
10.	Serrano Hotel	San Francisco, CA
11.	The Marker San Francisco	San Francisco, CA
12.	Villa Florence	San Francisco, CA
13.	Chaminade Resort and Conference Center	Santa Cruz, CA
14.	Viceroy Santa Monica

LaSalle Hotel Properties - FORM 10-Q - October 19, 2017

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