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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2014 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 1-14045 LASALLE HOTEL PROPERTIES (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 7550 Wisconsin Avenue, 10th Floor Bethesda, Maryland (Address of principal executive offices) 36-4219376 (IRS Employer Identification No.) 20814 (Zip Code) (301) 941-1500 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered Title of each class Common Shares of Beneficial Interest ($0.01 par value) 7 ½% Series H Cumulative Redeemable Preferred Shares ($0.01 par value) New York Stock Exchange New York Stock Exchange 6 ⅜% Series I Cumulative Redeemable Preferred Shares ($0.01 par value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 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 Exchange Act. Yes 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. 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). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one: Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a 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 No The aggregate market value of the 104,028,758 common shares of beneficial interest held by non-affiliates of the registrant was approximately $3.7 billion based on the closing price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2014. Number of the registrant’s common shares of beneficial interest outstanding as of February 11, 2015: 112,913,426. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for its 2015 Annual Meeting of Shareholders to be held on or about May 7, 2015 are incorporated by reference in Part II and Part III of this report as noted therein. Table of Contents LASALLE HOTEL PROPERTIES INDEX Form 10-K Report Page Item No. PART I 1. 1A. 1B. 2. 3. 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 2 6 14 15 16 16 PART II 5. 6. 7. 7A. 8. 9. 9A. 9B. 10. 11. 12. 13. 14. 15. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Consolidated Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Trustees, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Certain Relationships and Related Transactions, and Trustee Independence Principal Accountant Fees and Services PART IV Exhibits and Financial Statement Schedules 16 19 21 42 42 42 42 43 44 44 44 44 44 44 Table of Contents Forward-Looking Statements This report, together with other statements and information publicly disseminated by LaSalle Hotel Properties (the “Company”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends 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 includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “may”, “plan”, “seek”, “should”, “will” or similar expressions. Forward-looking statements in this report include, among others, statements about the Company’s business strategy, including its acquisition and development strategies, industry trends, estimated revenues and expenses, ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and the 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 the Company’s control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: • risks associated with the hotel industry, including competition, increases in wages, energy costs and other operating costs, potential unionization, actual or threatened terrorist attacks, any type of flu or disease-related pandemic and downturns in general and local economic conditions; • the availability and terms of financing and capital and the general volatility of securities markets; • the Company’s dependence on third-party managers of its hotels, including its 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 of 1990, as amended (the “ADA”), and similar laws; interest • increases; • rate the possible failure of the Company to maintain its qualification as a real estate investment trust (“REIT”) for federal income tax purposes 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; • the risk of a material failure, inadequacy, interruption or security failure of the Company’s or the hotel managers’ information technology networks and systems; and • the factors discussed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. Accordingly, there is no assurance that the Company’s expectations will be realized. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for the Company to predict those events or how they may affect the Company. Except as otherwise required by law, the Company disclaims 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 the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Accordingly, investors should use caution in relying on past forward-looking statements, which were based on results and trends at the time they were made, to anticipate future events or trends. The “Company”, “we”, “our” or “us” means LaSalle Hotel Properties and one or more of its subsidiaries (including LaSalle Hotel Operating Partnership, L.P. (the “Operating Partnership”) and LaSalle Hotel Lessee, Inc. (together with its wholly owned subsidiaries, “LHL”)), or, as the context may require, LaSalle Hotel Properties only, the Operating Partnership only or LHL only. 1 Table of Contents PART I Item Business 1. General 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 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 LHL, the Company’s wholly owned taxable REIT subsidiary (“TRS”), is subject to taxation at normal corporate rates. As of December 31, 2014, the Company owned interests in 45 hotels with approximately 11,300 guest rooms located in 10 states and the District of Columbia. Each hotel is leased to LHL 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 2015 and December 2017. Lease revenue from LHL is eliminated in consolidation. A third-party non-affiliated hotel operator manages each hotel pursuant to a hotel management agreement, the terms of which are discussed in more detail under “—Hotel Managers and Hotel Management Agreements”. Substantially all of the Company’s assets are held directly or indirectly by, and all of its operations are conducted through, 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, 99.7% of the common units of the Operating Partnership at December 31, 2014. The remaining 0.3% is held by limited partners who held 296,300 common units of the Operating Partnership at December 31, 2014. Common units in the Operating Partnership are redeemable for cash, or at the Company’s option, for a like number of the Company’s common shares of beneficial interest, $0.01 par value per share. The Company’s principal offices are located at 7550 Wisconsin Avenue, 10th Floor, Bethesda, Maryland 20814. The Company’s website is www.lasallehotels.com . The Company makes available on its website free of charge its filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports. The information contained on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the SEC. Strategies and Objectives The Company’s primary objectives are to provide income to its shareholders through increases in distributable cash flow and to increase long-term total returns to shareholders through appreciation in the value of its common shares of beneficial interest. To achieve these objectives, the Company seeks to: • enhance the return from, and the value of, the hotels in which it owns interests and any additional hotels the Company may acquire or develop; and • invest in or acquire additional hotel properties on favorable terms. The Company seeks to achieve revenue growth principally through: •renovations, repositionings and/or expansions at selected hotels; • acquisitions of full-service hotels located in convention, resort and major urban markets in the U.S. especially upscale and luxury full-service hotels in such markets where the Company perceives strong demand growth or significant barriers to entry; • selective development of hotel properties, particularly upscale and luxury full-service hotels in high barrier-to-entry and high demand markets where development economics are favorable; and revenue • enhancing programs at the hotels. The Company intends to acquire additional hotels in urban, convention and resort markets, consistent with the growth strategies outlined above and which may: 2 Table of Contents • possess unique competitive advantages in the form of location, physical facilities or other attributes; • be available at significant discounts to replacement cost, including when such discounts result from reduced competition for hotels with long-term management and/or franchise agreements; • benefit from brand or franchise conversion or removal, new management, renovations or redevelopment or other active and aggressive asset management strategies; or have • expansion opportunities. The Company continues to focus on eight primary urban markets; however, it will acquire assets in other markets if the investment is consistent with the Company’s strategies and return criteria. The primary urban markets are: • • • • Boston Chicago Los Angeles New York • • • • San Diego San Francisco Seattle Washington, DC Hotel Managers and Hotel Management Agreements The Company seeks to grow through strategic relationships with premier, internationally recognized hotel operating companies, including Westin Hotels and Resorts, Hilton Hotels Corporation, Outrigger Lodging Services, Noble House Hotels & Resorts, Hyatt Hotels Corporation, Benchmark Hospitality, White Lodging Services Corporation, Commune Hotels and Resorts, Davidson Hotel Company, Denihan Hospitality Group, Kimpton Hotel & Restaurant Group, LLC, Accor, Destination Hotels & Resorts, HEI Hotels & Resorts, JRK Hotel Group, Inc., Viceroy Hotel Group, Highgate Hotels and Access Hotels & Resorts. The Company believes that having multiple operators creates a network that will generate acquisition opportunities. In addition, the Company believes its acquisition capabilities are enhanced by its considerable experience, resources and relationships in the hotel industry specifically and the real estate industry generally. As of December 31, 2014, all of our 45 hotels are leased by LHL, and are managed and operated by third parties pursuant to management agreements entered into between LHL and the respective hotel management companies. Our management agreements for the 45 hotels leased to LHL have the terms described below. • Base Management Fees. Our management agreements generally provide for the payment of base management fees between 1.0% and 4.0% of the applicable hotel’s revenues or a fixed amount, as determined in the agreements. • Incentive Management and Other Fees. Some of our management agreements provide for the payment of incentive management fees between 10.0% and 20.0% of gross operating profit or as a percentage of, or in excess of, certain thresholds of net operating income or cash flow of the applicable hotel, if certain criteria are met. Certain of the management agreements also provide for the payment by us of sales and marketing, accounting and other fees. • Terms. The remaining terms of our management agreements range from less than one year to 33 years not including renewals, and less than one year to 48 years including renewals. Only one management agreement has a remaining term of 48 years including renewals. The next longest remaining management agreement term, including renewals, is 43 years. • Ability to Terminate. We have 44 management agreements (Park Central Hotel and WestHouse Hotel New York operate under one agreement) of which 37 are terminable at will and two are terminable upon sale. The remaining five management agreements are terminable only with cause or after certain anniversary dates. Termination fees range from zero to up to nine times annual base management and incentive management fees, due upon early termination. Only two management agreements have termination fees at nine times, one at eight times and one at seven times, with the next highest at three times annual base management and incentive management fees. • Operational Services. Each manager has exclusive authority to supervise, direct and control the day-to-day operation and management of the respective hotel including establishing all room rates, processing reservations, procuring inventories, supplies and services, and preparing public relations, publicity and marketing plans for the hotel. 3 Table of Contents • Executive Supervision and Management Services. Each manager supervises all managerial and other employees, reviews the operation and maintenance, prepares reports, budgets and projections, and provides other administrative and accounting support services to the respective hotel. • Chain Services. Our management agreements with major brands require the managers to furnish chain services that are generally made available to other hotels managed by such managers. Such services may, for example, include: (1) the development and operation of computer systems and reservation services; (2) management and administrative services; (3) marketing and sales services; (4) human resources training services and (5) such 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 linen 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 provide to the managers 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 each year the managers will prepare a list of furniture, fixtures and equipment to be acquired and certain routine repairs to be performed in the next year and an estimate of funds that are necessary therefore, subject to our review and approval. For purposes of funding the furniture, fixtures and equipment replacements, a specified percentage of the gross revenues of each hotel (typically 4.0% to 5.0%) is either deposited by the manager in an escrow account or held by the owner. • Building Alterations, Improvements and Renewals. Our management agreements generally require the managers to prepare an annual estimate of the expenditures necessary for major 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 required by reason of laws or regulations or, in each manager’s reasonable judgment, to keep each respective hotel in a safe, competitive and efficient operating condition. • Sale of a Hotel. Seven 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 specified other conditions and/or unless the transferee is not a competitor of the manager. • Service Marks. During the term of our management agreements, the service mark, symbols and logos currently used by the managers may be used in the operation of the hotels. Any right to use the service marks, logo and symbols and related trademarks at a hotel will terminate with respect to that hotel upon termination of the management agreement with respect to such hotel. Recent Developments On January 23, 2015, the Company acquired a 100% leasehold interest in The Westin Market Street, which the Company renamed Park Central San Francisco, a 681-room urban, full-service hotel located in San Francisco, CA, for $350.0 million. The sources of the funding for the acquisition were cash on hand and borrowings under the Company’s senior unsecured credit facility. The property is leased to LHL and Highgate Hotels manages the property. Hotel Renovations The Company believes that its regular program of capital improvements at the hotels, including replacement and refurbishment of furniture, fixtures and equipment, helps maintain and enhance its competitiveness and maximize revenue growth. Joint Venture The Company holds a 99.99% controlling interest in The Liberty Hotel. Since the Company holds a controlling interest, the accounts of the joint venture have been included in the consolidated financial statements. The 0.01% interest of the outside partner is included in noncontrolling interests in consolidated entities in the consolidated balance sheets. Tax Status The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a result, the Company generally is not subject to corporate income tax on that portion of its net income that is currently distributed to shareholders. A 4 Table of Contents REIT is subject to a number of highly technical and complex organizational and operational requirements, including requirements with respect to the nature of its gross income and assets and a requirement that it currently distribute at least 90% of its taxable income. The Company may, however, be subject to certain state and local taxes on its income and property. Effective January 1, 2001, the Company elected to operate its wholly owned subsidiary, LHL, as a TRS. Accordingly, LHL is required to pay corporate income taxes at the applicable rates. Seasonality The Company’s hotels’ operations historically have been seasonal. Taken together, the hotels maintain higher occupancy rates during the second and third quarters of each year. These seasonality patterns can be expected to cause fluctuations in the quarterly hotel operations. Competition The hotel industry is highly competitive. Each of the hotels is located in a developed area that includes other hotel properties. The number of competitive hotel properties in a particular area could have a material adverse effect on occupancy, average daily rate (“ADR”) and room revenue per available room (“RevPAR”) at the Company’s current hotels or at hotels acquired in the future. The Company may be competing for investment opportunities with entities that have substantially greater financial resources than the Company. These entities may generally be able to accept more risk than the Company can prudently manage, including risks with respect to the amount of leverage utilized, creditworthiness of a hotel operator or the geographic proximity of its investments. Competition may generally reduce the number of suitable investment opportunities offered to the Company and increase the bargaining power of property owners seeking to sell. Environmental Matters In connection with the ownership of hotels, the Company is subject to various federal, state and local laws, ordinances and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of contamination from hazardous or toxic substances, or the failure to remediate such contaminated property properly, may adversely affect the owner’s ability to borrow using such property as collateral. Furthermore, a person who arranges for the disposal or treatment of a hazardous or toxic substance at a property owned by another, or who transports such substance to or from such property, may be liable for the costs of removal or remediation of such substance released into the environment at the disposal or treatment facility. The costs of remediation or removal of such substances may be substantial, and the presence of such substances may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership of hotels, the Company may be potentially liable for such costs. The Company believes that its 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 the Company. The Company has not received verbal or 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 the properties currently under its ownership. Employees The Company had 35 employees as of February 11, 2015. All persons employed in the day-to-day operations of the hotels are employees of the management companies engaged by the lessees to operate such hotels. Additional Information All reports filed with the SEC may also be read and copied at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Further information regarding the operation of the public reference room may be obtained by calling 1-800-SEC-0330. In addition, all of our filed reports can be obtained at the SEC’s website at www.sec.gov or through the Company’s website at www.lasallehotels.com . The information contained on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this report or any other report or document we file with or furnish to the SEC. 5 Table of Contents Item Risk Factors 1A. The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not currently known to the Company or that it may currently deem immaterial also may materially adversely affect the Company. The risks described could affect the Company’s business, financial condition, liquidity, results of operations, cash flows or prospects could be materially adversely affected. Uncertainty in the general economic environment and potential volatility in the credit and equity markets may reduce demand for hotel properties and adversely affect our profitability. The performance of the lodging industry has traditionally been closely linked with the performance of the general economy and, specifically, growth in the U.S. gross domestic product (“GDP”). All of our hotels are classified as luxury, upper upscale or upscale. In an economic downturn, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates. This characteristic may result from the fact that upper upscale hotels generally target business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting travel or seeking to reduce costs on their trips. Consequently, the continued uncertainty in the general economic environment could adversely affect our business. In addition, U.S. debt ceiling and budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility of U.S. credit rating downgrades and economic slowdowns, or a recession in the United States. Volatility in the credit and equity markets or an economic recession would have an adverse effect on our business. Even after an economic recovery begins, a significant period of time may elapse before RevPAR, operating margins and other key lodging fundamentals improve. We will be significantly influenced by the economies and other conditions in the specific markets in which we operate, particularly in the metropolitan areas where we have high concentrations of hotels. We focus on primary urban markets, including Boston, MA, Chicago, IL, Los Angeles, CA, New York, NY, San Diego, CA, San Francisco, CA, Seattle, WA and Washington, DC. As of December 31, 2014, our hotels were located in 14 markets in 10 states and the District of Columbia, including nine hotels located in Washington, DC, six hotels located in both Los Angeles, CA and San Francisco, CA, five hotels located in San Diego, CA and four hotels located in both Boston, MA and New York, NY. In addition, in January 2015, we acquired our seventh hotel located in San Francisco, CA, The Westin Market Street, which the Company renamed Park Central San Francisco. As a result, we are particularly susceptible to adverse market conditions in these geographic areas, including industry downturns, relocation of businesses and any oversupply of hotel rooms or a reduction in lodging demand. Adverse economic developments in the markets in which we have a concentration of hotels, or in any of the other markets in which we operate, or any increase in hotel supply or decrease in lodging demand resulting from the local, regional or national business climate, could adversely affect us. The return on our hotels depends upon the ability of the hotel operators to operate and manage the hotels. To maintain our status as a REIT, we are not permitted to operate any of our hotels. As a result, we are unable to directly implement strategic business decisions with respect to the daily operation and marketing of our hotels, such as decisions with respect to the setting of room rates, repositioning of a hotel, food and beverage pricing and certain similar matters. Although LHL consults with the hotel operators with respect to strategic business plans, the hotel operators are under no obligation to implement any of our recommendations with respect to such matters. Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, RevPAR, ADR or operating profits, we may not have sufficient rights under our hotel operating agreements to enable us to force the hotel operator to change its method of operation. We generally can only seek redress if a hotel operator violates the terms of the applicable operating agreement, and then only to the extent of the remedies provided for under the terms of the agreement. Some of the operating agreements have lengthy terms and may not be terminable by us before the agreement’s expiration. In the event that we are able to and do replace any of our hotel operators, we may experience significant disruptions at the affected hotels, which may adversely affect our ability to make distributions to our shareholders. We currently own only luxury, upper upscale and upscale hotels. These segments of the lodging market are highly competitive and generally subject to greater volatility than most other market segments, which could negatively affect our profitability. The luxury, upper upscale and upscale segments of the hotel business are highly competitive. Our hotels compete on the basis of location, room rates, quality, service levels, reputation and reservations systems, among many factors. There are many competitors in the luxury, upper upscale and upscale segments, and many of these competitors may have substantially greater 6 Table of Contents marketing and financial resources than we have. This competition could reduce occupancy levels and room revenue at our hotels, which would harm our operations. Over-building in the hotel industry may increase the number of rooms available and may decrease occupancy and room rates. In addition, in periods of weak demand, as may occur during a general economic recession, profitability is negatively affected by the relatively high fixed costs of operating luxury, upper upscale and upscale hotels. Our performance and our ability to make distributions on our shares are subject to risks associated with the hotel industry. Competition for guests, increases in operating costs, dependence on travel and poor economic conditions could adversely affect our cash flow. Our hotels are subject to all operating risks common to the hotel industry. These risks include: • adverse effects of weak national, regional and local economic conditions; tightening • standards; credit • competition for guests and meetings from other hotels including competition and pricing pressure from internet wholesalers and distributors; • increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increased room rates; • labor strikes, disruptions or lockouts that may impact operating performance; • dependence on demand from business and leisure travelers, which may fluctuate and be seasonal; • increases in energy costs, airline fares and other expenses related to travel, which may negatively affect traveling; and • terrorism, terrorism alerts and warnings, military actions, pandemics or other medical events which may cause decreases in business and leisure travel. These factors could adversely affect the ability of the hotel operators to generate revenues which could adversely affect LHL’s ability to make rental payments to the Operating Partnership pursuant to the participating leases and ultimately impact our liquidity. Unexpected capital expenditures could adversely affect our cash flow. Hotels require ongoing renovations and other capital improvements, including periodic replacement or refurbishment of furniture, fixtures and equipment. Under the terms of our leases, we are obligated to pay the cost of certain capital expenditures at the hotels, including new brand standards, and to pay for periodic replacement or refurbishment of furniture, fixtures and equipment. If capital expenditures exceed expectations, there can be no assurance that sufficient sources of financing will be available to fund such expenditures. In addition, we have acquired hotels that have undergone significant renovation and may acquire additional hotels in the future that require significant renovation. Renovations of hotels involve numerous risks, including the possibility of environmental problems, construction cost overruns and delays, the effect on current demand, uncertainties as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from other hotels. Our lenders may have suffered losses related to the weakening economy and may not be able to fund our borrowings. Our lenders, including the lenders participating in our $750.0 million senior unsecured credit facility, may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability of many borrowers. As a result, lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our credit facility or to obtain other financing on favorable terms or at all. Our financial condition and results of operations would be adversely affected if we were unable to draw funds under our credit facility because of a lender default or to obtain other cost-effective financing. Our obligation to comply with financial covenants in our unsecured credit facilities, term loans and mortgages on some of our hotel properties could impact our operations, may require us to liquidate our properties and could adversely affect our ability to make distributions to our shareholders. Our unsecured credit facilities and term loans. We have a $750.0 million senior unsecured credit facility (with an accordion feature that allows us to request an increase in the total commitments of up to $1.05 billion, subject to certain terms and conditions) that matures on January 8, 2018, subject to two six-month extensions that we may exercise at our option, pursuant to certain terms 7 Table of Contents and conditions, including the payment of an extension fee. We also have a $177.5 million unsecured seven-year term loan and a $300.0 million unsecured five-year term loan (with an accordion feature that allows us to request an increase in the total commitments of up to $500.0 million, subject to certain terms and conditions). In addition, LHL has a $25.0 million unsecured revolving credit facility, which matures on January 8, 2018, subject to two six-month extensions that LHL may exercise at its option, pursuant to certain terms and conditions, including the payment of an extension fee. Each of the senior unsecured credit facility, the term loans and the LHL unsecured revolving credit facility contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict our ability to make distributions or other payments to our shareholders upon events of default. The senior unsecured credit facility and term loans also contain cross-default provisions that allows the lenders under the credit facility and term loans to stop future extensions of credit and/or accelerate the maturity of any outstanding principal balances under the credit facility or term loans if we are in default under certain other debt obligations, including our non-recourse secured mortgage indebtedness. If we violate the financial covenants in our credit facilities or term loans, we could be required to repay all or a portion of our indebtedness with respect to such credit facility or term loan before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, or at all. Moreover, if we are unable to refinance our debt on acceptable terms, including at maturity of our credit facilities and term loans, we may be forced to dispose of hotel properties on disadvantageous terms, potentially resulting in losses that reduce cash flow from operating activities. Failure to comply with our financial covenants contained in our credit facilities and term loans, or our non-recourse secured mortgages described below, could result from, among other things, changes in our results of operations, the incurrence of additional debt or changes in general economic conditions. Our non-recourse secured mortgages. In addition to our senior unsecured credit facility, our term loans and the LHL unsecured revolving credit facility, we have from time to time entered into non-recourse mortgages secured by specific hotel properties. Under the terms of these debt obligations, a lender’s only remedy in the event of default is against the real property securing the mortgage, except where a borrower has, among other customary exceptions, engaged in an action constituting fraud or an intentional misrepresentation. In those cases, a lender may seek a remedy for a breach directly against the borrower, including its other assets. The Indianapolis Marriott Downtown, Westin Copley Place, Westin Michigan Avenue and The Roger are each mortgaged to secure payment of indebtedness aggregating $501.1 million as of December 31, 2014. The Hyatt Boston Harbor is mortgaged to secure payment of principal and interest on bonds with an aggregate par value of $42.5 million. These mortgages contain debt service coverage tests related to the mortgaged properties. If the debt service coverage ratio for that specific property fails to exceed a threshold level specified in the mortgage, cash flows from that hotel will 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 will be directed to the lender (“cash trap”) until such time as we again become compliant with the specified debt service coverage ratio or the mortgage is paid off. If we are 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 us. We may also elect to sell the property, if we are able to sell the property, for a loss in advance of a foreclosure or other transfer. An event of default under our non-recourse secured mortgage may also constitute an event of default under our senior unsecured credit facility or term loans. As of December 31, 2014, 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 or mortgages. Our liquidity may be reduced and our cost of debt financing may be increased because we may be unable to, or elect not to, remarket debt securities related to the Hyatt Boston Harbor for which we may be liable. We are the obligor with respect to a $37.1 million tax-exempt special project revenue bond and a $5.4 million taxable special project revenue bond, both issued by the Massachusetts Port Authority (collectively, the “Massport Bonds”). The Massport Bonds, which mature on March 1, 2018, bear interest based on weekly floating rates and have no principal reductions prior to their scheduled maturities. The Massport Bonds may be redeemed at any time, at our option, without penalty. U.S. Bank National Association (“U.S. Bank”) provides the supporting letters of credit on the Massport Bonds. The letters of credit expire on September 30, 2016. The letters of credit have two one-year extension options that we may exercise at our option, subject to certain terms and conditions, and are secured by the Hyatt Boston Harbor. The letters of credit cannot be extended beyond the Massport Bonds’ maturity date. If U.S. Bank fails to renew its letters of credit at expiration and an acceptable replacement provider cannot be found, we may be required to pay off the bonds. If we are unable to, or elect not to, issue or remarket the Massport Bonds, we would expect to rely primarily on our available cash and credit facilities to pay off the Massport Bonds. At certain times, we may hold some of the Massport Bonds that have not been successfully remarketed. Our borrowing costs under our senior unsecured credit facility may be higher than tax-exempt bond financing costs. Borrowings under the credit facilities to pay off the Massport Bonds would also reduce our liquidity to meet other obligations. 8 Table of Contents Our performance is subject to real estate industry conditions, the terms of our leases and management agreements. Because real estate investments are illiquid, we may not be able to sell hotels when desired. Real estate investments generally cannot be sold quickly. We may not be able to vary our portfolio promptly in response to economic or other conditions. In addition, provisions of the Code limit a REIT’s ability to sell properties in some situations when it may be economically advantageous to do so. Liability for environmental matters could adversely affect our financial condition. As an owner of real property, we are subject to various federal, state and local laws and regulations relating to the protection of the environment that may require a current or previous owner of real estate to investigate and clean-up hazardous or toxic substances at a property. These laws often impose such liability without regard to whether the owner knew of or caused the presence of the contaminants, and liability is not limited under the enactments and could exceed the value of the property and/or the aggregate assets of the owner. Persons who arrange for the disposal or treatment facility, whether or not such facility is owned or operated by the person, may be liable for the costs of removal or remediation of such substance released into the environment at the disposal or treatment facility. Even if more than one person were responsible for the contamination, each person covered by the environmental laws may be held responsible for the entire amount of clean-up costs incurred. Environmental laws also govern the presence, maintenance and removal of asbestos-containing materials. These laws impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. In connection with ownership (direct or indirect) of our hotels, we may be considered an owner or operator of properties with asbestos-containing materials. Having arranged for the disposal or treatment of contaminants, we may be potentially liable for removal, remediation and other costs, including governmental fines and injuries to persons and property. The costs of compliance with the ADA and other government regulations could adversely affect our cash flow. Under the ADA, all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. A determination that we are not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. If we are required to make substantial modifications to our hotels, whether to comply with ADA or other government regulation such as building codes or fire safety regulations, our financial condition, results of operations and ability to make shareholder distributions could be adversely affected. Certain leases and management agreements may constrain us from acting in the best interest of shareholders or require us to make certain payments . The Hyatt Boston Harbor, San Diego Paradise Point Resort and Spa, The Hilton San Diego Resort and Spa, The Roger, Viceroy Santa Monica, The Liberty Hotel, Harbor Court Hotel, Hotel Triton, Southernmost Hotel Collection (restaurant facility) and Hotel Vitale are each subject to a ground or land and building lease with a third-party lessor which requires us to obtain the consent of the relevant third party lessor in order to sell any of these hotels or to assign our leasehold interest in any of the ground or land and building leases. Accordingly, if we determine that the sale of any of these hotels or the assignment of our leasehold interest in any of these ground or land and building leases is in the best interest of our shareholders, we may be prevented from completing such a transaction if we are unable to obtain the required consent from the relevant lessor. The Indianapolis Marriott Downtown, Westin Copley Place and Hotel Solamar are each subject to a ground or air rights lease and do not require approval from the relevant third-party lessor. In some instances, we may be required to obtain the consent of the hotel operator or franchisor prior to selling the hotel. Typically, such consent is only required in connection with certain proposed sales, such as if the proposed purchaser is engaged in the operation of a competing hotel or does not meet certain minimum financial requirements. The operators of Hyatt Boston Harbor and Alexis Hotel require approval of certain sales. Some of our hotels are subject to rights of first offer which may adversely affect our ability to sell those properties on favorable terms or at all. We are subject to a franchisor’s or operator’s right of first offer with respect to the Hilton San Diego Gaslamp Quarter, The Hilton San Diego Resort and Spa, Embassy Suites Philadelphia—Center City, Park Central Hotel and WestHouse Hotel New York, Harbor Court Hotel and Hotel Triton. These third-party rights may adversely affect our ability to timely dispose of these properties on favorable terms, or at all. Increases in interest rates may increase our interest expense. As of December 31, 2014, $42.5 million of aggregate indebtedness (4.2% of total indebtedness) was subject to variable interest rates, excluding amounts outstanding under the Company’s term loans since the Company hedged their variable interest rates to fixed interest rates. An increase in interest rates could increase our interest expense and reduce our cash flow and may affect our ability to make distributions to shareholders and to service our indebtedness. 9 Table of Contents Our hedging strategies may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our shareholders’ investment. We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests. In addition, the nature and timing of hedging transactions may influence the effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot provide assurance that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses that may reduce the overall return on our shareholders’ investment. Failure to qualify as a REIT would be costly. We have operated, and intend to continue to operate, in a manner that we believe allows us to qualify as a REIT under the Code beginning with our taxable year ended December 31, 1998. No assurance can be given, however, that we will in fact qualify or remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex provisions of the Code. 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, potentially applicable with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT or could increase our tax liability or reduce our operating flexibility. For example, among other risks, we would fail to qualify as a REIT if • our hotel managers do not qualify as “eligible independent contractors” under the Code, • the leases of our hotel properties to LHL are not respected as true leases for federal income tax purposes, or • the Operating Partnership failed to qualify as a partnership for federal income tax purposes (which would cause it to become subject to federal and state corporate income tax and would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us). If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Moreover, unless entitled to relief under certain statutory provisions, we also will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This treatment would cause us to incur additional tax liabilities, significantly impair our ability to service indebtedness and reduce the amount of cash available to make new investments or to make distributions on our common or preferred shares. The Operating Partnership owns 100% of the common shares of a subsidiary REIT that elected to be taxed as a REIT under the Code. If our subsidiary REIT were to fail to qualify as a REIT, then our subsidiary REIT would become subject to additional federal income tax and we could in turn fail to qualify as a REIT, unless we could avail ourselves of certain relief provisions. Complying with REIT requirements may cause us to forego otherwise attractive business opportunities or liquidate otherwise attractive investments and may limit our ability to hedge our liabilities effectively and cause us to incur tax liabilities. To meet the tests applicable to REITs, we may be required to forego or exit investments we might otherwise make or hold. The REIT provisions of the Code also limit our ability to hedge our liabilities. To the extent that we enter into hedging transactions (other than certain transactions 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), the income from those transactions is likely to be treated as non-qualifying income for purposes of gross income tests applicable to REITs. 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 expose us to greater risks associated with changes in interest rates than we would otherwise want to bear or increase the cost of our hedging activities because our TRS would be subject to tax on gains. Our ownership of TRSs involves additional regulation and tax, and our transactions with TRSs will subject us to a 100% penalty tax on certain income or deductions if the transactions are not conducted on arm’s-length terms. A REIT may own up to 100% of the stock of one or more TRSs, and a TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. TRSs involve additional regulation, including a rule that no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. Another rule imposes a 10 Table of Contents 100% excise tax on certain transactions between a TRS and its parent REIT not conducted on an arm’s-length basis. TRSs are also 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. Property ownership through partnerships and joint ventures could limit our control of those investments. Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including among others, the possibility that our co-investors might become bankrupt, might at any time have goals or interests that are different from ours because of disparate tax consequences or otherwise, and may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include an impasse on decisions, such as a sale, because neither our co-investors nor we would have full control over the partnership or joint venture. There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures. We may not have enough insurance. We carry comprehensive liability, fire, flood, earthquake, extended coverage and business interruption policies that insure us against losses with policy specifications and insurance limits that we believe are reasonable. There are certain types of losses, such as losses from environmental problems or terrorism, that management may not be able to insure against or may decide not to insure against since the cost of insuring is not economical. We may suffer losses that exceed our insurance coverage. Further, market conditions, changes in building codes and ordinances or other factors such as environmental laws may make it too expensive to repair or replace a property that has been damaged or destroyed, even if covered by insurance. Our organizational documents and agreements with our executives and applicable Maryland law contain provisions that may delay, defer or prevent change of control transactions and may prevent shareholders from realizing a premium for their shares. Our trustees may only be removed for cause and remaining trustees may fill board vacancies. Our Board of Trustees has been divided into three classes of trustees, each serving a staggered three-year term. However, at our 2014 Annual Meeting of Shareholders, the shareholders approved a Board-proposed amendment to our declaration of trust to provide for annual elections of all trustees to be phased-in over time. Starting with the 2015 Annual Meeting of Shareholders, trustees will be elected for a one-year term, so that by the 2017 Annual Meeting of Shareholders, all trustees will be elected annually. The amendment to our declaration of trust did not affect the unexpired three-year terms of the trustees elected in 2013 and 2014. In addition, our trustees may only be removed for cause by the affirmative vote of the holders of a majority of our outstanding common shares. Our declaration of trust and bylaws also provide that a majority of the remaining trustees may fill any vacancy on the Board of Trustees and that only the Board of Trustees may increase or decrease the number of persons serving on the Board of Trustees. These provisions effectively preclude shareholders from removing incumbent trustees, except for cause after a majority affirmative vote, and filling the vacancies created by such removal with their own nominees. Our Board of Trustees may approve the issuance of shares with terms that may discourage a third party from acquiring the Company. The Board of Trustees has the power under the declaration of trust to classify any of our unissued preferred shares, and to reclassify any of our previously classified but unissued preferred shares from time to time, in one or more series of preferred shares, without shareholder approval. The issuance of preferred shares could adversely affect the voting power, dividend and other rights of holders of common shares and the value of the common shares. Our declaration of trust prohibits ownership of more than 9.8% of the common shares or 9.8% of any series of preferred shares. To qualify as a REIT under the Code, no more than 50% of the value of our outstanding shares may be owned, directly or under applicable attribution rules, by five or fewer individuals (as defined to include certain entities) during the last half of each taxable year. Our declaration of trust generally prohibits direct or indirect ownership by any person of (i) more than 9.8% of the number or value (whichever is more restrictive) of the outstanding common shares or (ii) more than 9.8% of the number or value (whichever is more restrictive) of the outstanding shares of any class or series of preferred shares. Generally, shares owned by affiliated owners will be aggregated for purposes of the ownership limitation. Any transfer of shares that would violate the ownership limitation will result in the shares that would otherwise be held in violation of the ownership limit being designated as “shares-in-trust” and transferred automatically to a charitable trust effective on the day before the purported transfer or other event giving rise to such excess ownership. The intended transferee will acquire no rights in such shares. The Maryland Business Combination Statute applies to us. A Maryland “business combination” statute contains provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested stockholder, and thereafter impose special shareholder voting requirements on these combinations. 11 Table of Contents The Board of Trustees may choose to subject us to the Maryland Control Share Act. A Maryland law known as the “Maryland Control Share Act” provides that “control shares” of a company (defined as shares which, when aggregated with other shares controlled by the acquiring 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 the company’s 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. Our bylaws currently provide that we are not subject to these provisions. However, the Board of Trustees, without shareholder approval, may repeal this bylaw and cause us to become subject to the Maryland Control Share Act. Other provisions of our organization documents may delay or prevent a change of control of the Company. Among other provisions, our organizational documents provide that the number of trustees constituting the full Board of Trustees may be fixed only by the trustees and that a special meeting of shareholders may not be called by holders of common shares holding less than a majority of the outstanding common shares entitled to vote at such meeting. Our executive officers have agreements that provide them with benefits in the event of a change in control of the Company. We entered into agreements with our executive officers that provide them with severance benefits if their employment ends under certain circumstances within one year following a “change in control” of the Company (as defined in the agreements) or if the executive officer resigns for “good reason” (as defined in the agreements). These benefits could increase the cost to a potential acquirer of the Company and thereby prevent or deter a change in control of the Company that might involve a premium price for the common shares or otherwise be in our shareholders’ best interests. We depend on the efforts and expertise of our key executive officers and would be adversely affected by the loss of their services. We depend on the efforts and expertise of our President and Chief Executive Officer, as well as our other executive officers, to execute our business strategy. The loss of their services, and our inability to find suitable replacements, would have an adverse effect on our business. A large number of shares available for future sale could adversely affect the market price of our common shares and may be dilutive to current shareholders. The sales of a substantial number of our common shares, or the perception that such sales could occur, could adversely affect prevailing market prices for our common shares. As of December 31, 2014, there were 200,000,000 common shares authorized under our declaration of trust, as amended, of which 112,824,508 were outstanding. Our Board of Trustees may authorize the issuance of additional authorized but unissued common shares or other authorized but unissued securities at any time, including pursuant to our 2014 Equity Incentive Plan. We also have filed a registration statement with the SEC allowing us to offer, from time to time, an indefinite amount of equity securities (including common or preferred shares) on an as-needed basis and subject to our ability to affect offerings on satisfactory terms based on prevailing conditions. In addition, our Board of Trustees authorized us to issue common shares having an aggregate offering price of up to $250.0 million in a continuous equity issuance program. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including issuances of common and preferred equity. No prediction can be made about the effect that future distributions or sales of our common shares will have on the market price of our common shares. 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, 2014, 2,750,000 shares of our 7 ½% Series H Cumulative Redeemable Preferred Shares (“Series H Preferred Shares”) and 4,400,000 shares of our 6 ⅜% Series I Cumulative Redeemable Preferred Shares (“Series I Preferred Shares”) were issued and outstanding. The aggregate liquidation preference with respect to the outstanding preferred shares is approximately $178.8 million, and annual dividends on our outstanding preferred shares are approximately $12.2 million. Holders of our Series H Preferred Shares and Series I 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. Because our decision to issue securities will depend on market conditions and other factors beyond our control, we cannot predict or estimate 12 Table of Contents the amount, timing or nature of our future preferred offerings. Thus, our shareholders bear the risk of our future securities issuances reducing the market price of our common shares and diluting their interest. The market price and trading volume of our common shares may be volatile. The market price of our common shares may be volatile. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, shareholders may be unable to resell their shares at or above the price at which they traded when they acquired them. We cannot provide assurance that the market price of our common shares will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the market price of our common shares or result in fluctuations in the market price or trading volume of our common shares include: • actual or anticipated variations in our quarterly operating results; • changes in our operations or earnings estimates; • publication of research reports about us, the real estate industry or the lodging industry; • changes in our dividend policy; • increases in market interest rates that lead purchasers of our shares to demand a higher yield; • changes in market valuations of similar companies; • adverse market reaction to any additional equity or debt we may issue or incur in the future; • additions or departures of key management personnel; • speculation in the press or investment community; • the realization of any of the other risk factors presented in this Annual Report on Form 10-K; and • general U.S. and worldwide market and economic conditions. The Company and its hotel managers rely on information technology in their operations, and any material failure, inadequacy, interruption or security failure of that technology could harm the Company’s business. The Company and its 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. The Company and its hotel managers purchase some of such information technology from vendors, on whom the Company’s systems depend, and the hotel managers 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 the Company and its hotel managers have taken steps to protect the security of its information systems and the data maintained in those systems, these safety and security measures may 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, which are rapidly evolving and becoming increasingly sophisticated. For example, in February 2014, the hotel manager at the Indianapolis Marriott Downtown announced a suspected security breach of point of access sales systems at food and beverage outlets located at the hotel. 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 the Company’s or the hotel managers’ information systems could interrupt the Company’s operations; damage the Company’s reputation; result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; result in the Company’s inability to properly monitor its compliance with the rules and regulations regarding its qualification as a REIT; require significant management attention and resources to remedy any damages that result; subject the Company to liability claims or regulatory penalties; and have a material adverse effect on the Company’s business, financial condition and results of operations. 13 Table of Contents Item Unresolved Staff 1B. Comments None. 14 Table of Contents Item Properties 2. Hotel Properties As of December 31, 2014, the Company owned interests in the following 45 hotel properties: Hotel Properties Number of Guest Rooms Location 1. Hotel Amarano Burbank 132 Burbank, CA 2. L’Auberge Del Mar 120 Del Mar, CA 3. Hilton San Diego Gaslamp Quarter 283 San Diego, CA 4. Hotel Solamar (1) 235 San Diego, CA 5. San Diego Paradise Point Resort and Spa (1) 462 San Diego, CA 6. The Hilton San Diego Resort and Spa (1) 357 San Diego, CA 7. Harbor Court Hotel (1) 131 San Francisco, CA 8. Hotel Monaco San Francisco 201 San Francisco, CA 9. Hotel Triton (1) 140 San Francisco, CA 10. Hotel Vitale (1) 200 San Francisco, CA 11. Serrano Hotel 236 San Francisco, CA 12. Villa Florence 182 San Francisco, CA 13. Chaminade Resort and Conference Center 156 Santa Cruz, CA 14. Viceroy Santa Monica (1) 162 Santa Monica, CA 15. Chamberlain West Hollywood 114 West Hollywood, CA 16. Le Montrose Suite Hotel 133 West Hollywood, CA 17. Le Parc Suite Hotel 154 West Hollywood, CA 18. The Grafton on Sunset 108 West Hollywood, CA 19. The Donovan 193 Washington, D.C. 20. Hotel George 139 Washington, D.C. 21. Hotel Helix 178 Washington, D.C. 82 Washington, D.C. 23. Hotel Palomar, Washington, DC 335 Washington, D.C. 24. Hotel Rouge 137 Washington, D.C. 25. Sofitel Washington, DC Lafayette Square 237 Washington, D.C. 26. The Liaison Capitol Hill 343 Washington, D.C. 99 Washington, D.C. 22. Hotel Madera 27. Topaz Hotel 28. Southernmost Hotel Collection (4) 260 Key West, FL 29. Hotel Chicago 354 Chicago, IL 30. Westin Michigan Avenue (2) 752 Chicago, IL 31. Indianapolis Marriott Downtown (1)(2) 622 Indianapolis, IN 32. Hyatt Boston Harbor (1)(2) 270 Boston, MA 33. Onyx Hotel 112 Boston, MA 34. The Liberty Hotel (1) 298 Boston, MA 35. Westin Copley Place (2)(3) 803 Boston, MA 36. Gild Hall 126 New York, NY 37. The Roger (1)(2) 194 New York, NY 38. Park Central Hotel 761 New York, NY 39. WestHouse Hotel New York 172 New York, NY 40. The Heathman Hotel 150 Portland, OR 41. Embassy Suites Philadelphia – Center City 288 Philadelphia, PA 42. Westin Philadelphia 294 Philadelphia, PA 43. Lansdowne Resort 296 Lansdowne,VA 44. Alexis Hotel 121 Seattle, WA 45. Hotel Deca 158 Seattle, WA Total number of guest rooms (1) (2) 11,280 Property subject to a long-term ground or land and building lease. Property subject to a mortgage/debt. 15 Table of Contents (3) (4) Property subject to a long-term air rights lease. Property subject to a ground lease on a restaurant facility. Each of our hotels is full service, with 14 classified as “luxury”, 29 classified as “upper upscale” and two classified as “upscale”, as defined by Smith Travel Research (“STR”), a provider of hotel industry data. Item Legal 3. Proceedings 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. Item Mine Safety 4. Disclosures Not applicable. Item 5. PART II Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Information about the Company’s equity compensation plans is incorporated by reference to the material in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders (the “Proxy Statement”). Market Information The common shares of the Company began trading on the New York Stock Exchange (“NYSE”) on April 24, 1998 under the symbol “LHO”. The following table sets forth, for the periods indicated, the high and low sale prices per common share and the cash distributions declared per share: Calendar Year 2014 High Calendar Year 2013 Distribution (1) Low High Distribution (1) Low First Quarter $ 33.36 $ 28.41 $ 0.28 $ 27.81 $ 24.44 $ 0.20 $ 36.60 $ 30.84 $ 0.38 $ 27.94 $ 22.84 $ 0.20 $ 37.33 $ 34.05 $ 0.38 $ 30.04 $ 24.34 $ 0.28 $ 41.88 $ 32.94 $ 0.38 $ 32.21 $ 27.51 $ 0.28 Second Quarter Third Quarter Fourth Quarter (1) Amounts are rounded to the nearest whole cent for presentation purposes. The closing price for the Company’s common shares, as reported by the NYSE on December 31, 2014, was $40.47 per share. 16 Table of Contents SHARE PERFORMANCE GRAPH The following graph provides a comparison of the cumulative total return on the common shares from December 31, 2009 to the NYSE closing price per share on December 31, 2014 with the cumulative total return on the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”) and the FTSE National Association of Real Estate Investment Trusts Equity REITs Index (“FTSE NAREIT Equity Index”). Total return values were calculated assuming a $100 investment on December 31, 2009 with reinvestment of all dividends in (i) the common shares, (ii) the S&P 500 and (iii) the FTSE NAREIT Equity Index. The actual returns on the graph above are as follows: Value of Initial Investment at December 31, 2009 Name LaSalle Hotel Properties Value of Initial Investment at December 31, 2010 Value of Initial Investment at December 31, 2011 Value of Initial Investment at December 31, 2012 Value of Initial Investment at December 31, 2013 Value of Initial Investment at December 31, 2014 $ 100.00 $ 125.56 $ 117.31 $ 126.34 $ 159.00 $ 216.83 $ 100.00 $ 115.06 $ 117.49 $ 136.30 $ 180.44 $ 205.14 $ 100.00 $ 127.95 $ 138.55 $ 165.84 $ 170.00 $ 218.38 S&P 500 Index FTSE NAREIT Equity Index Shareholder Information As of February 11, 2015, there were 60 record holders of the Company’s common shares of beneficial interest, including shares held in “street name” by nominees who are record holders, and approximately 18,800 beneficial holders. Distribution Information For 2014, the Company paid $1.405 per common share/unit in distributions, all of which was recognized as 2014 distributions for tax purposes. Additionally, distributions of $0.0506 per common share for 2013 were recognized as 2014 distributions for tax purposes, bringing total 2014 distributions for tax purposes to $1.4556 per common share (rounded), 81.75% of which represented ordinary income and 18.25% of which represented capital gain. Distributions for 2014 were paid quarterly to the Company’s common shareholders and unitholders at a level of $0.28 per common share/unit for the first quarter and $0.375 per common share/unit for the second, third and fourth quarters. For 2013, the Company paid $0.96 per common share/unit in distributions, of which $0.9094 (rounded) was recognized as 2013 distributions for tax purposes and $0.0506 (rounded) will be recognized as 2014 distributions for tax purposes. Additionally, distributions of $0.1211 per common share for 2012 were recognized as 2013 distributions for tax purposes, bringing total 2013 distributions for tax purposes to $1.0305 per common share (rounded), 100.00% of which represented ordinary income. 17 Table of Contents Distributions for 2013 were paid quarterly to the Company’s common shareholders and unitholders at a level of $0.20 per common share/unit for the first and second quarters and $0.28 per common share/unit for the third and fourth quarters. The declaration of distributions by the Company is at the sole discretion of the Company’s Board of Trustees, and depends on the actual cash flow of the Company, its financial condition, capital expenditure requirements for the Company’s hotels, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. Operating Partnership Units and Recent Sales of Unregistered Securities The Operating Partnership issued 3,181,723 common units of limited partnership interest to third parties on April 24, 1998 (inception), in conjunction with the Company’s initial public offering. The following is a summary of common unit activity since inception: Common units issued at initial public offering 3,181,723 Common units issued: 2000-2006 86,667 2011 296,300 Common units redeemed: 1999-2009 Common units outstanding at December 31, 2014 (3,268,390) 296,300 Holders of common units of limited partnership interest receive distributions per unit in the same manner as distributions on a per common share basis to the common shareholders of beneficial interest. Common shares issued upon redemption of common units of limited partnership interest were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act. The Company relied on the exemption based on representations given by the limited partners that redeemed the units. On December 29, 2011, in connection with the Company’s acquisition of Park Central Hotel and as part of the consideration for the hotel acquisition, the Operating Partnership issued 296,300 common units of limited partnership interest. The issuance of the common units was effected in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act. The Company relied on the exemption based on representations given by the holders of the common units. 18 Table of Contents Item Selected Financial 6. Data The following tables set forth selected historical operating and financial data for the Company. The selected historical operating and financial data for the Company for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 have been derived from the historical financial statements of the Company. The following selected financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all of the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. LASALLE HOTEL PROPERTIES Selected Historical Operating and Financial Data (Unaudited, in thousands, except share data) For the year ended December 31, 2014 2013 2012 2011 2010 Operating Data: Revenues: Hotel operating revenues $ 1,101,457 $ 969,356 $ 862,146 $ 714,005 $ 594,642 Other income 8,321 7,937 4,929 5,002 5,715 1,109,778 977,293 867,075 719,007 600,357 668,790 596,241 533,237 452,838 380,459 155,035 143,991 124,363 111,282 105,587 57,805 53,374 44,551 35,425 30,897 14,667 11,117 8,588 7,720 5,825 23,832 22,001 19,769 17,120 18,802 2,379 2,646 4,498 2,571 3,003 0 0 0 0 8,427 7,369 9,361 3,017 2,527 3,287 929,877 838,731 738,023 629,483 556,287 179,901 138,562 129,052 89,524 44,070 Total revenues Expenses: Hotel operating expenses Depreciation and amortization Real estate taxes, personal property taxes and insurance Ground rent General and administrative Acquisition transaction costs Impairment of development property Other expenses Total operating expenses Operating income Interest income Interest expense 1,812 9,679 4,483 (56,628) (57,516) (52,896) 48 (39,704) 126 (36,500) Loss from extinguishment of debt (2,487) Income before income tax expense, equity in earnings of joint venture and discontinued operations Income tax expense 122,598 (2,306) 0 0 0 0 90,725 80,639 49,868 7,696 (9,062) (7,048) (5,075) 2,621 (470) Income from continuing operations 120,292 90,255 71,577 42,820 0 0 0 796 93,205 0 0 0 0 213,497 90,255 71,577 43,616 1,770 Net income (loss) from discontinued operations (851) Gain on sale of properties Net income Net (income) loss attributable to noncontrolling interests: Redeemable noncontrolling interest in consolidated entity 0 0 0 2 191 (16) (17) 0 0 0 (636) (303) (281) (1) 0 (652) (320) (281) 1 191 Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership Net (income) loss attributable to noncontrolling interests Net income attributable to the Company Distributions to preferred shareholders 212,845 89,935 71,296 43,617 1,961 (14,333) (17,385) (21,733) (29,952) (26,754) (951) (1,566) (4,417) (731) Issuance costs of redeemed preferred shares 0 Net income (loss) attributable to common shareholders $ 197,561 $ 19 70,984 $ 45,146 $ 12,934 $ (24,793) Table of Contents LASALLE HOTEL PROPERTIES Selected Historical Operating and Financial Data (Unaudited, in thousands, except share data) For the year ended December 31, 2014 2013 2012 2011 2010 Earnings per Common Share: Net income (loss) attributable to common shareholders before discontinued operations and excluding amounts attributable to unvested restricted shares: Basic $ 1.89 $ 0.73 $ 0.52 $ 0.15 $ (0.35) $ 1.88 $ 0.73 $ 0.52 $ 0.15 $ (0.35) $ 1.89 $ 0.73 $ 0.52 $ 0.16 $ (0.36) $ 1.88 $ 0.73 $ 0.52 $ 0.16 $ (0.36) Diluted Net income (loss) attributable to common shareholders excluding amounts attributable to unvested restricted shares: Basic Diluted Weighted average number of common shares outstanding: Basic 104,188,785 97,041,484 85,757,969 81,155,228 69,549,441 104,545,895 97,228,671 85,897,274 81,326,304 69,549,441 Diluted Balance Sheet Data: Investment in hotel properties, net $ 3,428,556 $ 3,383,188 $ 3,053,044 $ 2,712,174 $ 2,229,362 Total assets 3,699,949 3,581,038 3,256,570 2,833,275 2,355,045 0 220,606 153,000 265,000 120,193 477,500 477,500 477,500 0 0 42,500 42,500 42,500 42,500 42,500 501,090 514,456 579,220 643,897 646,207 0 0 0 0 49 17 18 18 17 33 6,660 6,054 5,786 5,613 0 178,750 237,472 227,472 394,222 352,972 2,441,709 2,103,391 1,853,126 1,765,613 1,443,467 Borrowings under credit facilities Term loans Bonds payable Mortgage loans, including unamortized loan premiums Redeemable noncontrolling interest in consolidated entity Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership Preferred shares, liquidation preference Total shareholders’ equity Other Data: Funds from operations (1) $ Earnings before interest, taxes, depreciation and amortization (1) Cash provided by operating activities Cash used in investing activities Cash (used in) provided by financing activities 259,940 $ 215,219 $ 169,607 $ 123,251 $ 92,484 429,002 290,666 253,481 200,952 152,374 283,236 245,565 216,364 165,495 131,572 (78,001) (422,045) (524,154) (569,936) (371,517) (104,492) 154,778 322,655 411,666 244,504 Cash dividends declared per common share (2) $ 1.41 $ 0.96 $ 0.71 $ 0.44 $ 0.24 (1) (2 ) See “Non-GAAP Financial Measures” below in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a detailed description and reconciliation of funds from operations and earnings before interest, taxes, depreciation and amortization to net income (loss) applicable to common shareholders. Amounts are rounded to the nearest whole cent for presentation purposes. 20 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 2014 marked the fifth consecutive year of growth for the U.S. economy, the lodging industry and the Company. The economic indicators that the Company tracks were generally positive. Consumer confidence increased to its highest levels in seven years. Unemployment continued its decline, ending the year at 5.6%, which was the lowest unemployment rate since June 2008. Airline enplanements were solid for the year and corporate profits reported thus far have been strong. Overall, the lodging industry benefited from a positive economic landscape. Industry demand increased by 4.5% and was slightly offset by a 0.9% increase in supply. The favorable demand-supply picture resulted in a U.S. lodging industry-wide occupancy of 64.4%, a 3.6% improvement over 2013. U.S. lodging industry ADR improved by 4.6%. As such, 2014 U.S. lodging industry RevPAR increased 8.3%. As a result of a strong U.S. lodging environment, RevPAR at the Company’s hotels increased. During 2014, the Company’s funds from operations (“FFO”) per diluted share and earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased as compared to 2013 due mainly to improvements in the performance of its hotel portfolio. For 2014, the Company had net income applicable to common shareholders of $197.6 million, or $1.88 per diluted share. FFO was $259.9 million, or $2.48 per diluted share/unit (based on 104,842,195 weighted average shares and units outstanding during the year ended December 31, 2014) and EBITDA was $429.0 million. RevPAR in 2014 was $188.09. The Company considers RevPAR and EBITDA to be key measures of the performance of the individual hotels. RevPAR for the total portfolio increased 8.8% for 2014. The RevPAR increase is attributable to a 7.4% increase in ADR to $231.53 and 1.3% growth in occupancy to 81.2%. During 2014, the Company continued to implement measures that resulted in efficient hotel operations. Hotel operations depend on the state of the overall economy which 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 its shareholders, service debt or meet other financial obligations. The Company measures hotel performance by evaluating financial metrics such as RevPAR, FFO and EBITDA. The Company evaluates the hotels in its portfolio and potential acquisitions using these metrics discussed above to determine each portfolio hotel’s contribution or acquisition hotel’s potential contribution toward reaching the Company’s goals of providing income to its shareholders through increases in distributable cash flow and increasing long-term total returns to shareholders through appreciation in the value of its common shares. The Company invests in capital improvements throughout the portfolio to continue to increase the competitiveness of its hotels and improve their financial performance. The Company actively seeks to acquire hotel properties, but continues to face significant competition for acquisitions that meet its investment criteria. Please refer to “Non-GAAP Financial Measures” below for a detailed discussion of the Company’s use of FFO and EBITDA and a reconciliation of FFO and EBITDA to net income (loss), a U.S. generally accepted accounting principles (“GAAP”) measurement. Critical Accounting Policies 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. 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 and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. In preparing these financial statements, management has used the information available including the Company’s past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments of certain amounts included in the consolidated financial statements. It is possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements might not materialize. However, application of the critical accounting policies below involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from those estimates. In addition, other companies may determine these estimates differently, which may impact comparability of the Company’s results of operations to those of companies in similar businesses. Investment in Hotel Properties Upon acquisition, the Company determines the fair value of the acquired long-lived assets, assumed debt and any intangible assets or liabilities. The Company’s investments in hotel properties are carried at cost and depreciated using the straight-line 21 Table of Contents 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, 7 years for land improvements, 20 years for golf course land improvements, 20 years for swimming pool assets and 3 to 5 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. The Company reviews each hotel for impairment at the end of each reporting period or as events and circumstances dictate throughout the year. A property is considered impaired when the sum of estimated future undiscounted cash flows over the estimated remaining holding period is less than the carrying amount of a property. At the end of each reporting period, the Company assesses whether any quantitative or qualitative triggering events have occurred in relation to a property. Examples of situations considered to be triggering events include: • a substantial decline in operating cash flows during the period, including declines related to decreased occupancy, ADR or RevPAR; a• current or projected loss from operations; • a significant cost accumulation above the original acquisition/development estimate; • a change in plan to sell the property prior to the end of its useful life or holding period; • a significant decrease in market price not in line with general market trends; and • any other quantitative or qualitative events deemed significant by our management or our Board of Trustees. If the presence of one or more triggering events as described above is identified at the end of a reporting period or throughout the year with respect to a hotel, the Company performs a recoverability test. In doing so, an estimate of undiscounted future cash flows over the estimated remaining holding period is compared to the carrying amount of the hotel. Impairment is indicated if the results of a recoverability analysis indicate that the carrying amount of a hotel exceeds the estimated future undiscounted cash flows. Upon presentation to and discussion with the Board of Trustees, an impairment charge is recorded equal to the excess of the carrying value of the hotel over the fair value. When performing a recoverability test or estimating the fair value of a property, the Company makes certain assumptions including, but not limited to, consideration of: • projected operating cash flows – considering factors such as booking pace, growth rates, occupancy, room rates, property-specific operating costs and future capital expenditures; • projected cash flows from the eventual disposition of the hotel based upon our estimation of a property-specific capitalization rate; property-specific • rates; and comparable • prices. selling discount The Company considers a hotel as held for sale when a contract for sale is entered into, a substantial non-refundable deposit has been received from the purchaser and sale is expected to occur within one year. Upon sale of a hotel, the Company determines its profit from the sale under the full accrual method provided the following applicable criteria are met: a sale is consummated; the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; the Company’s receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual risks and rewards of ownership; and 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. 22 Table of Contents Share-Based Compensation From time to time, the Company awards nonvested shares under the 2014 Equity Incentive Plan (“2014 Plan”), which has approximately nine years remaining, as compensation to executives, employees and members of the Board of Trustees. The shares issued to executives and employees generally vest over three years. 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. Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013 Industry travel was stronger during the year ended December 31, 2014 compared to the prior year. Demand improvements and limited supply growth led to occupancy growth, which has encouraged operators to increase pricing and resulted in ADR growth. With respect to the Company’s hotels, ADR grew 7.4% during the year ended December 31, 2014, while occupancy increased 1.3%, which resulted in RevPAR improvement of 8.8% year-over-year. Hotel Operating Revenues Hotel operating revenues including room, food and beverage and other operating department revenues increased $132.1 million from $969.4 million in 2013 to $1,101.5 million in 2014. This increase is due primarily to the hotel operating revenues generated from the 2013 and 2014 hotel acquisitions, which consist of the acquisitions of Hotel Triton, Harbor Court Hotel, Serrano Hotel, Southernmost Hotel Collection, Hotel Vitale and The Heathman Hotel (collectively, the “2013 and 2014 Acquisition Properties”). The 2013 and 2014 Acquisition Properties, which are not comparable year-over-year, contributed $81.4 million to the increase in hotel operating revenues. Additionally, the effects of the continually improving economic environment, which resulted in an 8.8% increase in RevPAR across the portfolio excluding the Hilton Alexandria Old Town and Hotel Viking (collectively, the “2014 Disposition Properties”), attributable to a 7.4% increase in ADR and a 1.3% increase in occupancy, contributed to the increase in hotel operating revenues. The following hotels experienced significant increases in total room, food and beverage and other operating department revenues primarily as a result of the effects of the improving economy: • $5.4 million increase from Westin Copley Place; • $4.3 million increase from The Hilton San Diego Resort and Spa; • $4.3 million increase from Hyatt Boston Harbor; • $4.2 million increase from San Diego Paradise Point Resort and Spa; and • $2.8 million increase from The Liberty Hotel. Additionally, total room, food and beverage and other operating department revenues increased $26.0 million at Park Central Hotel and WestHouse Hotel New York resulting from the completion of the hotel renovation in late 2013. These increases are partially offset by a $14.2 million decrease related to the sale of the 2014 Disposition Properties. Hotel operating revenues across the remainder of the portfolio also showed improvement, increasing a net $17.9 million across 32 additional hotels in the portfolio. Other Income Other income increased $0.4 million from $7.9 million in 2013 to $8.3 million in 2014 due primarily to increased gains of $0.7 million from insurance proceeds related to minor property damage at various properties partially offset by a decrease of $0.3 million related to retail lease income. Hotel Operating Expenses Hotel operating expenses increased $72.6 million from $596.2 million in 2013 to $668.8 million in 2014. This overall increase is primarily due to $43.2 million from the results of the 2013 and 2014 Acquisition Properties, which are not comparable year-over-year. To a lesser extent, the increase is a result of increased operating costs associated with higher occupancies at certain properties in the portfolio attributable to the slowly improving economic environment and the completion of the Park Central Hotel and WestHouse Hotel New York renovation. The following hotels experienced significant increases in total room, food and beverage, other direct and other indirect expenses primarily as a result of increased occupancies at the hotels: 23 Table of Contents • $18.4 million increase from Park Central Hotel and WestHouse Hotel New York (due to completion of the 2013 hotel renovation); • $2.6 million increase from San Diego Paradise Point Resort and Spa; • $2.4 million increase from Hyatt Boston Harbor; • $2.3 million increase from The Hilton San Diego Resort and Spa; and • $2.3 million increase from Westin Copley Place. These increases are partially offset by a $8.3 million decrease related to the sale of the 2014 Disposition Properties. Hotel operating expenses across the remainder of the portfolio increased slightly by a net $9.7 million across 33 additional hotels in the portfolio. Depreciation and Amortization Depreciation and amortization expense increased $11.0 million from $144.0 million in 2013 to $155.0 million in 2014. The increase is due, in part, to $8.2 million from the 2013 and 2014 Acquisition Properties, which are not comparable year-over-year. Depreciation and amortization expense increased a net $4.6 million across the remaining hotels in the portfolio due to the depreciation of new assets placed into service, reflecting the renovation activity at several hotels. These increases are partially offset by $1.8 million from the 2014 Disposition Properties, which are not comparable year-over-year. Real Estate Taxes, Personal Property Taxes and Insurance Real estate taxes, personal property taxes and insurance expenses increased $4.4 million from $53.4 million in 2013 to $57.8 million in 2014. This increase is primarily due to $3.8 million of taxes and insurance expenses from the 2013 and 2014 Acquisition Properties, which are not comparable year-over-year. Real estate taxes and personal property taxes increased a net $1.1 million across the remaining hotels in the portfolio primarily resulting from increased assessed property values or tax rates at certain properties and to a lesser extent, the completion of the Park Central Hotel and WestHouse Hotel New York renovation on which the capitalization of real estate taxes ceased at the end of 2013. These increases are partially offset by successful real estate tax appeals and real estate tax refunds at certain other properties, and a reduction in real estate tax expense attributable to the 2014 Disposition Properties. Insurance expense decreased by $0.5 million between the two periods primarily as a result of the February 10, 2014 repayment of the $72.0 million mezzanine loan acquired in July 2012 which property insurance was placed on to secure the loan. Ground Rent Ground rent increased $3.6 million from $11.1 million in 2013 to $14.7 million in 2014. Certain hotels are subject to ground rent under operating leases which call for either fixed or variable payments based on the hotel’s performance. Harbor Court Hotel, Southernmost Hotel Collection and Hotel Vitale, which are not comparable year-over-year, contributed $2.6 million to the 2014 increase. The other hotels subject to ground leases contributed a net $1.0 million to the increase due to improved operating results. General and Administrative General and administrative expense increased $1.8 million from $22.0 million in 2013 to $23.8 million in 2014 due primarily to increased compensation costs and partially due to additional staffing as a result of portfolio growth and professional fees. Acquisition Transaction Costs Acquisition transaction costs of $2.4 million in 2014 and $2.6 million in 2013 relate to the purchase of the 2013 and 2014 Acquisition Properties and, to a lesser extent, transaction costs for the April 30, 2014 land parcel purchase adjacent to the Onyx Hotel and the purchase of The Westin Market Street in San Francisco, CA (renamed Park Central San Francisco) on January 23, 2015. Other Expenses Other expenses decreased $2.0 million from $9.4 million in 2013 to $7.4 million in 2014 due primarily to a net decrease of $2.3 million in pre-opening and management transition expenses, mainly as a result of the completion of the newly renovated Park Central Hotel and WestHouse Hotel New York in 2013 which offset 2014 increases at the Serrano Hotel, Hotel Chicago and Hotel Monaco San Francisco. This decrease is partially offset by a $0.1 million increase in losses from property damage, which are largely covered by insurance proceeds and a $0.2 million increase in retail lease expenses. 24 Table of Contents Interest Income Interest income decreased $7.9 million from $9.7 million in 2013 to $1.8 million in 2014 as a result of the February 10, 2014 repayment of the $72.0 million mezzanine loan which was acquired in July 2012. Interest Expense Interest expense decreased $0.9 million from $57.5 million in 2013 to $56.6 million in 2014 due to a decrease in the Company’s weighted average debt outstanding and weighted average interest rate. The Company’s weighted average debt outstanding decreased from $1.33 billion in 2013 to $1.32 billion in 2014 due primarily to paydowns with proceeds from the following: • the March 2013 issuance of the Series I Preferred Shares; • the issuance of common shares under the Company’s equity distribution agreement during 2013; • the repayment of the mezzanine loan in February 2014; • the sale of Hilton Alexandria Old Town in June 2014; • the sale of Hotel September 2014; • the December 2014 common share offering; and • positive operating results from the hotel properties. Viking in The above paydowns were partially offset by borrowings for the following: • additional borrowings to purchase the 2013 and 2014 Acquisition Properties; • additional borrowings to redeem 4,000,000 of the 6,348,888 7 ¼% Series G Cumulative Redeemable Preferred Shares • (“Series G Preferred Shares”) in April 2013; additional borrowings to redeem the remainder of the Series G Preferred Shares in July 2014; and • additional borrowings to finance other capital improvements during 2013 and 2014. The Company’s weighted average interest rate, including the impact of capitalized interest, decreased from 4.08% in 2013 to 4.06% in 2014. Interest capitalized on renovations decreased from $0.6 million in 2013 to $0.4 million in 2014 primarily due to the completion of the Park Central Hotel and WestHouse New York renovation at the end of 2013, partially offset by various renovation projects throughout the portfolio. Loss from Extinguishment of Debt Loss from extinguishment of debt of $2.5 million in 2014 relates to the write-off of a portion of the unamortized deferred financing costs for the Company’s senior unsecured credit facility and Second Term Loan (as defined below). These costs were recorded in connection with the original agreements that were in effect prior to the Company refinancing its senior unsecured credit facility and Second Term Loan on January 8, 2014. There was no loss from extinguishment of debt in the 2013 period. Income Tax Expense Income tax expense increased $1.8 million from $0.5 million in 2013 to $2.3 million in 2014. This increase is primarily due to an increase in LHL’s net income before income tax expense of $3.0 million from $0.6 million in 2013 to $3.6 million in 2014 and an increase in state and local incomes taxes on the Operating Partnership and affiliated entities, which are subject to minimum state and local income taxes in applicable jurisdictions. For the year ended December 31, 2014, LHL’s income tax expense was calculated using an estimated federal and state tax rate of 35.4%. Gain on Sale of Properties The gain on sale of properties of $93.2 million relates to the gain from sale of Hilton Alexandria Old Town on June 17, 2014 of $43.5 million and the gain from sale of Hotel Viking on September 10, 2014 of $49.7 million. Noncontrolling Interests in Consolidated Entities Noncontrolling interests in consolidated entities represent the allocation of income or loss to the outside preferred ownership interests in a subsidiary and the outside ownership interest in a joint venture. Noncontrolling Interests of Common Units in Operating Partnership Noncontrolling interests of common units in Operating Partnership represent the allocation of income or loss of the Operating Partnership to the common units held by third parties based on their weighted average percentage ownership throughout the period. At December 31, 2014, third party limited partners held 0.3% of the common units in the Operating Partnership. 25 Table of Contents Distributions to Preferred Shareholders Distributions to preferred shareholders decreased $3.1 million from $17.4 million in 2013 to $14.3 million in 2014 due to decreased distributions on the Series G Preferred Shares, which were partially redeemed on April 5, 2013, and the remaining shares were fully redeemed on July 3, 2014. Issuance Costs of Redeemed Preferred Shares Issuance costs of redeemed preferred shares of $1.0 million in 2014 represent the offering costs related to the remaining Series G Preferred Shares, which were all redeemed on July 3, 2014, and $1.6 million in 2013 represent the offering costs related to the Series G Preferred Shares, which were partially redeemed on April 5, 2013. The excess of fair value over carrying value (i.e. offering costs) is included in the determination of net income attributable to common shareholders. Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012 The U.S. lodging industry operated in a solid environment during 2013 as the U.S. economy continued to grow. On a year-over-year basis, overall industry demand increased 2.2%, while supply growth was limited to 0.7%. This favorable demand-supply imbalance resulted in an occupancy increase of 1.5%, while ADR improved 3.9%. Corporate demand grew during the year, and was particularly strong in the transient segment. Leisure demand also improved during 2013. The overall transient segment, as well as group, reflected increased pricing power due to higher overall industry demand levels. As such, lodging industry RevPAR grew by 5.4%. Hotel ADR, RevPAR and operating revenues for the Company’s portfolio were positively impacted by the overall industry performance. Hotel Operating Revenues Hotel operating revenues including room, food and beverage and other operating department revenues increased $107.3 million from $862.1 million in 2012 to $969.4 million in 2013. This increase is due primarily to the hotel operating revenues generated from the 2012 and 2013 hotel acquisitions, which consist of the acquisitions of the Hotel Palomar, Washington, DC, L’Auberge Del Mar, The Liberty Hotel, Hotel Triton, Harbor Court Hotel, Serrano Hotel and Southernmost Hotel Collection (collectively, the “2012 and 2013 Acquisition Properties”). The 2012 and 2013 Acquisition Properties, which are not comparable year-over-year, contributed $95.0 million to the increase in hotel operating revenues. Additionally, the effects of the slowly improving economic environment, which resulted in a 2.8% increase in RevPAR across the portfolio, attributable to a 2.7% increase in ADR and a 0.1% increase in occupancy, contributed to the increase in hotel operating revenues. The following hotels experienced significant increases in total room, food and beverage and other operating department revenues primarily as a result of the effects of the improving economy: • $4.9 million increase from Westin Copley Place; • $3.4 million increase from San Diego Paradise Point Resort and Spa; • $2.2 million increase from Sofitel Washington, DC Lafayette Square; • $1.9 million increase from Lansdowne Resort; and • $1.9 million increase from Westin Michigan Avenue. Additionally, total room, food and beverage and other operating department revenues increased $4.6 million at The Roger and $2.1 million at Le Montrose Suite Hotel resulting from the completion of hotel renovations in 2012. These increases are partially offset by a decrease of $18.3 million from the Park Central Hotel as a result of the 2013 hotel renovation which was fully completed in the fourth quarter of 2013. Hotel operating revenues across the remainder of the portfolio held relatively constant, increasing a net $9.6 million across 29 additional hotels in the portfolio. Other Income Other income increased $3.0 million from $4.9 million in 2012 to $7.9 million in 2013 due primarily to increased gains from insurance proceeds related to minor property damage at various properties of approximately $2.2 million, and to a lesser extent, to $0.6 million of increased retail lease income and a $0.2 million gain from the sale of land significantly below ground level at the Alexis Hotel to the state, which had no effect on hotel operations, recognized in the 2013 period. Hotel Operating Expenses Hotel operating expenses increased $63.0 million from $533.2 million in 2012 to $596.2 million in 2013. This overall increase is primarily due to $54.0 million from the results of the 2012 and 2013 Acquisition Properties, which are not comparable 26 Table of Contents year-over-year. To a lesser extent, the increase is a result of increased operating costs associated with higher occupancies at certain properties in the portfolio attributable to the slowly improving economic environment and two completed hotel renovations. The following hotels experienced significant increases in total room, food and beverage, other direct and other indirect expenses primarily as a result of increased occupancies at the hotels: • $2.9 million increase from Westin Copley Place; • $2.0 million increase from San Diego Paradise Point Resort and Spa; • $1.9 million increase from The Roger (due to completion of the 2012 hotel renovation); and • $1.8 million increase from Westin Michigan Avenue. These increases are partially offset by a decrease of $6.8 million from the Park Central Hotel as a result of portions of the hotel being out of service related to the 2013 hotel renovation. Hotel operating expenses across the remainder of the portfolio remained relatively constant, increasing a net $7.2 million across 32 additional hotels in the portfolio. Depreciation and Amortization Depreciation and amortization expense increased $19.6 million from $124.4 million in 2012 to $144.0 million in 2013. The increase is due, in part, to $11.6 million from the 2012 and 2013 Acquisition Properties, which are not comparable year-over-year. Depreciation and amortization expense increased $10.1 million at the Park Central Hotel primarily due to accelerated depreciation resulting from a change in useful life of certain existing assets upon the completion of the 2013 renovation, as well as increased deprecation expense on the completed renovation. These increases are partially offset by a net decrease of $2.1 million across the remaining hotels in the portfolio due to a portion of the furniture, fixtures and equipment becoming fully depreciated. Real Estate Taxes, Personal Property Taxes and Insurance Real estate taxes, personal property taxes and insurance expenses increased $8.8 million from $44.6 million in 2012 to $53.4 million in 2013. This increase is primarily due to $5.2 million of taxes and insurance expenses from the 2012 and 2013 Acquisition Properties, which are not comparable year-over-year. Real estate taxes and personal property taxes increased a net $3.2 million across the remaining hotels in the portfolio primarily due to increased assessed property values or tax rates at certain properties, partially offset by real estate taxes capitalized as part of renovations. Insurance expense for the remaining hotels in the portfolio held relatively constant, increasing a net $0.4 million due primarily to property insurance placed on the hotels securing the mezzanine loan. Ground Rent Ground rent increased $2.5 million from $8.6 million in 2012 to $11.1 million in 2013. Certain hotels are subject to ground rent under operating leases which call for either fixed or variable payments based on the hotel’s performance. The Liberty Hotel and the Southernmost Hotel Collection, which are not comparable year-over-year, contributed $2.2 million and $0.2 million, respectively, to the 2013 increase. The other hotels subject to ground leases contributed a net $0.1 million to the increase due to improved operating results. General and Administrative General and administrative expense increased $2.2 million from $19.8 million in 2012 to $22.0 million in 2013 due primarily to increased compensation costs and partially due to additional staffing as a result of portfolio growth and professional fees. Acquisition Transaction Costs Acquisition transaction costs of $2.6 million in 2013 and $4.5 million in 2012 relate to the purchase of the 2012 and 2013 Acquisition Properties and the July 2012 acquisition of a mezzanine loan. Other Expenses Other expenses increased $6.4 million from $3.0 million in 2012 to $9.4 million in 2013 due primarily to a net increase of $5.3 million in pre-opening, severance, marketing and management transition expenses, consisting of $6.1 million incurred in 2013 related largely to the newly renovated Park Central Hotel and WestHouse Hotel New York, partially offset by $0.8 million of management transition costs incurred in 2012 related to operator changes at several hotels. In addition, losses from property damage, which are largely covered by insurance proceeds, increased $1.0 million primarily due to minor flooding at two properties in 2013 and retail lease expenses increased $0.1 million in 2013. 27 Table of Contents Interest Income Interest income increased $5.2 million from $4.5 million in 2012 to $9.7 million in 2013 primarily as a result of the interest income earned on the mezzanine loan, which was acquired in July 2012. Interest Expense Interest expense increased $4.6 million from $52.9 million in 2012 to $57.5 million in 2013 due to an increase in the Company’s weighted average debt outstanding, partly offset by a decrease in the weighted average interest rate. The Company’s weighted average debt outstanding increased from $1.2 billion in 2012 to $1.3 billion in 2013 due primarily to the following borrowings: • additional borrowings to purchase the 2012 and 2013 Acquisition Properties; • additional borrowings to redeem the 7 ½% Series D Cumulative Redeemable Preferred Shares (“Series D Preferred Shares”) and the 8% Series E Cumulative Redeemable Preferred Shares (“Series E Preferred Shares”) in May 2012; • additional borrowings to acquire a performing mezzanine loan in July 2012; • additional borrowings to redeem 4,000,000 of the 6,348,888 Series G Preferred Shares in April 2013; and • additional borrowings to finance other capital improvements during 2012 and 2013. The above borrowings were partially offset by paydowns with proceeds from the following: • the March 2013 issuance of the Series I Preferred Shares; • the issuance of common shares under the Company’s equity distribution agreements during 2012 and 2013; • the December 2012 and October 2013 common share offerings; and • positive operating results from the hotel properties. The Company’s weighted average interest rate, including the impact of capitalized interest, decreased from 4.3% in 2012 to 4.1% in 2013. Interest capitalized on renovations increased from $0.4 million in 2012 to $0.6 million in 2013 primarily due to the renovation of the Park Central Hotel during the 2013 period. Income Tax Expense Income tax expense decreased $8.6 million from $9.1 million in 2012 to $0.5 million in 2013. This decrease is primarily due to a $20.5 million decrease in LHL’s net income before income tax expense from $21.1 million in 2012 to $0.6 million in 2013, due primarily to an increase in pre-opening, severance, marketing and management transition expenses and lower hotel operating profits related to the Park Central Hotel renovation in 2013. Noncontrolling Interests in Consolidated Entities Noncontrolling interests in consolidated entities represent the allocation of income or loss to the outside preferred ownership interests in a subsidiary and the outside ownership interest in a joint venture. Noncontrolling Interests of Common Units in Operating Partnership Noncontrolling interests of common units in Operating Partnership represent the allocation of income or loss of the Operating Partnership to the common units held by third parties based on their weighted average percentage ownership throughout the period. At December 31, 2013, third party limited partners held 0.3% of the common units in the Operating Partnership. Distributions to Preferred Shareholders Distributions to preferred shareholders decreased $4.3 million from $21.7 million in 2012 to $17.4 million in 2013 due to decreased distributions on the Series D Preferred Shares and Series E Preferred Shares, which were redeemed on May 21, 2012, and the Series G Preferred Shares, which were partially redeemed on April 5, 2013, partially offset by increased distributions on the Series I Preferred Shares, which were issued on March 4, 2013 and March 12, 2013. Issuance Costs of Redeemed Preferred Shares Issuance costs of redeemed preferred shares of $1.6 million in 2013 represent the offering costs related to the Series G Preferred Shares, which were partially redeemed on April 5, 2013, and $4.4 million in 2012 represent the offering costs related to the Series D Preferred Shares and Series E Preferred Shares, which were redeemed on May 21, 2012. The excess of fair value over carrying value (i.e. offering costs) is included in the determination of net income attributable to common shareholders. 28 Table of Contents Non-GAAP Financial Measures FFO and EBITDA The Company considers the non-GAAP measures of FFO and EBITDA to be key supplemental measures of the Company’s performance and should be considered along with, but not as alternatives to, net income or loss as a measure of the Company’s operating performance. 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 real estate industry investors consider FFO and EBITDA to be helpful in evaluating a real estate company’s operations. The White Paper on FFO approved by the National Association of Real Estate Investment Trusts (“NAREIT”) in April 2002, as revised in 2011, defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of properties and items classified by GAAP as extraordinary, plus real estate-related depreciation and amortization and impairment writedowns, and after comparable adjustments for the Company’s portion of these items related to unconsolidated entities and joint ventures. The Company computes FFO consistent with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. With respect to FFO, the Company believes that excluding the effect of extraordinary items, real estate-related depreciation and amortization and impairments, and the portion of these items related to unconsolidated entities, all of which are based on historical cost accounting and which may be of limited significance in evaluating current performance, can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. However, FFO may not be helpful when comparing the Company to non-REITs. With respect to EBITDA, the Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of these items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and amortization, and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrues directly to common shareholders. FFO and EBITDA do not represent cash generated from operating activities determined by GAAP and should not be considered as alternatives to net income, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO and EBITDA are not measures of the Company’s liquidity, nor are FFO and EBITDA indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that have been and will be incurred. FFO and EBITDA may include funds that may not be available for management’s discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions and other commitments and uncertainties. To compensate for this, management considers the impact of these excluded items to the extent they are material to operating decisions or the evaluation of the Company’s operating performance. 29 Table of Contents The following is a reconciliation between net income (loss) attributable to common shareholders and FFO for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 (in thousands, except share and unit data): For the year ended December 31, 2014 Net income (loss) attributable to common shareholders $ 2013 197,561 Depreciation (1) Amortization of deferred lease costs $ 2012 70,984 $ 2011 45,146 $ 2010 12,934 $ (24,793) 154,585 143,560 123,809 110,760 110,138 347 355 371 318 363 0 0 0 (2) 16 17 0 0 0 636 303 281 1 0 0 0 0 0 Noncontrolling interests: Redeemable noncontrolling interest in consolidated entity Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership (191) Less: Net gain on sale of properties (93,205) (760) (29,162) Loss on impairment of properties 0 0 36,129 FFO $ 259,940 $ 215,219 $ 169,607 $ 123,251 $ 92,484 Weighted average number of common shares and units outstanding: Basic 104,485,085 97,337,784 86,054,269 81,157,663 69,549,441 104,842,195 97,524,971 86,193,574 81,328,739 69,722,700 Diluted (1) Includes amounts from discontinued operations. The following is a reconciliation between net income (loss) attributable to common shareholders and EBITDA for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 (in thousands): For the year ended December 31, 2014 Net income (loss) attributable to common shareholders $ Interest expense (1) 2013 197,561 $ 2012 70,984 $ 2011 45,146 $ 2010 12,934 $ (24,793) 56,628 57,516 52,896 39,704 36,504 Loss from extinguishment of debt 2,487 0 0 0 0 Income tax expense (1) 2,306 470 9,062 7,081 3,424 155,035 143,991 124,363 111,282 110,676 0 0 0 (2) 16 17 0 0 0 636 303 281 1 0 14,333 17,385 21,733 29,952 26,754 Depreciation and amortization (1) Noncontrolling interests: Redeemable noncontrolling interest in consolidated entity (191) Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership Distributions to preferred shareholders EBITDA (2) (1) Includes amounts from discontinued operations. $ 429,002 $ 290,666 $ 253,481 $ 200,952 $ 152,374 (2) EBITDA includes the gain on sale of Hilton Alexandria Old Town and Hotel Viking of $43.5 million and $49.7 million, respectively, in 2014. EBITDA includes the gain on finalization of the Seaview Resort roof project of $0.8 million in 2011. EBITDA includes the gain on sale of Westin City Center Dallas of $29.2 million and the loss on impairment of Seaview Resort, Sheraton Bloomington Hotel Minneapolis South and 330 N. Wabash Avenue property of $24.5 million, $3.2 million and $8.4 million, respectively, in 2010. 30 Table of Contents The Hotels The following table sets forth historical comparative information with respect to occupancy, ADR and RevPAR for the total hotel portfolio for the years ended December 31, 2014 and 2013: Year ended December 31, 2014 Occupancy 2013 81.2% 80.2% Variance 1.3% ADR $ 231.53 $ 215.50 7.4% RevPAR $ 188.09 $ 172.81 8.8% The above hotel statistics include adjustments made for presentation of comparable information. Off-Balance Sheet Arrangements 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% to 5.0% 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’ capital assets. Certain of the agreements require that the Company reserve this cash in separate accounts. As of December 31, 2014, the Company held a total of $21.6 million of restricted cash reserves, $14.2 million of which was available 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. The Company has no other off-balance sheet arrangements. Liquidity and Capital Resources The Company’s principal source of cash to meet its cash requirements, including distributions to shareholders, is the operating cash flow from the Company’s hotels. Additional sources of cash are the Company’s senior unsecured credit facility, LHL’s unsecured credit facility, additional unsecured financing, secured financing on one or all of the Company’s 40 unencumbered properties as of December 31, 2014, the sale of one or more properties, equity issuances available under the Company’s shelf registration statement and the issuance of up to $230.1 million of common shares from time to time under the 2013 Agreement (as defined under “Equity Issuances and Redemptions” below). LHL is a wholly owned subsidiary of the Operating Partnership. Payments to the Operating Partnership are required pursuant to the terms of the lease agreements between LHL and the Operating Partnership relating to the properties owned by the Operating Partnership and leased by LHL. LHL’s ability to make rent payments to the Operating Partnership and the Company’s liquidity, including its ability to make distributions to shareholders, are dependent on the lessees’ ability to generate sufficient cash flow from the operation of the hotels. In addition, cash flow from hotel operations is subject to all operating risks common to the hotel industry. These risks include: • adverse effects of weak national, regional and local economic conditions; tightening • standards; credit • competition for guests and meetings from other hotels, including competition and pricing pressures from internet wholesalers and distributors; • increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increases in room rates; • labor strikes, disruptions or lockouts that may impact operating performance; • dependence on demand from business and leisure travelers, which may fluctuate and be seasonal; • increases in energy costs, airline fares and other expenses related to travel, which may negatively affect traveling; and 31 Table of Contents • terrorism, terrorism alerts and warnings, military actions, pandemics or other medical events which may cause decreases in business and leisure travel. These factors could adversely affect the ability of the hotel operators to generate revenues which could adversely affect LHL’s ability to make rental payments to the Company pursuant to the participating leases and ultimately impact the Company’s liquidity. The Company’s senior unsecured credit facility, LHL’s unsecured credit facility and the Company’s term loans contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict its ability to make distributions or other payments to its shareholders upon events of default. There are currently no other contractual or other arrangements limiting payment of distributions by the Operating Partnership. Failure of the Company to comply with the financial covenants contained in its credit facilities, term loans and non-recourse secured mortgages could result from, among other things, changes in our results of operations, the incurrence of additional debt or changes in general economic conditions. If the Company violates the financial covenants contained in any of its credit facilities or term loans, 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. As of December 31, 2014, 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 or mortgage loans. 32 Table of Contents Properties Leased to LHL Effective January 1, 2001, LHL became a wholly owned subsidiary of the Company as provided for under the TRS provisions of the Code. As of December 31, 2014, LHL leased all 45 hotels owned by the Company as follows: Hotel Properties 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. Hotel Amarano Burbank L’Auberge Del Mar Hilton San Diego Gaslamp Quarter Hotel Solamar San Diego Paradise Point Resort and Spa The Hilton San Diego Resort and Spa Harbor Court Hotel Hotel Monaco San Francisco Hotel Triton Hotel Vitale Serrano Hotel Villa Florence Chaminade Resort and Conference Center Viceroy Santa Monica Chamberlain West Hollywood Le Montrose Suite Hotel Le Parc Suite Hotel The Grafton on Sunset The Donovan Hotel George Hotel Helix Hotel Madera Hotel Palomar, Washington, DC Hotel Rouge Sofitel Washington, DC Lafayette Square The Liaison Capitol Hill Topaz Hotel Southernmost Hotel Collection Hotel Chicago Westin Michigan Avenue Indianapolis Marriott Downtown Hyatt Boston Harbor Onyx Hotel The Liberty Hotel Westin Copley Place Gild Hall The Roger Park Central Hotel (shared lease with WestHouse Hotel New York) WestHouse Hotel New York The Heathman Hotel Embassy Suites Philadelphia - Center City Westin Philadelphia Lansdowne Resort Alexis Hotel Hotel Deca 33 Location Burbank, CA Del Mar, CA San Diego, CA San Diego, CA San Diego, CA San Diego, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA Santa Cruz, CA Santa Monica, CA West Hollywood, CA West Hollywood, CA West Hollywood, CA West Hollywood, CA Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Key West, FL Chicago, IL Chicago, IL Indianapolis, IN Boston, MA Boston, MA Boston, MA Boston, MA New York, NY New York, NY New York, NY New York, NY Portland, OR Philadelphia, PA Philadelphia, PA Lansdowne,VA Seattle, WA Seattle, WA Table of Contents Contractual Obligations The following is a summary of the Company’s obligations and commitments as of December 31, 2014 (in thousands): Obligations and Commitments Mortgage loans Amount of Commitment Expiration Per Period Total Amounts Committed $ Mortgage loans interest 501,090 Less than 1 year $ 214,796 1 to 3 years $ 286,294 4 to 5 years $ 0 Over 5 years $ 0 34,306 25,857 8,449 0 0 Borrowings under credit facilities (1) 0 0 0 0 0 Credit facilities interest (1) 0 0 0 0 0 584,963 11,552 23,819 24,437 525,155 42,500 0 0 42,500 0 57 18 36 3 0 477,500 0 0 477,500 0 54,903 13,754 26,762 14,387 0 46,241 46,241 0 0 0 Rents (2) Massport Bonds (1) Massport Bonds interest (1) Term loans (3) Term loans interest (3) Purchase commitments (4) Purchase orders and letters of commitment Total obligations and commitments $ 1,741,560 $ 312,218 $ 345,360 $ 558,827 $ 525,155 (1) Interest expense is calculated based on the variable rate as of December 31, 2014. It is assumed that the outstanding debt as of December 31, 2014 will be repaid upon maturity with interest-only payments until then. (2) Amounts calculated based on the annual minimum future lease payments that extend through the term of the lease. Rents may be subject to adjustments based on future interest rates and hotel performance. (3) The term loans bear interest at floating rates equal to LIBOR plus applicable margins. The Company entered into separate interest rate swap agreements for the full seven-year term of the First Term Loan and the five-year term ending August 2, 2017 for the Second Term Loan, resulting in fixed all-in interest rates of 3.62% and 2.38%, respectively, at the Company’s current leverage ratio (as defined in the agreements). It is assumed that the outstanding debt as of December 31, 2014 will be repaid upon maturity with fixed interest-only payments through the swapped periods and interest calculated based on the variable rate as of December 31, 2014 for the unswapped period of the Second Term Loan. (4) As of December 31, 2014, purchase orders and letters of commitment totaling approximately $46.2 million had been issued for renovations at the properties. The Company has committed to these projects and anticipates making similar arrangements in the future with the existing properties or any future properties that it may acquire. 34 Table of Contents Debt Summary Debt as of December 31, 2014 and 2013 consisted of the following (in thousands): Balance Outstanding as of Debt Credit facilities Senior unsecured credit facility LHL unsecured credit facility Interest Rate Maturity Date Floating (a) January 2018 (a) Floating (b) January 2018 (b) December 31, 2014 $ December 31, 2013 0 $ 220,000 0 606 0 220,606 Total borrowings under credit facilities Term loans First Term Loan Floating (c) May 2019 177,500 177,500 Floating (c) January 2019 300,000 300,000 477,500 477,500 Second Term Loan Total term loans Massport Bonds Hyatt Boston Harbor (taxable) Hyatt Boston Harbor (tax exempt) Floating (d) March 2018 5,400 5,400 Floating (d) March 2018 37,100 37,100 42,500 42,500 0 8,809 Total bonds payable Mortgage loans Hotel Deca 6.28% August 2014 (e) 5.28% September 2015 (f) 210,000 210,000 5.75% April 2016 133,347 135,315 5.99% July 2016 97,528 98,875 6.31% August 2016 60,215 61,416 501,090 514,415 0 41 501,090 514,456 Westin Copley Place Westin Michigan Avenue Indianapolis Marriott Downtown The Roger Mortgage loans at stated value Unamortized loan premium (g) Total mortgage loans Total debt $ 1,021,090 $ 1,255,062 (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 plus an applicable margin. There were no borrowings outstanding at December 31, 2014. As of December 31, 2013, the rate, including the applicable margin, for the Company’s outstanding LIBOR borrowing of $220,000 was 1.92%. 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 plus an applicable margin. There were no borrowings outstanding at December 31, 2014. As of December 31, 2013, the rate, including the applicable margin, for LHL’s outstanding LIBOR borrowings of $606 was 1.92%. 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 separate interest rate swap agreements for the full seven-year term of the First Term Loan (as defined below) and a five-year term ending in August 2017 for the Second Term Loan (as defined below), resulting in fixed all-in interest rates at December 31, 2014 of 3.62% and 2.38%, respectively, and at December 31, 2013 of 3.62% and 2.43%, respectively, at the Company’s current leverage ratio (as defined in the agreements). (d) The Massport Bonds are secured by letters of credit issued by U.S. Bank National Association (“U.S. Bank”), effective September 30, 2014, that expire in September 2016, which replaced similar letters of credit held by the Royal Bank of Scotland. The letters of credit have two one-year extension options and are secured by the Hyatt Boston Harbor. The letters of credit cannot be extended beyond the Massport Bonds’ maturity date. The bonds bear interest based on weekly floating rates. The interest rates as of December 31, 2014 were 0.13% and 0.03% for the $5,400 and $37,100 bonds, respectively. The interest rates as of December 31, 2013 were 0.70% and 0.40% for the $5,400 and $37,100 bonds, respectively. The Company also incurred an annual letter of credit fee based on an applicable margin as defined in the Company’s senior unsecured credit agreement through September 29, 2014. Effective September 30, 2014, the Company incurs an annual letter of credit fee of 1.35%. (e) The Company repaid the mortgage loan on May 1, 2014 through borrowings on its senior unsecured credit facility. 35 Table of Contents (f) The Company intends to repay the mortgage loan upon maturity through either borrowings on its credit facilities, placement of corporate-level debt or proceeds from a property-level mortgage financing. (g) Mortgage debt includes an unamortized loan premium on the mortgage loan on Hotel Deca of $41 as of December 31, 2013. A summary of the Company’s interest expense and weighted average interest rates for borrowings for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands): For the year ended December 31, 2014 2013 2012 Interest Expense: Interest incurred $ 54,859 $ 55,912 $ 51,351 Amortization of deferred financing costs 2,169 (400) Capitalized interest Interest expense $ 56,628 2,253 (649) $ 57,516 1,915 (370) $ 52,896 Weighted Average Interest Rates for Variable Rate Debt: Senior unsecured credit facility 1.9% 2.1% 2.2% LHL unsecured credit facility 1.9% 2.0% 2.1% Massport Bonds 0.4% 0.2% 0.3% Credit Facilities On January 8, 2014, the Company refinanced its $750.0 million senior unsecured credit facility with a syndicate of banks. The credit facility matures on January 8, 2018, 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 includes an accordion feature which, subject to certain conditions, entitles the Company to request additional lender commitments, allowing for total commitments up to $1.05 billion. 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 plus an applicable margin. Additionally, the Company is required to pay a variable unused commitment fee of 0.25% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the credit facility. On January 8, 2014, LHL also refinanced its $25.0 million unsecured revolving credit facility to be used for working capital and general lessee corporate purposes. The LHL credit facility matures on January 8, 2018, 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 plus an applicable margin. Additionally, LHL is required to pay a variable unused commitment fee of 0.25% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the LHL credit facility. The Company’s senior unsecured credit facility and LHL’s unsecured credit facility contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict the Company’s ability to make distributions or other payments to its shareholders upon events of default. Term Loans On May 16, 2012, the Company entered into a $177.5 million unsecured term loan with a seven-year term maturing on May 16, 2019 (the “First Term Loan”). The First Term Loan bears interest at a variable rate, but was hedged to a fixed interest rate based on the Company’s current leverage ratio (as defined in the swap agreements), which interest rate was 3.62% at December 31, 2014, for the full seven-year term (see “Derivative and Hedging Activities” below). On January 8, 2014, the Company refinanced its $300.0 million unsecured term loan (the “Second Term Loan”). 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 up to $500.0 million. The Second Term Loan has a five-year term maturing on January 8, 2019 and bears interest at variable rates, but was hedged to a fixed interest rate based on the Company’s current leverage ratio (as defined in the swap agreements), which interest rate was 2.38% at December 31, 2014, through August 2, 2017 (see “Derivative and Hedging Activities” below). 36 Table of Contents The Company’s term loans contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict the Company’s ability to make distributions or other payments to its shareholders upon events of default. 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 May 16, 2012, the Company entered into three interest rate swap agreements with an aggregate notional amount of $177.5 million for the First Term Loan’s full seven-year term, 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 3.62% at December 31, 2014. Effective August 2, 2012, the Company entered into five interest rate swap agreements with an aggregate notional amount of $300.0 million for the Second Term Loan through August 2, 2017, 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 2.38% at December 31, 2014. 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 table presents the effect of derivative instruments on the Company’s 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 years ended December 31, 2014, 2013 and 2012 (in thousands): Amount of Gain (Loss) Recognized in OCI on Derivative Instruments Location of (Loss) Gain Reclassified from AOCI into Income Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) (Effective Portion) (Effective Portion) For the year ended For the year ended December 31, December 31, 2014 2013 2012 2014 2013 2012 Derivatives in cash flow hedging relationships: Interest rate swaps $ 544 $ 8,127 $ (9,833) Interest expense $ (4,410) $ 4,248 $ 2,074 During the year ended December 31, 2014, 2013 and 2012, the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings. As of December 31, 2014 and 2013, there was $0.8 million and $4.6 million in cumulative unrealized gain, respectively, of which $0.7 million and $4.6 million was included in AOCI, respectively, and an immaterial amount was attributable to noncontrolling interests. The Company expects that approximately $4.4 million 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 December 31, 2014. Extinguishment of Debt As discussed above, the Company refinanced its senior unsecured credit facility and Second Term Loan and LHL refinanced its unsecured revolving credit facility on January 8, 2014. The refinancing arrangements for the senior unsecured credit facility and Second Term Loan were considered substantial modifications. The Company recognized a loss from extinguishment of debt of $2.5 million, which is included in the consolidated statements of operations and comprehensive income. The loss from extinguishment of debt represents a portion of the unamortized deferred financing costs incurred when the original agreements were executed. Mortgage Loans The Company’s mortgage loans are secured by the respective properties. The mortgages are non-recourse to the Company except for fraud or misapplication of funds. 37 Table of Contents On May 1, 2014, the Company repaid without fee or penalty the Hotel Deca mortgage loan in the amount of $8.7 million plus accrued interest through borrowings under its senior unsecured credit facility. The loan was due to mature in August 2014. The mortgage loans contain debt service coverage ratio tests related to the mortgaged properties. If the debt service coverage ratio for a specific 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 the financial covenants contained in its credit facilities, term loans and non-recourse secured mortgages 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 the financial 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 December 31, 2014, 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 or mortgage loans. Fair Value Measurements In evaluating fair value, GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The hierarchy ranks the quality and reliability of inputs used to determine fair value, which are then classified and disclosed in one of the three categories. The three levels are as follows: Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2—Observable inputs, other than quoted prices included in level 1, such as interest rates, yield curves, quoted prices in active markets for similar assets and liabilities, and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3—Unobservable inputs that are supported by limited market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques when observable inputs are not available. The Company estimates the fair value of its financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and subjectivity are involved in developing these estimates and, accordingly, such estimates are not necessarily indicative of amounts that would be realized upon disposition. 38 Table of Contents Recurring Measurements For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of their fair value is as follows (in thousands): Fair Value Measurements at December 31, 2014 December 31, 2013 Using Significant Other Observable Inputs (Level 2) Description Consolidated Balance Sheet Location Derivative interest rate instruments Prepaid expenses and other assets $ 1,520 (1) $ 4,616 Derivative interest rate instruments Accounts payable and accrued expenses $ 770 (2) $ 0 (1) Amount relates to interest rate swaps for the Second Term Loan. (2) Amount relates to interest rate swaps for the First Term Loan. The fair value of each derivative instrument is based on a discounted cash flow analysis of the expected cash flows under each arrangement. This analysis reflects the contractual terms of the derivative instrument, including the period to maturity, and utilizes observable market-based inputs, including interest rate curves and implied volatilities, which are classified within level 2 of the fair value hierarchy. The Company also incorporates credit value adjustments to appropriately reflect each parties’ nonperformance risk in the fair value measurement, which utilizes level 3 inputs such as estimates of current credit spreads. However, the Company has assessed that the credit valuation adjustments are not significant to the overall valuation of the derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified within level 2 of the fair value hierarchy. Financial Instruments Not Measured at Fair Value The following table represents the fair value, derived using level 2 inputs, of financial instruments presented at carrying value in the Company’s consolidated financial statements as of December 31, 2014 and 2013 (in thousands): December 31, 2014 Carrying Value December 31, 2013 Estimated Fair Value Carrying Value Estimated Fair Value Note receivable $ 0 $ 0 $ 71,014 $ 71,014 Borrowings under credit facilities $ 0 $ 0 $ 220,606 $ 220,957 Term loans $ 477,500 $ 476,996 $ 477,500 $ 477,053 Bonds payable $ 42,500 $ 42,500 $ 42,500 $ 42,500 Mortgage loans $ 501,090 $ 510,250 $ 514,456 $ 522,788 The Company estimates the fair value of its borrowings under credit facilities, term loans, bonds payable and mortgage loans using a weighted average effective interest rate of 2.9% and 3.1% as of December 31, 2014 and 2013, respectively. The assumptions reflect the terms currently available on similar borrowings to borrowers with credit profiles similar to the Company’s. As of December 31, 2013, the Company estimated that the fair value of its note receivable, which was repaid in full on February 10, 2014, approximated its carrying value due to the relatively short period until maturity. At December 31, 2014 and 2013, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued expenses were representative of their fair values due to the short-term nature of these instruments and the recent acquisition of these items. 39 Table of Contents Equity Issuances and Redemptions On February 20, 2013, the Company entered into an equity distribution agreement (the “2013 Agreement”) with Raymond James & Associates, Inc. (the “Manager”). Under the terms of the 2013 Agreement, the Company may issue from time to time through or to the Manager, as sales agent or principal, the Company’s common shares of beneficial interest with aggregate gross proceeds totaling up to $250.0 million. The 2013 Agreement replaced the equity distribution agreement the Company entered into on March 4, 2011. During the year ended December 31, 2013, the Company incurred offering costs of $0.2 million related to executing and maintaining the 2013 Agreement. On March 4, 2013, the Company issued 4,000,000 Series I Preferred Shares ($0.01 par value) at a price of $25.00 per share and received net proceeds, after deducting underwriting discounts and other offering costs, of $96.7 million. On March 12, 2013, the underwriters exercised their rights to cover overallotments and purchased 400,000 additional Series I Preferred Shares, resulting in additional net proceeds to the Company of $9.7 million. The net proceeds were used to redeem a portion of the Company’s Series G Preferred Shares on April 5, 2013, to pay down amounts outstanding under the Company’s senior unsecured credit facility and for general corporate purposes. On April 5, 2013, the Company redeemed 4,000,000 of the 6,348,888 outstanding Series G Preferred Shares for $100.0 million ($25.00 per share) plus accrued distributions through April 5, 2013 of $1.9 million. The redemption value of the Series G Preferred Shares exceeded their carrying value by $1.6 million, which is included in the determination of net income attributable to common shareholders for the year ended December 31, 2013. The $1.6 million represents the offering costs related to the redeemed Series G Preferred Shares. From May 24, 2013 through May 31, 2013, the Company sold 721,706 common shares of beneficial interest, par value $0.01 per share, under the 2013 Agreement. After deducting the Manager’s discounts and commissions of $0.2 million, the Company raised net proceeds of $19.7 million. The net proceeds were used to pay down amounts outstanding under the Company’s senior unsecured credit facility and for general corporate purposes. As of December 31, 2014, the Company had availability under the 2013 Agreement to issue and sell common shares of beneficial interest having an aggregate offering price of up to $230.1 million. The Company did not sell any common shares of beneficial interest under the 2013 Agreement in 2014. On October 25, 2013, the Company completed an underwritten public offering of 7,705,000 common shares of beneficial interest, par value $0.01 per share, including the full exercise of the underwriters’ option to purchase additional shares. After deducting the underwriters’ discounts and commissions and other offering costs, the Company raised net proceeds of $228.4 million. The net proceeds were used to pay down amounts outstanding under the Company’s senior unsecured credit facility and under the LHL unsecured credit facility and for general corporate purposes. On July 3, 2014, the Company redeemed the remaining 2,348,888 Series G Preferred Shares for $58.7 million ($25.00 per share), plus accrued and unpaid dividends through the redemption date, July 3, 2014, of $1.1 million. The redemption value of the Series G Preferred Shares exceeded their carrying value by $1.0 million, which is included in the determination of net income attributable to common shareholders for the year ended December 31, 2014. The $1.0 million represents the offering costs related to the redeemed Series G Preferred Shares. On December 12, 2014, the Company completed an underwritten public offering of 7,600,000 common shares of beneficial interest, par value $0.01 per share. On December 24, 2014, an additional 1,140,000 common shares of beneficial interest were issued pursuant to the full exercise of the underwriters’ option to purchase additional shares. After deducting the underwriters’ discounts and commissions and other offering costs, the Company raised net proceeds of $348.5 million. The net proceeds were used to fund the acquisition of The Heathman Hotel on December 18, 2014, to fund a portion of the acquisition of The Westin Market Street in San Francisco, CA (renamed Park Central San Francisco) on January 23, 2015, to pay down amounts outstanding under the Company’s senior unsecured credit facility and under the LHL unsecured credit facility, and for general corporate purposes. Sources and Uses of Cash As of December 31, 2014, the Company had $114.1 million of cash and cash equivalents and $21.6 million of restricted cash reserves, $14.2 million of which was available for future capital expenditures. Additionally, the Company had $750.0 million available under the Company’s senior unsecured credit facility, with $2.6 million reserved for outstanding letters of credit, and $25.0 million available under LHL’s unsecured credit facility. Net cash provided by operating activities was $283.2 million for the year ended December 31, 2014 primarily due to the operations of the hotels, which were partially offset by payments for real estate taxes, personal property taxes, insurance and ground rent. 40 Table of Contents Net cash used in investing activities was $78.0 million for the year ended December 31, 2014 primarily due to the purchases of Hotel Vitale and The Heathman Hotel, deposit on a future acquisition and outflows for improvements and additions at the hotels, partially offset by proceeds from the repayment of the mezzanine loan and the sale of Hilton Alexandra Old Town and Hotel Viking. Net cash used in financing activities was $104.5 million for the year ended December 31, 2014 primarily due to net repayments under the credit facilities, mortgage loan repayments, payment of deferred financing costs, repurchase of common shares into treasury, payment for the redemption of preferred shares, payment of distributions to the common shareholders and unitholders and payment of distributions to preferred shareholders, partially offset by net proceeds from the common share offering. The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements, distributions on the preferred shares and the minimum distribution required to maintain the Company’s REIT qualification under the Code. The Company anticipates that these needs will be met with available cash on hand, cash flows provided by operating activities, borrowings under the Company’s senior unsecured credit facility or LHL’s unsecured credit facility, additional unsecured financing, secured financing on any of the Company’s 40 unencumbered properties, potential property sales, equity issuances available under the Company’s shelf registration statement and the issuance of up to $230.1 million of common shares from time to time under the 2013 Agreement. The Company also considers capital improvements and property acquisitions as short-term needs that will be funded either with cash flows provided by operating activities, utilizing availability under the Company’s senior unsecured credit facility or LHL’s unsecured credit facility, additional unsecured financing, secured financing on any of the Company’s 40 unencumbered properties, potential property sales or the issuance of additional equity securities. The Company expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements utilizing availability under the Company’s senior unsecured credit facility or LHL’s unsecured credit facility, additional unsecured financing, secured financing on any of the Company’s 40 unencumbered properties, potential property sales, estimated cash flows from operations, equity issuances available under the Company’s shelf registration statement and the issuance of up to $230.1 million of common shares from time to time under the 2013 Agreement. The Company expects to acquire or develop additional hotel properties only as suitable opportunities arise, and the Company will not undertake acquisition or development of properties unless stringent acquisition or development criteria have been achieved. Reserve Funds The Company is obligated to maintain reserve funds for capital expenditures at the hotels (including the periodic replacement or refurbishment of furniture, fixtures and equipment) as determined pursuant to the operating agreements. Please refer to “Off-Balance Sheet Arrangements” for a discussion of the Company’s reserve funds. Inflation The Company relies entirely on the performance of the hotels and their ability to increase revenues to keep pace with inflation. The hotel operators can change room rates quickly, but competitive pressures may limit the hotel operators’ abilities to raise rates faster than inflation or even at the same rate. The Company’s expenses (primarily real estate taxes, property and casualty insurance, administrative expenses and hotel operating expenses) are subject to inflation. These expenses are expected to grow at the general rate of inflation, except for energy costs, liability insurance, property taxes (due to increased rates and periodic reassessments), employee benefits and some wages, which are expected to increase at rates higher than inflation. Derivatives and Hedging Activities In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company limits the risks associated with interest rate changes by following established risk management policies and procedures which may include the use of derivative instruments. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract and are recorded on the balance sheet at fair value, with offsetting changes recorded to other comprehensive income (loss). Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. The Company does not use derivatives 41 Table of Contents for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity The table below provides information about financial instruments that are sensitive to changes in interest rates, including mortgage obligations, bonds and lines of credit. For debt obligations, scheduled maturities and related weighted average interest rates by expected maturity dates are as follows (in thousands): 2015 2016 2017 2018 2019 Total Fixed rate debt Weighted average interest Variable rate debt (1) Weighted average interest Total $ 214,796 $ 286,294 $ 5.30% 5.95% 0 $ 0.00% 0 $ 177,500 $ 0.00% 3.62% 678,590 5.13% $ 0 $ 0.00% 42,500 $ 300,000 $ 0.04% 1.76% 342,500 1.55% 0 $ 0.00% $ 214,796 0 $ 0.00% $ 286,294 $ 0 $ 42,500 $ 477,500 $ 1,021,090 (1) For the Second Term Loan maturing in January 2019, it is assumed that the outstanding debt as of December 31, 2014 will be repaid upon maturity which will be during the unhedged period of the loan and, therefore, subject to a variable interest rate. The table above presents the principal amount of debt maturing each year, including annual amortization of principal, through December 31, 2019 and weighted average interest rates for the debt maturing in each specified period. This table reflects indebtedness outstanding as of December 31, 2014 and does not reflect new indebtedness, or revisions to terms of existing indebtedness, incurred after that date. The Company’s 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, 2014, the estimated fair value of the Company’s fixed rate debt was $987.2 million. The Company is exposed to market risk from changes in interest rates. The Company seeks to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing costs by closely monitoring the Company’s variable rate debt and converting such debt to fixed rates when the Company deems such conversion advantageous. From time to time, the Company 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 the Company to the risks that the other parties to the agreements will not perform, the Company 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 GAAP guidance. As of December 31, 2014, $42.5 million of the Company’s aggregate indebtedness (4.2% of total indebtedness) was subject to variable interest rates, excluding amounts outstanding under the First Term Loan and Second Term Loan since the Company hedged their variable interest rates to fixed interest rates. If market rates of interest on the Company’s variable rate long-term debt fluctuate by 0.25%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by $0.1 million annually. This assumes that the amount outstanding under the Company’s variable rate debt remains at $42.5 million, the balance as of December 31, 2014. Item 8. Consolidated Financial Statements and Supplementary Data See Index to Financial Statements on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item Controls and 9A. Procedures Evaluation of Disclosure Controls and Procedures—The Company has established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to the members of senior management and the Board of Trustees. Based on management’s evaluation as of December 31, 2014, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by the Company in the reports 42 Table of Contents that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms. Management’s Report on Internal Control Over Financial Reporting—The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in 13a-15(f) and 15d-15(f) of 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 (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (1992) , our management concluded that our internal control over financial reporting was effective as of December 31, 2014. Independent Registered Public Accounting Firm’s Report on Internal Control Over Financial Reporting —KPMG LLP, an independent registered public accounting firm, has audited the Company’s 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. Changes in Internal Controls—There was no change to the Company’s internal control over financial reporting during the fourth quarter ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item Other Information 9B. As of the quarter ended December 31, 2014, all items required to be disclosed under Form 8-K were reported under Form 8-K. 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 November 20, 2012 and filed as part of a Registration Statement on Form S-3 (No. 333-185081). 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 of beneficial interest. Taxation of Non-U.S. Shareholders 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. Information Reporting Requirements and Withholding 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. 43 Table of Contents PART III Item 10. Trustees, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to the material in the Proxy Statement. Item Executive 11. Compensation The information required by this item is incorporated by reference to the material in the Proxy Statement. 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 material in the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Trustee Independence The information required by this item is incorporated by reference to the material in the Proxy Statement. Item Principal Accountant Fees and 14. Services The information required by this item is incorporated by reference to the material in the Proxy Statement. PART IV Item Exhibits and Financial Statement 15. Schedules 1. Financial Statements Included herein at pages F-1 through F-39. 2. Financial Statement Schedules The following financial statement schedule is included herein at pages F-40 through F-41. 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. 44 Table of Contents 3. Exhibits The following exhibits are filed as part of this Annual Report on Form 10-K: Exhibit Number Description of Exhibit 3.1 Articles of Amendment and Restatement of Declaration of Trust of the Registrant (including all articles of amendment and articles supplementary) 3.2 Third Amended and Restated Bylaws of the Registrant(1) 4.1 Form of Common Share of Beneficial Interest(2) 10.1 Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of April 29, 1998 (3) 10.2 First Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of March 6, 2002 (4) 10.3 Second Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of September 30, 2003 (5) 10.4 Form of Third Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P. (6) 10.5 Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of August 22, 2005 (7) 10.6 Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of February 8, 2006 (8) 10.7 Form of Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P. (9) 10.8 Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of November 17, 2006 (10) 10.9 Eighth Amendment to Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of April 15, 2009 (11) 10.10 Ninth Amendment to Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of January 24, 2011 (12) 10.11 Tenth Amendment to Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of March 4, 2013 (24) 10.12 Form of Management Agreement(2) 10.13 Form of Lease with Affiliated Lessees(2) 10.14 Form of First Amendment to Lease with Affiliated Lessee(13) 10.15 Form of Second Amendment to Lease with Affiliate Lessee(13) 10.16 Promissory Note Secured by Leasehold Mortgage in the original principal amount of $210,000,000 made by LHO Backstreets, L.L.C. and dated as of August 30, 2005 (14) 10.17 Leasehold Mortgage and Absolute Assignment of Rents and Leases and Security Agreement (and Fixture Filing) by LHO Backstreets, LLC, as Mortgagor, and Mortgage Electronic Registration Systems, Inc., as Mortgagee and dated as of August 30, 2005 (14) 10.18 LaSalle Hotel Properties 1998 Share Option and Incentive Plan, as amended through April 21, 2005(15)* 10.19 LaSalle Hotel Properties 2009 Equity Incentive Plan(16)* 10.20 LaSalle Hotel Properties 2014 Equity Incentive Plan(26)* 10.21 Amendment to the LaSalle Hotel Properties 2014 Equity Incentive Plan(28)* 10.22 Trustee Fee Deferral Program(27)* 45 Table of Contents Exhibit Number Description of Exhibit 10.23 Form of Time-Based Restricted Share Award Agreement(25)* 10.24 Form of Performance-Based Restricted Share Award Agreement(25)* 10.25 Amended and Restated Severance Agreement between Michael D. Barnello and LaSalle Hotel Properties effective October 19, 2009 (17) * 10.26 Severance Agreement between Alfred L. Young and LaSalle Hotel Properties effective November 3, 2009 (17)* 10.27 Severance Agreement between Bruce A. Riggins and LaSalle Hotel Properties effective January 24, 2011 (23)* 10.28 Offer Letter to Michael D. Barnello(19)* 10.29 Offer Letter to Alfred L. Young(20)* 10.30 Offer Letter to Bruce A. Riggins(21)* 10.31 Form of Indemnification Agreement(22)* 10.32 Amended and Restated Senior Unsecured Credit Agreement, dated January 8, 2014, among LaSalle Hotel Operating Partnership, L.P., LaSalle Hotel Properties, and Citibank, N.A., as Administrative Agent, Bank of Montreal and The Royal Bank of Scotland plc, as Co-Syndication Agents, and the other lenders named therein (25) 10.33 Senior Unsecured Term Loan Agreement, dated as of January 8, 2014, among LaSalle Hotel Operating Partnership, L.P., LaSalle Hotel Properties, and Citibank, N.A., as Administrative Agent, Compass Bank and U.S. Bank National Association, as Co-Syndication Agents, and the other lenders named therein (25) 12.1 Computation of the Registrant’s Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends 21.1 List of Subsidiaries 23.1 Consent of KPMG LLP 24.1 Power of Attorney (included in Part IV of this Annual report on Form 10-K) 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 101 The following financial statements from LaSalle Hotel Properties’ Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 18, 2015, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements * (1) Represents management contract or compensatory plan or agreement. Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on February 1, 2010 and incorporated herein by reference. (2) Previously filed as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11 (No. 333-45647) filed with the SEC on April 2, 1998 and incorporated herein by reference. (3) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q (No. 001-14045) filed with the SEC on August 14, 1998 and incorporated herein by reference. (4) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on March 12, 2002 and incorporated herein by reference. (5) Previously filed as an exhibit to Registrant’s Annual report on Form 10-K filed with the SEC on February 23, 2006 and incorporated herein by reference. (6) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on August 16, 2005 and incorporated herein by reference. (7) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on August 24, 2005 and incorporated herein by reference. 46 Table of Contents (8) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on February 9, 2006 and incorporated herein by reference. (9) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on September 28, 2006 and incorporated herein by reference. (10) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on November 17, 2006 and incorporated herein by reference. (11) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on April 17, 2009 and incorporated herein by reference. (12) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on January 24, 2011 and incorporated herein by reference. (13) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q (No. 001-14045) filed with the SEC on May 12, 1999 and incorporated herein by reference. (14) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on September 7, 2005 and incorporated herein by reference. (15) Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (No. 333-125058) filed with the SEC on May 19, 2005 and incorporated herein by reference. (16) Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (No. 333-158873) filed with the SEC on April 28, 2009 and incorporated herein by reference. (17) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 25, 2010 and incorporated herein by reference. (18) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on April 18, 2007 and incorporated herein by reference. (19) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2008 and incorporated herein by reference. (20) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on October 6, 2009 and incorporated herein by reference. (21) Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2011 and incorporated herein by reference. (22) Previously filed as an exhibit to the Registrant’s Current report on Form 8-K filed with the SEC on November 12, 2008 and incorporated herein by reference. (23) Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 23, 2011 and incorporated herein by reference. (24) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on March 4, 2013 and incorporated herein by reference. (25) Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on April 23, 2014 and incorporated herein by reference. (26) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on May 9, 2014 and incorporated herein by reference. (27) Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 filed with the SEC on May 30, 2014 and incorporated herein by reference. (28) Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on January 28, 2015 and incorporated herein by reference. 47 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: LASALLE HOTEL PROPERTIES BY: /S/ BRUCE A. RIGGINS February 18, 2015 Bruce A. Riggins Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and trustees of LaSalle Hotel Properties, hereby severally constitute Michael D. Barnello, Bruce A. Riggins and Alfred L. Young, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and trustees to enable LaSalle Hotel Properties to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date February 18, 2015 February 18, 2015 Signature Michael D. Barnello Trustee, President and Chief Executive Officer (Principal Executive Officer) /s/ Trustee /s/ MICHAEL D. BARNELLO DENISE M. COLL Denise M. Coll February 18, 2015 /s/ JEFFREY T. FOLAND Trustee Jeffrey T. Foland February 18, 2015 /s/ DARRYL HARTLEY-LEONARD Trustee Darryl Hartley-Leonard February 18, 2015 /s/ WILLIAM S. MCCALMONT Trustee William S. McCalmont February 18, 2015 /s/ STUART L. SCOTT Chairman of the Board of Trustees Stuart L. Scott February 18, 2015 /s/ DONALD A. WASHBURN Trustee Donald A. Washburn February 18, 2015 February 18, 2015 Bruce A. Riggins Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Executive Vice President and Chief Operating Officer /s/ BRUCE A. RIGGINS ALFRED L. YOUNG Alfred L. Young 48 Table of Contents LASALLE HOTEL PROPERTIES Index to Financial Statements Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2014 and 2013 F-4 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 F-5 Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 F-9 Notes to Consolidated Financial Statements F-10 Schedule III–Real Estate and Accumulated Depreciation F-40 F-1 Table of Contents Report of Independent Registered Public Accounting Firm The Shareholders and Board of Trustees LaSalle Hotel Properties: We have audited the accompanying consolidated balance sheets of LaSalle Hotel Properties (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2014. 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 LaSalle Hotel Properties as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, 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. As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for discontinued operations as of January 1, 2014 due to the adoption of ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), LaSalle Hotel Properties’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 18, 2015, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. /s/ KPMG LLP Chicago, Illinois February 18, 2015 F-2 Table of Contents Report of Independent Registered Public Accounting Firm The Shareholders and Board of Trustees LaSalle Hotel Properties: We have audited LaSalle Hotel Properties’ (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). LaSalle Hotel Properties’ 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 over 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, LaSalle Hotel Properties maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LaSalle Hotel Properties as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 18, 2015, expressed an unqualified opinion on those consolidated financial statements. Our report refers to a change in the method of accounting for discontinued operations. /s/ KPMG LLP Chicago, Illinois February 18, 2015 F-3 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Balance Sheets (in thousands, except share data) December 31, 2014 December 31, 2013 Assets: Investment in hotel properties, net (Note 3) $ 3,428,556 $ 3,383,188 Note receivable (net of unamortized discount of zero and $986, respectively) (Note 3) 0 71,014 35,613 15,394 114,131 13,388 21,570 19,724 30,338 30,661 6,564 6,050 1,447 1,497 61,730 40,122 Property under development (Note 3) Cash and cash equivalents Restricted cash reserves (Note 5) Hotel receivables (net of allowance for doubtful accounts of $300 and $344, respectively) Deferred financing costs, net Deferred tax assets (Note 9) Prepaid expenses and other assets Total assets $ 3,699,949 $ 3,581,038 $ 0 $ 220,606 Liabilities: Borrowings under credit facilities (Note 4) Term loans (Note 4) 477,500 477,500 42,500 42,500 501,090 514,456 161,835 161,085 19,447 18,301 3,729 3,828 45,462 33,299 1,251,563 1,471,575 72 95 Bonds payable (Note 4) Mortgage loans (including unamortized premium of zero and $41, respectively) (Note 4) Accounts payable and accrued expenses Advance deposits Accrued interest Distributions payable Total liabilities Commitments and contingencies Equity: Shareholders’ Equity: Preferred shares of beneficial interest, $0.01 par value (liquidation preference of $178,750 and $237,472, respectively), 40,000,000 shares authorized; 7,150,000 and 9,498,888 shares issued and outstanding, respectively (Note 6) Common shares of beneficial interest, $0.01 par value, 200,000,000 shares authorized; 112,828,536 shares issued and 112,824,508 shares outstanding, respectively, and 103,963,828 shares issued and 103,963,318 shares outstanding, respectively (Note 6) Treasury shares, at cost (Note 6) 1,127 (138) 1,039 (14) Additional paid-in capital, net of offering costs of $80,124 and $77,316, respectively 2,673,888 748 Accumulated other comprehensive income (Note 4) Distributions in excess of retained earnings Total shareholders’ equity 2,379,246 4,603 (233,988) (281,578) 2,441,709 2,103,391 17 18 6,660 6,054 6,677 6,072 2,448,386 2,109,463 Noncontrolling Interests: Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership (Note 6) Total noncontrolling interests Total equity Total liabilities and equity $ 3,699,949 The accompanying notes are an integral part of these consolidated financial statements. F-4 $ 3,581,038 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Statements of Operations and Comprehensive Income (in thousands, except share data) For the year ended December 31, 2014 2013 2012 $ 773,801 $ 667,444 $ 595,330 253,656 238,682 210,306 74,000 63,230 56,510 1,101,457 969,356 862,146 8,321 7,937 4,929 1,109,778 977,293 867,075 196,952 170,555 150,564 183,530 165,855 149,894 23,800 22,445 20,778 264,508 237,386 212,001 668,790 596,241 533,237 155,035 143,991 124,363 57,805 53,374 44,551 14,667 11,117 8,588 23,832 22,001 19,769 2,379 2,646 4,498 7,369 9,361 3,017 929,877 838,731 738,023 179,901 138,562 129,052 1,812 (56,628) 9,679 (57,516) 4,483 (52,896) Revenues: Hotel operating revenues: Room Food and beverage Other operating department Total hotel operating revenues Other income Total revenues Expenses: Hotel operating expenses: Room Food and beverage Other direct Other indirect (Note 8) Total hotel operating expenses Depreciation and amortization Real estate taxes, personal property taxes and insurance Ground rent (Note 5) General and administrative Acquisition transaction costs (Note 3) Other expenses Total operating expenses Operating income Interest income Interest expense Loss from extinguishment of debt (Note 4) Income before income tax expense Income tax expense (Note 9) Income before gain on sale of properties (2,487) 0 0 122,598 (2,306) 90,725 (470) 80,639 (9,062) 120,292 90,255 71,577 93,205 0 0 Gain on sale of properties (Note 3) Net income 213,497 90,255 71,577 Net income attributable to noncontrolling interests: Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership (Note 6) Net income attributable to noncontrolling interests (16) (636) (17) (303) 0 (281) (652) (320) (281) 212,845 (14,333) (951) 89,935 (17,385) (1,566) 71,296 (21,733) (4,417) Net income attributable to the Company Distributions to preferred shareholders Issuance costs of redeemed preferred shares (Note 6) Net income attributable to common shareholders $ 197,561 F-5 $ 70,984 $ 45,146 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Statements of Operations and Comprehensive Income - Continued (in thousands, except share data) For the year ended December 31, 2014 2013 2012 Earnings per Common Share - Basic: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 1.89 $ 0.73 $ 0.52 Earnings per Common Share - Diluted: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 1.88 $ 0.73 $ 0.52 Weighted average number of common shares outstanding: Basic 104,188,785 97,041,484 85,757,969 Diluted 104,545,895 97,228,671 85,897,274 Comprehensive Income: Net income Other comprehensive income (loss): Unrealized gain (loss) on interest rate derivative instruments (Note 4) Reclassification adjustment for amounts recognized in net income (Note 4) $ 213,497 $ 544 (4,410) 209,631 90,255 $ 71,577 8,127 (9,833) 4,248 2,074 102,630 63,818 Comprehensive income attributable to noncontrolling interests: Noncontrolling interests in consolidated entities Noncontrolling interests of common units in Operating Partnership (Note 6) (16) (17) (625) (340) (257) Comprehensive income attributable to noncontrolling interests (641) (357) (257) Comprehensive income attributable to the Company $ 208,990 $ 102,273 0 $ The accompanying notes are an integral part of these consolidated financial statements. F-6 63,561 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Statements of Equity (in thousands, except per share/unit data) Preferred Shares of Beneficial Interest Balance, December 31, 2011 $ 158 Issuance of shares, net of offering costs 0 Redempti on of preferred shares Repurchas e of common shares into treasury Options exercised Adjustme nts to issuance of units Deferred compensat ion, net Contributi on from noncontro lling interest Adjustme nts to noncontro lling interests Distributi ons on earned shares from share awards with market conditions Common Shares of Beneficial Interest $ 851 Treasury Shares $ (24,543) 103 22,847 (67) 0 0 0 0 0 0 0 (2,122) Accumulated Other Comprehensive (Loss) Income Additional Paid-In Capital $ 2,029,145 $ 0 250,461 0 (162,266) 0 Distributions in Excess of Retained Earnings $ (239,998) 0 (4,417) Total Shareholders’ Equity $ 1,765,613 Noncontrolling Interests in Consolidated Entities $ 17 Noncontrolling Interests of Common Units in Operating Partnership $ 5,613 Total Noncontrolling Interests $ 5,630 Total Equity $ 1,771,243 273,411 0 0 0 273,411 (166,750) 0 0 0 (166,750) (2,122) 0 0 0 (2,122) 0 0 0 0 0 0 74 0 0 74 0 0 0 0 0 0 0 0 0 1 2,932 2,163 0 0 5,096 0 0 0 5,096 0 0 0 0 0 0 0 17 0 17 17 0 0 0 0 0 (872) 0 872 872 0 0 0 0 0 0 (56) (56) 0 0 0 Distributi ons on common shares/uni ts ($0.71 per share/unit) 0 0 0 0 0 (63,096) (63,096) 0 Distributi ons on preferred shares 0 0 0 0 0 (21,733) (21,733) (16) Net income 0 0 0 0 0 71,296 71,296 0 Unr ealiz ed loss on inter est rate deri vati ve instr ume nts 0 0 0 0 (9,803) 0 (9,803) Recl assif icati on adju stme nt for amo unts reco gniz ed 0 0 0 0 2,068 0 2,068 (872) (746) (210) (746) 74 (746) (56) (210) (63,306) (16) (21,749) 281 281 71,577 0 (30) (30) (9,833) 0 6 6 2,074 0 Other comprehe nsive loss (income): in net inco me Balance, December 31, 2012 $ 91 $ 955 $ (886) Issuance of shares, net of offering costs 44 84 262 Redempti on of preferred shares (40) 0 0 Repurchas e of common shares into treasury 0 0 (3) Deferred compensat ion, net 0 0 613 Adjustme nts to noncontro lling interests 0 0 0 Distributi ons on earned shares from share awards with market conditions 0 0 0 Distributi ons on common shares/uni ts ($0.96 per share/unit) 0 0 Distributi ons on preferred shares 0 Net income $ 2,118,705 $ (7,735) 354,122 0 (98,394) 0 $ (258,004) 0 (1,566) $ 1,853,126 $ 18 $ 5,786 $ 5,804 1,858,930 354,512 0 0 0 354,512 (100,000) 0 0 0 (100,000) (3) 0 0 0 (3) 0 0 0 5,639 0 0 0 0 5,026 0 0 0 0 (213) 0 213 213 0 0 (20) (20) 0 0 0 0 0 0 (94,538) (94,538) 0 0 0 0 0 (17,385) (17,385) (17) 0 0 0 0 0 89,935 89,935 17 0 0 0 0 8,103 0 8,103 0 (213) $ 5,639 (285) (20) (285) (94,823) (17) (17,402) 303 320 90,255 24 24 8,127 0 Other comprehe nsive income: Unr ealiz ed gain on inter est rate deri vati ve instr ume nts F-7 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Statements of Equity - Continued (in thousands, except per share/unit data) Preferred Shares of Beneficial Interest Recl assif icati on adju stm ent for amo unts reco gniz ed in net inco me Balance, December 31, 2013 Common Shares of Beneficial Interest 0 0 Treasury Shares 0 (14) Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income 0 4,235 2,379,246 4,603 95 1,039 Issuance of shares, net of offering costs 0 88 0 348,987 0 Redempti on of preferred shares (23) 0 0 (57,757) 0 Repurchas e of common shares into treasury 0 0 (2,936) Deferred compensa tion, net 0 0 Adjustme nts to noncontro lling interests 0 Distributi ons on earned shares from share awards with market conditions Distributi ons on common shares/uni ts ($1.41 per share/unit ) Distributi ons on preferred shares Net income Distributions in Excess of Retained Earnings 0 (281,578) 0 (951) Total Shareholders’ Equity Noncontrolling Interests in Consolidated Entities Noncontrolling Interests of Common Units in Operating Partnership Total Noncontrolling Interests Total Equity 4,235 0 13 13 4,248 2,103,391 18 6,054 6,072 2,109,463 349,075 0 0 0 349,075 (58,731) 0 0 0 (58,731) 0 0 0 (2,936) 0 0 0 (2,936) 2,812 3,809 0 0 6,621 0 0 0 6,621 0 0 (397) 0 0 (397) 0 397 397 0 0 0 0 0 0 (314) (314) 0 0 0 0 0 0 0 0 (149,657) (149,657) 0 0 0 0 0 0 (14,333) (14,333) (17) 0 0 0 0 0 212,845 212,845 16 0 0 0 0 542 0 542 0 (416) (314) (416) (150,073) (17) (14,350) 636 652 213,497 2 2 544 0 Other comprehe nsive income (loss): Unr eali zed gain on inter est rate deri vati ve instr ume nts Recl assif icati on adju stm ent for amo unts reco gniz ed in net inco me Balance, December 31, 2014 0 $ 72 0 $ 1,127 0 $ 0 (138) $ 2,673,888 (4,397) $ 748 0 $ (233,988) (4,397) $ 2,441,709 0 $ 17 (13) $ The accompanying notes are an integral part of these consolidated financial statements. F-8 6,660 (13) $ 6,677 (4,410) $ 2,448,386 Table of Contents LASALLE HOTEL PROPERTIES Consolidated Statements of Cash Flows (in thousands) For the year ended December 31, 2014 2013 2012 Cash flows from operating activities: Net income $ 213,497 $ 90,255 $ 71,577 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 155,035 Amortization of deferred financing costs, mortgage premium and note receivable discount 1,142 143,991 (348) 124,363 764 Loss from extinguishment of debt 2,487 0 0 (93,205) 0 0 5,639 5,096 Gain on sale of properties Amortization of deferred compensation 6,621 Deferred income tax expense (benefit) 50 (211) 3,964 (1) 24 Allowance for doubtful accounts (44) Other 404 449 0 Changes in assets and liabilities: Restricted cash reserves Hotel receivables Prepaid expenses and other assets (912) (177) 157 (1,987) (940) (8,277) (1,235) (4,290) 68 Accounts payable and accrued expenses (1,966) 16,633 12,416 Advance deposits 1,343 (244) 2,790 (491) 827 Accrued interest (99) Net cash provided by operating activities Cash flows from investing activities: Additions to properties Improvements to properties Acquisition of properties Deposit on acquisition Purchase of office furniture and equipment Acquisition of note receivable 283,236 245,565 216,364 (97,526) (4,583) (191,111) (58,077) (61,662) (302,135) (61,702) (9,433) (386,615) (25,000) (799) 0 (47) 0 (68) 0 0 72,000 0 (67,416) Repayment of note receivable 0 Restricted cash reserves (934) (967) 790 Proceeds from sale of properties 167,838 0 0 2,114 843 290 Property insurance proceeds Net cash used in investing activities (78,001) (422,045) (524,154) Cash flows from financing activities: Borrowings under credit facilities Repayments under credit facilities Borrowings on term loans Repayments of mortgage loans Payment of deferred financing costs Contribution from noncontrolling interest Purchase of treasury shares Proceeds from exercise of stock options 537,828 (758,434) 478,332 (410,726) 403,858 (515,858) 0 (13,325) (5,170) 0 (64,687) (68) 477,500 (64,600) (4,175) 0 (2,936) 0 (3) 17 (2,122) 0 0 74 0 110,000 0 Proceeds from issuance of preferred shares Payment of preferred offering costs 0 (3,648) 0 Proceeds from issuance of common shares Payment of common offering costs Distributions on earned shares from share awards with market conditions Redemption of preferred shares Distributions on preferred shares Distributions on common shares/units Net cash (used in) provided by financing activities 352,222 (3,557) (314) (58,722) (15,413) (136,671) 251,478 (3,759) (20) (100,000) (17,460) (84,661) 282,826 (9,745) (56) (166,750) (24,985) (53,329) (104,492) 154,778 322,655 100,743 (21,702) 14,865 13,388 35,090 20,225 Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year $ 114,131 $ 13,388 The accompanying notes are an integral part of these consolidated financial statements. F-9 $ 35,090 Table of Contents LASALLE HOTEL PROPERTIES Notes to Consolidated Financial Statements (in thousands, except share/unit data) 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 (“TRS”), is subject to taxation at normal corporate rates. As of December 31, 2014, the Company owned interests in 45 hotels with approximately 11,300 guest rooms located in 10 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 2015 and December 2017. 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, 99.7% of the common units of the Operating Partnership at December 31, 2014. The remaining 0.3% is held by limited partners who held 296,300 common units of the Operating Partnership at December 31, 2014. See Note 6 for additional disclosures related to common units of the Operating Partnership. 2. Summary of Significant Accounting Policies 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 U.S. generally accepted accounting principles (“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. 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 its shareholders, service debt or meet other financial obligations. 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, 7 years for land improvements, 20 years for golf course land improvements, 20 years for swimming pool assets and 3 to 5 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 F-10 Table of Contents 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. The Company reviews each hotel for impairment at the end of each reporting period or as events and circumstances dictate throughout the year. A property is considered impaired when the sum of estimated future undiscounted cash flows over the estimated remaining holding period is less than the carrying amount of a property. At the end of each reporting period, the Company assesses whether any quantitative or qualitative triggering events have occurred in relation to a property. Examples of situations considered to be triggering events include: • a substantial decline in operating cash flows during the period, including declines related to decreased occupancy, average daily rate or revenue per available room; a• current or projected loss from operations; • a significant cost accumulation above the original acquisition/development estimate; • a change in plan to sell the property prior to the end of its useful life or holding period; • a significant decrease in market price not in line with general market trends; and • any other quantitative or qualitative events deemed significant by our management or our Board of Trustees. If the presence of one or more triggering events as described above is identified at the end of a reporting period or throughout the year with respect to a hotel, the Company performs a recoverability test. In doing so, an estimate of undiscounted future cash flows over the estimated remaining holding period is compared to the carrying amount of the hotel. Impairment is indicated if the results of a recoverability analysis indicate that the carrying amount of a hotel exceeds the estimated future undiscounted cash flows. Upon presentation to and discussion with the Board of Trustees, an impairment charge is recorded equal to the excess of the carrying value of the hotel over the fair value. When performing a recoverability test or estimating the fair value of a property, the Company makes certain assumptions including, but not limited to, consideration of: • projected operating cash flows – considering factors such as booking pace, growth rates, occupancy, room rates, property-specific operating costs and future capital expenditures; • projected cash flows from the eventual disposition of the hotel based upon our estimation of a property-specific capitalization rate; property-specific • rates; and comparable • prices. discount selling The Company considers a hotel as held for sale when a contract for sale is entered into, a substantial nonrefundable deposit has been received from the purchaser and sale is expected to occur within one year. Upon sale of a hotel, the Company determines its profit from the sale under the full accrual method provided the following applicable criteria are met: a sale is consummated; the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; the Company’s receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual risks and rewards of ownership; and 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. Intangible Assets The Company does not amortize intangible assets with indefinite useful lives. Non-amortizable intangible assets are reviewed annually for impairment and more frequently if events or circumstances indicate that the assets may be impaired. If a non-amortizable intangible asset is subsequently determined to have a finite useful life, the intangible asset will be written down to the lower of its fair value or carrying amount and then amortized prospectively, based on the remaining useful life of the intangible asset. As of December 31, 2014 and 2013, the Company did not have amortizable intangible assets or any value attributed to such non-amortizable intangible assets in the accompanying consolidated balance sheets. F-11 Table of Contents Derivatives and Hedging Activities In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company limits the risks associated with interest rate changes by following established risk management policies and procedures which may include the use of derivative instruments. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract and are recorded on the balance sheet at fair value, with offsetting changes recorded to other comprehensive income (loss). Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging. Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Restricted Cash Reserves The Company classifies certain cash balances as restricted cash reserves, including (i) reserve funds relating to the hotels with leases or operating agreements requiring the Company to maintain restricted cash to fund future capital expenditures, (ii) cash deposited in mortgage escrow accounts pursuant to mortgage obligations to pre-fund a portion of certain operating expenses and debt payments and (iii) cash held by insurance and management companies on the Company’s behalf to be refunded or applied to future liabilities. Deferred Financing Costs Financing costs related to long-term debt are recorded at cost and are amortized as interest expense over the life of the related debt instrument, unless there is a significant modification to the debt instrument. Accumulated amortization at December 31, 2014 and 2013 was $3,436 and $4,988, respectively. Revenue Recognition The Company recognizes hotel operating revenues on an accrual basis consistent with hotel operations. For retail operations, revenue is recognized on a straight line basis over the lives of the retail leases. Revenue from retail operations is included in other income in the accompanying consolidated statements of operations and comprehensive income. Participating Leases The participating leases have non-cancelable terms of three years (from commencement), subject to earlier termination upon the occurrence of certain contingencies, as defined. Each participating lease requires LHL to pay the Operating Partnership or subsidiary the greater of (i) base rent in a fixed amount or (ii) participating rent based on certain percentages of room revenue, food and beverage revenue, telephone revenue and other revenue at the applicable hotel. Participating rent applicable to room and other hotel revenues varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified quarterly threshold amounts. Both the base rent and the participating rent thresholds used in computing percentage rents applicable to room and other hotel revenues, including food and beverage revenues, are subject to annual adjustments based on increases in the United States Consumer Price Index published by the Bureau of Labor Statistics of the United States of America Department of Labor, U.S. City Average, Urban Wage Earners and Clerical Workers. Lease revenue from LHL is eliminated in consolidation. Share-Based Compensation From time to time, the Company awards nonvested shares under the 2014 Equity Incentive Plan (“2014 Plan”), which has approximately nine 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. F-12 Table of Contents Noncontrolling Interests The Company’s 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, 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 securities 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 December 31, 2014, 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. Income Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1998. 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 net income that is currently distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through a TRS is subject to federal, state and local income taxes. As a wholly owned TRS of the Company, LHL is required to pay income taxes at the applicable federal, state and local rates. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. The Company’s deferred tax assets balance consists primarily of state net operating loss carryforwards (see Note 9). Earnings per Common Share Basic earnings per common share is based on the weighted average number of common shares of beneficial interest outstanding during the year excluding the weighted average number of unvested restricted shares (“participating securities” as defined in Note 11). The basic earnings per share calculation excludes the effect of such participating securities. Diluted earnings per common share is based on the basic weighted average number of common shares of beneficial interest outstanding plus the effect of in-the-money stock options and compensation-related shares. Any anti-dilutive shares are excluded from the diluted earnings 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, 2014, 2013 and 2012, comprehensive income was $209,631, $102,630 and $63,818, F-13 Table of Contents respectively. As of December 31, 2014 and 2013, the Company’s accumulated other comprehensive income was $748 and $4,603, respectively. Notes Receivable Notes receivable are carried at cost, net of any premiums or discounts which are recognized as an adjustment of yield over the remaining life of the note using the effective interest method. Interest income is recorded on the accrual basis consistent with the terms of the notes receivable. A note is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all principal and interest contractually due. Interest previously accrued but not collected becomes part of the Company’s recorded investment in the note receivable for purposes of assessing impairment. The Company applies interest payments received on non-accrual notes receivable first to accrued interest and then as interest income. Notes receivable return to accrual status when contractually current and the collection of future payments is reasonably assured. Recently Issued Accounting Pronouncements In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This pronouncement will be effective for the first annual reporting period beginning after December 15, 2015 with early adoption permitted. The Company adopted this accounting pronouncement effective January 1, 2014. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, 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. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. Reclassification Certain amounts in the 2012 and 2013 financial statements have been reclassified to conform with the 2014 presentation. 3. Investment in Properties Investment in hotel properties as of December 31, 2014 and 2013 consists of the following: December 31, 2014 December 31, 2013 Land $ 601,962 $ 602,697 Buildings and improvements 3,295,233 3,191,286 596,879 557,090 Furniture, fixtures and equipment Investment in hotel properties, gross 4,494,074 (1,065,518) Accumulated depreciation Investment in hotel properties, net $ 3,428,556 4,351,073 (967,885) $ 3,383,188 As of December 31, 2014 and 2013, buildings and improvements included capital lease assets of $186,711 and accumulated depreciation included amounts related to capital lease assets of $15,513 and $10,104, respectively. 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. The December 31, 2014 balance of investment in hotel properties excludes $35,613 classified as property under development primarily at Hotel Chicago, Hotel Monaco San Francisco, Hyatt Boston Harbor, Sofitel Washington, DC Lafayette Square, Villa Florence, Westin Michigan Avenue and Westin Philadelphia. The December 31, 2013 balance of investment in hotel properties excludes $15,394 classified as property under development primarily at Hotel George, Hotel Chicago, Hilton Alexandria Old Town, Onyx Hotel, The Donovan and Park Central Hotel. Interest, real estate taxes and insurance costs incurred during the renovation or development period are capitalized and depreciated over the lives of the renovated or developed assets. Capitalized interest for the years ended December 31, 2014, 2013 and 2012 was $400, $649 and $370, respectively. F-14 Table of Contents The hotels owned as of December 31, 2014 are located in California (18), the District of Columbia (nine), Florida (one), Indiana (one), Illinois (two), Massachusetts (four), New York (four), Oregon (one), Pennsylvania (two), Virginia (one) and Washington state (two). Investment in Joint Venture On December 28, 2012, the Company, through a joint venture in which the Company holds a 99.99% controlling interest, acquired a majority ownership interest in The Liberty Hotel, a 298-room full-service, luxury hotel located in Boston, MA (see “Acquisitions” below). Since the Company holds a controlling interest, the accounts of the joint venture have been included in the accompanying consolidated financial statements. The 0.01% interest of the outside partner is included in noncontrolling interests in consolidated entities in the accompanying consolidated balance sheets. Acquisitions During 2012, the Company acquired 100% interests in two full-service hotels and a 99.99% interest in one full-service hotel, each of which is leased to LHL. The Company recorded the acquisitions at fair value using model-derived valuations, with the estimated fair value recorded to investment in hotel properties and hotel working capital assets and liabilities. In connection with the acquisitions, the Company incurred acquisition transaction costs that were expensed as incurred. The following is a summary of the acquisitions: Acquisition Transaction Costs Hotel Name Hotel Palomar, Washington, DC Acquisition Date Number of Rooms March 8, 2012 335 Purchase Price Location Washington, DC $ 143,839 Kimpton Hotel & Restaurant Group, LLC L’Auberge Del Mar December 6, 2012 120 Del Mar, CA 76,860 Destination Hotels & Resorts The Liberty Hotel December 28, 2012 298 Boston, MA 170,000 HEI Hotels & Resorts Total for 2012 Acquisitions $ For the year ended December 31, 2012 Manager 390,699 $ $ 3,594 157 277 4,028 Viceroy Santa Monica (1) 100 Mezzanine loan (2) 370 Total $ 4,498 (1) In connection with the acquisition of Viceroy Santa Monica on March 6, 2011, the Company incurred acquisition costs during the year ended December 31, 2012 related to the finalization of acquisition transactions. (2) See “Note Receivable” below. Total revenues and net income from the hotels acquired during 2012 of $26,647 and $2,368, respectively, are included in the accompanying consolidated statements of operations and comprehensive income for the year ended December 31, 2012. During 2013, the Company acquired 100% interests in four full-service hotels, each of which is leased to LHL. The Company recorded the acquisitions at fair value using model-derived valuations, with the estimated fair value recorded to investment in hotel properties, capital lease obligations and hotel working capital assets and liabilities. In connection with the acquisitions, the Company incurred acquisition transaction costs that were expensed as incurred. The following is a summary of the acquisitions: Acquisition Transaction Costs Hotel Name Harbor Court Hotel Hotel Triton Serrano Hotel Acquisition Date Number of Rooms August 1, 2013 131 August 1, 2013 August 21, 2013 140 236 Location San Francisco, CA $ San Francisco, CA San Francisco, CA Purchase Price For the year ended December 31, 2013 Manager 36,875 Kimpton Hotel & Restaurant Group, LLC 10,900 Kimpton Hotel & Restaurant Group, LLC 71,500 Kimpton Hotel & Restaurant Group, LLC $ 578 115 (1) 1,010 Southernmost Hotel Collection August 27, 2013 260 Key West, FL 184,500 Highgate Hotels 943 Total $ (1) 303,775 $ 2,646 Effective January 29, 2014, management transitioned to Access Hotels & Resorts. Harbor Court Hotel and Hotel Triton are subject to leases of land and building, which were determined to be capital leases (see Note 5). Accordingly, at acquisition, the Company recorded capital assets related to its leasehold interests of $54,563 and F-15 Table of Contents $37,253 for Harbor Court Hotel and Hotel Triton, respectively, based upon the estimated fair values of the rights to use the leased properties for the remaining terms. The capital assets are included within investment in hotel properties, net, in the accompanying consolidated balance sheets as of December 31, 2013. Additionally, the Company recorded furniture, fixtures and equipment and inventory of $736 and $1,399 for Harbor Court Hotel and Hotel Triton, respectively, as part of the acquisitions. The source of the funding for the 2013 acquisitions was borrowings under the Company’s senior unsecured credit facility. Total revenues and net income from the hotels acquired during 2013 of $26,591 and $2,683, respectively, are included in the accompanying consolidated statements of operations and comprehensive income for the year ended December 31, 2013. During 2014, the Company acquired 100% interests in two full-service hotels, each of which is leased to LHL. The Company recorded the acquisitions at fair value using model-derived valuations, with the estimated fair value recorded to investment in hotel properties and hotel working capital assets and liabilities. In connection with the acquisitions, the Company incurred acquisition transaction costs that were expensed as incurred. The following is a summary of the acquisitions: Acquisition Transaction Costs Hotel Name Acquisition Date Number of Rooms Location April 2, 2014 200 San Francisco, CA December 18, 2014 150 Portland, OR Hotel Vitale The Heathman Hotel Purchase Price $ Manager 130,000 Commune Hotels and Resorts 64,325 JRK Hotel Group, Inc. For the year ended December 31, 2014 $ 1,864 328 Total for 2014 Acquisitions $ 194,325 $ 2,192 Land purchase (adjacent to Onyx Hotel) 64 Park Central San Francisco (1) Total 123 $ 2,379 (1) On January 23, 2015, the Company acquired The Westin Market Street in San Francisco, CA and renamed the hotel, Park Central San Francisco (see Note 13). The source of the funding for the April 2, 2014 acquisition was borrowings under the Company’s senior unsecured credit facility. The source of funding for the December 18, 2014 acquisition was cash on hand. Total revenues and net income from the hotels acquired during 2014 of $27,988 and $2,018, respectively, are included in the accompanying consolidated statements of operations and comprehensive income for the year ended December 31, 2014. On April 30, 2014, the Company acquired a parcel of land located adjacent to the Company’s Onyx Hotel in Boston, MA for $2,500. The land is available for future use. Dispositions Effective January 1, 2014, the Company adopted ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (see Note 2). As a result, operations of hotels sold subsequent to December 31, 2013 generally will continue to be reported in continuing operations, while gains (losses) on sale will be included in gain on sale of property, after continuing operations. On June 17, 2014, the Company sold the Hilton Alexandria Old Town for $93,380. This sale does not represent a strategic shift in the Company’s business plan or primary markets, and therefore, does not qualify as discontinued operations. The Company recognized a gain of $43,548 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the year ended December 31, 2014. The sale of the property was recorded on the full accrual method. On September 10, 2014, the Company sold the Hotel Viking for $77,000. This sale does not represent a strategic shift in the Company’s business plan or primary markets, and therefore, does not qualify as discontinued operations. The Company recognized a gain of $49,657 related to the sale of this property, which is included in the accompanying consolidated statements of operations and comprehensive income for the year ended December 31, 2014. The sale of the property was recorded on the full accrual method. In conjunction with the sale of Hotel Viking, the Company executed a reverse 1031 exchange with Hotel Vitale, which was purchased on April 2, 2014. The reverse 1031 exchange has no effect on the Company’s GAAP financial reporting and does not have a material impact on the Company’s tax positions and expected tax expense. Note Receivable On July 13, 2012, the Company acquired a performing mezzanine loan secured by pledges of ownership interests of the entities that own the underlying hotel properties, Shutters on the Beach and Casa Del Mar, in Santa Monica, CA. The Company F-16 Table of Contents acquired the note at a discount of $4,584 for a total purchase price of $67,416 before closing costs. The loan bears interest at 9.76% with interest-only payments to be received monthly through the maturity date of May 11, 2014. The mezzanine loan is subordinate to a $310,000 first mortgage loan secured by the properties that also matures on May 11, 2014. In connection with the acquisition of the mezzanine loan, the Company incurred acquisition transaction costs of $370 during the year ended December 31, 2012, which expenses are included in the 2012 table above. On February 10, 2014, the Company received $72,000 in early repayment of the mezzanine loan. The proceeds were used to pay down amounts outstanding under the Company’s senior unsecured credit facility and under the LHL unsecured credit facility. Condensed Pro Forma Financial Information (Unaudited) The results of operations of acquired properties are included in the consolidated statements of operations and comprehensive income beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information is presented as if the above described 2013 acquisitions had been consummated on January 1, 2012, the beginning of the reporting period prior to acquisition. In addition, for purposes of the unaudited condensed pro forma financial information only, the May 24, 2013 through May 31, 2013 issuance of 721,706 common shares of beneficial interest and the October 25, 2013 issuance of 7,705,000 common shares of beneficial interest are presented as if the issuances had occurred as of January 1, 2012. No adjustments have been made to the unaudited condensed pro forma financial information presented below for the 2013 preferred share issuance and redemption, since those transactions have no relation to the acquisitions. The unaudited condensed pro forma financial information is for comparative purposes only and not necessarily indicative of what actual results of operations of the Company would have been had the 2013 acquisitions been consummated on January 1, 2012, nor does it purport to represent the results of operations for future periods. The unaudited condensed pro forma financial information for the year ended December 31, 2013 is as follows: Year Ended December 31, 2013 Total revenues $ 1,023,017 $ 95,881 $ 76,610 $ 0.74 $ 0.73 Net income Net income attributable to common shareholders Earnings per common share - basic Earnings per common share - diluted Weighted average number of common shares outstanding: Basic 103,594,955 Diluted 103,782,142 F-17 Table of Contents 4. Long-Term Debt Debt Summary Debt as of December 31, 2014 and 2013 consisted of the following: Balance Outstanding as of Debt Credit facilities Senior unsecured credit facility LHL unsecured credit facility Interest Rate Maturity Date Floating (a) January 2018 (a) Floating (b) January 2018 (b) December 31, 2014 $ December 31, 2013 0 $ 220,000 0 606 0 220,606 Total borrowings under credit facilities Term loans First Term Loan Floating (c) May 2019 177,500 177,500 Floating (c) January 2019 300,000 300,000 477,500 477,500 Second Term Loan Total term loans Massport Bonds Hyatt Boston Harbor (taxable) Hyatt Boston Harbor (tax exempt) Floating (d) March 2018 5,400 5,400 Floating (d) March 2018 37,100 37,100 42,500 42,500 0 8,809 Total bonds payable Mortgage loans Hotel Deca 6.28% August 2014 (e) 5.28% September 2015 (f) 210,000 210,000 5.75% April 2016 133,347 135,315 5.99% July 2016 97,528 98,875 6.31% August 2016 60,215 61,416 501,090 514,415 0 41 501,090 514,456 Westin Copley Place Westin Michigan Avenue Indianapolis Marriott Downtown The Roger Mortgage loans at stated value Unamortized loan premium (g) Total mortgage loans Total debt $ (a) 1,021,090 $ 1,255,062 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 plus an applicable margin. There were no borrowings outstanding at December 31, 2014. As of December 31, 2013, the rate, including the applicable margin, for the Company’s outstanding LIBOR borrowing of $220,000 was 1.92%. 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 plus an applicable margin. There were no borrowings outstanding at December 31, 2014. As of December 31, 2013, the rate, including the applicable margin, for LHL’s outstanding LIBOR borrowings of $606 was 1.92%. 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 separate interest rate swap agreements for the full seven-year term of the First Term Loan (as defined below) and a five-year term ending in August 2017 for the Second Term Loan (as defined below), resulting in fixed all-in interest rates at December 31, 2014 of 3.62% and 2.38%, respectively, and at December 31, 2013 of 3.62% and 2.43%, respectively, at the Company’s current leverage ratio (as defined in the agreements). (d) The Massport Bonds are secured by letters of credit issued by U.S. Bank National Association (“U.S. Bank”), effective September 30, 2014, that expire in September 2016, which replaced similar letters of credit held by the Royal Bank of Scotland. The letters of credit have two one-year extension options and are secured by the Hyatt Boston Harbor. The letters of credit cannot be extended beyond the Massport Bonds’ maturity date. The bonds bear interest based on weekly floating rates. The interest rates as of December 31, 2014 were 0.13% and 0.03% for the $5,400 and $37,100 bonds, respectively. The interest rates as of December 31, 2013 were 0.70% and 0.40% for the $5,400 and $37,100 bonds, respectively. The Company also incurred an annual letter of credit fee based on an applicable margin as defined in the Company’s senior unsecured credit agreement through September 29, 2014. Effective September 30, 2014, the Company incurs an annual letter of credit fee of 1.35%. (e) The Company repaid the mortgage loan on May 1, 2014 through borrowings on its senior unsecured credit facility. F-18 Table of Contents (f) The Company intends to repay the mortgage loan upon maturity through either borrowings on its credit facilities, placement of corporate-level debt or proceeds from a property-level mortgage financing. (g) Mortgage debt includes an unamortized loan premium on the mortgage loan on Hotel Deca of $41 as of December 31, 2013. Future scheduled debt principal payments as of December 31, 2014 are as follows: 2015 $ 214,796 2016 286,294 2017 0 2018 42,500 2019 477,500 Total debt $ 1,021,090 A summary of the Company’s interest expense and weighted average interest rates for variable rate debt for the years ended December 31, 2014, 2013 and 2012 is as follows: For the year ended December 31, 2014 2013 2012 Interest Expense: Interest incurred $ 54,859 $ 55,912 $ 51,351 Amortization of deferred financing costs 2,169 (400) Capitalized interest Interest expense $ 56,628 2,253 (649) $ 57,516 1,915 (370) $ 52,896 Weighted Average Interest Rates for Variable Rate Debt: Senior unsecured credit facility 1.9% 2.1% 2.2% LHL unsecured credit facility 1.9% 2.0% 2.1% Massport Bonds 0.4% 0.2% 0.3% Credit Facilities On January 8, 2014, the Company refinanced its $750,000 senior unsecured credit facility with a syndicate of banks. The credit facility matures on January 8, 2018, 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 includes an accordion feature which, subject to certain conditions, entitles the Company to request additional lender commitments, allowing for total commitments up to $1,050,000. 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 plus an applicable margin. Additionally, the Company is required to pay a variable unused commitment fee of 0.25% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the credit facility. On January 8, 2014, LHL also refinanced its $25,000 unsecured revolving credit facility to be used for working capital and general lessee corporate purposes. The LHL credit facility matures on January 8, 2018, 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 plus an applicable margin. Additionally, LHL is required to pay a variable unused commitment fee of 0.25% or 0.30% of the unused portion of the credit facility, depending on the average daily unused portion of the LHL credit facility. The Company’s senior unsecured credit facility and LHL’s unsecured credit facility contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict the Company’s ability to make distributions or other payments to its shareholders upon events of default. Term Loans On May 16, 2012, the Company entered into a $177,500 unsecured term loan with a seven-year term maturing on May 16, 2019 (the “First Term Loan”). The First Term Loan bears interest at a variable rate, but was hedged to a fixed interest rate based F-19 Table of Contents on the Company’s current leverage ratio (as defined in the swap agreements), which interest rate was 3.62% at December 31, 2014, for the full seven-year term (see “Derivative and Hedging Activities” below). On January 8, 2014, the Company refinanced its $300,000 unsecured term loan (the “Second Term Loan”). 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 up to $500,000. The Second Term Loan has a five-year term maturing on January 8, 2019 and bears interest at variable rates, but was hedged to a fixed interest rate based on the Company’s current leverage ratio (as defined in the swap agreements), which interest rate was 2.38% at December 31, 2014, through August 2, 2017 (see “Derivative and Hedging Activities” below). The Company’s term loans contain certain financial covenants relating to net worth requirements, debt ratios and fixed charge coverage and other limitations that restrict the Company’s ability to make distributions or other payments to its shareholders upon events of default. 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 May 16, 2012, the Company entered into three interest rate swap agreements with an aggregate notional amount of $177,500 for the First Term Loan’s full seven-year term, 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 3.62% at December 31, 2014. Effective August 2, 2012, the Company entered into five interest rate swap agreements with an aggregate notional amount of $300,000 for the Second Term Loan through August 2, 2017, 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 2.38% at December 31, 2014. 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 table presents 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 years ended December 31, 2014, 2013 and 2012: Amount of Gain (Loss) Recognized in OCI on Derivative Instruments Location of (Loss) Gain Reclassified from AOCI into Income Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) (Effective Portion) (Effective Portion) For the year ended For the year ended December 31, 2014 December 31, 2013 2012 2014 2013 2012 Derivatives in cash flow hedging relationships: Interest rate swaps $ 544 $ 8,127 $ (9,833) Interest expense $ (4,410) $ 4,248 $ 2,074 During the years ended December 31, 2014, 2013 and 2012, the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings. As of December 31, 2014 and 2013, there was $750 and $4,616 in cumulative unrealized gain, respectively, of which $748 and $4,603 was included in AOCI, respectively, and $2 and $13 was attributable to noncontrolling interests, respectively. The Company expects that approximately $4,399 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 December 31, 2014. Bonds Payable The Company is the obligor with respect to a $37,100 tax-exempt special project revenue bond and a $5,400 taxable special project revenue bond, both issued by the Massachusetts Port Authority (collectively, the “Massport Bonds”). The Massport Bonds, F-20 Table of Contents which mature on March 1, 2018, bear interest based on weekly floating rates and have no principal reductions prior to their scheduled maturities. The Massport Bonds may be redeemed at any time, at the Company’s option, without penalty. The Massport Bonds are secured by letters of credit issued by U.S. Bank, effective September 30, 2014, that expire on September 30, 2016, which replaced similar letters of credit held by the Royal Bank of Scotland. The letters of credit have two one-year extension options that the Company may exercise at its option, subject to certain terms and conditions. The letters of credit cannot be extended beyond the Massport Bonds’ maturity date. The Company incurred an annual letter of credit fee of a variable rate based on an applicable margin as defined in the Company’s senior unsecured credit agreement through September 29, 2014, which is included in interest expense. Effective September 30, 2014, the Company incurs an annual letter of credit fee of 1.35%. The letters of credit are secured by the Hyatt Harbor Boston. If U.S. Bank fails to renew its letters of credit at expiration and an acceptable replacement provider cannot be found, the Company may be required to pay off the bonds. Extinguishment of Debt As discussed above, the Company refinanced its senior unsecured credit facility and Second Term Loan and LHL refinanced its unsecured revolving credit facility on January 8, 2014. The refinancing arrangements for the senior unsecured credit facility and Second Term Loan were considered substantial modifications. The Company recognized a loss from extinguishment of debt of $2,487, which is included in the accompanying consolidated statements of operations and comprehensive income. The loss from extinguishment of debt represents a portion of the unamortized deferred financing costs incurred when the original agreements were executed. Mortgage Loans The Company’s mortgage loans are secured by the respective properties. The mortgages are non-recourse to the Company except for fraud or misapplication of funds. On May 1, 2014, the Company repaid without fee or penalty the Hotel Deca mortgage loan in the amount of $8,703 plus accrued interest through borrowings under its senior unsecured credit facility. The loan was due to mature in August 2014. The mortgage loans contain debt service coverage ratio tests related to the mortgaged properties. If the debt service coverage ratio for a specific 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 the financial covenants contained in its credit facilities, term loans and non-recourse secured mortgages 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 the financial 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 December 31, 2014, 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 or mortgage loans. F-21 Table of Contents 5. Commitments and Contingencies Ground, Land and Building, and Air Rights Leases Eight of the Company’s hotels, San Diego Paradise Point Resort and Spa, Hyatt Boston Harbor, Indianapolis Marriott Downtown, The Hilton San Diego Resort and Spa, Hotel Solamar, Viceroy Santa Monica, The Liberty Hotel and Hotel Vitale, are subject to ground leases under non-cancelable operating leases expiring from March 2026 to December 1, 2102. Additionally, the restaurant facility for Southernmost Hotel Collection is subject to a ground lease, which expires in April 2019, but the Company can begin negotiating a renewal one year in advance of the lease expiration. The ground lease at Hyatt Boston Harbor expires in March 2026, but the Company has options to extend for over 50 years to 2077. None of the remaining ground leases expire prior to 2045. The Westin Copley Place is subject to a long term air rights lease which expires in December 2077 and requires no payments through maturity. The ground lease related to the Indianapolis Marriott Downtown requires future ground rent payments of one dollar per year. 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 $1,820, $1,305 and $454 for the years ended December 31, 2014, 2013 and 2012, respectively, which is included in total ground rent expense below. The Roger, Harbor Court Hotel and Hotel Triton are subject to capital leases of land and building which expire in December 2044, April 2048 and January 2048, respectively. At acquisition, the estimated fair value of the remaining rent payments of $4,892, $18,424 and $27,752, respectively, 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. Total ground rent expense for the years ended December 31, 2014, 2013 and 2012 was $14,667, $11,117 and $8,588, 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. Future minimum rent payments, including capital lease payments, (without reflecting future applicable Consumer Price Index increases) are as follows: 2015 $ 11,552 2016 11,775 2017 12,044 2018 12,231 2019 12,206 Thereafter 525,155 $ 584,963 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% to 5.0% 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’ capital assets. Certain of the agreements require that the Company reserve this cash in separate accounts. As of December 31, 2014, $14,197 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 December 31, 2014, the Company held $21,570 in restricted cash reserves. Included in such amounts are (i) $14,197 of reserve funds for future capital expenditures, (ii) $5,295 deposited in mortgage escrow accounts pursuant to mortgage obligations to pre-fund a portion of certain operating expenses and debt payments and (iii) $2,078 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. F-22 Table of Contents 6. Equity Common Shares of Beneficial Interest On April 19, 2007, the common shareholders approved an amendment to the Company’s Amended and Restated Declaration of Trust increasing the number of authorized common shares of beneficial interest from 100,000,000 to 200,000,000. Accordingly, at December 31, 2014 and 2013, there were 200,000,000 authorized common shares. On January 1, 2013, the Company issued 10,332 common shares of beneficial interest and authorized an additional 7,921 deferred shares to the independent members of its Board of Trustees for their earned 2012 compensation pursuant to award arrangements existing on or before January 1, 2012. These common shares of beneficial interest were issued under the 2009 Plan. On January 30, 2013, the Company issued 81,400 nonvested shares with service conditions to the Company’s executives and employees. The nonvested shares vest in three annual installments, starting January 1, 2014, subject to continued employment. These common shares of beneficial interest were issued under the 2009 Plan. On February 20, 2013, the Company entered into an equity distribution agreement (the “2013 Agreement”) with Raymond James & Associates, Inc. (the “Manager”). Under the terms of the 2013 Agreement, the Company may issue from time to time through or to the Manager, as sales agent or principal, the Company’s common shares of beneficial interest with aggregate gross proceeds totaling up to $250,000. The offering of the Company’s common shares of beneficial interest under the 2013 Agreement will terminate upon the earlier of (i) the sale of common shares having an aggregate offering price of $250,000 or (ii) the termination of the 2013 Agreement by the Manager or Company. The 2013 Agreement replaced the equity distribution agreement the Company entered into on March 4, 2011. During the year ended December 31, 2013, the Company incurred offering costs of $197 related to executing and maintaining the 2013 Agreement. From May 24, 2013 through May 31, 2013, the Company sold 721,706 common shares of beneficial interest, par value $0.01 per share, under the 2013 Agreement. After deducting the Manager’s discounts and commissions of $250, the Company raised net proceeds of $19,693. The net proceeds were used to pay down amounts outstanding under the Company’s senior unsecured credit facility, and for general corporate purposes. As of December 31, 2014, the Company had availability under the 2013 Agreement to issue and sell common shares of beneficial interest having an aggregate offering price of up to $230,057. The Company did not sell any common shares of beneficial interest under the 2013 Agreement in 2014. On October 25, 2013, the Company completed an underwritten public offering of 7,705,000 common shares of beneficial interest, par value $0.01 per share, including the full exercise of the underwriters’ option to purchase additional shares. After deducting the underwriters’ discounts and commissions and other offering costs, the Company raised net proceeds of $228,387. The net proceeds were used to pay down amounts outstanding under the Company’s senior unsecured credit facility and under the LHL unsecured credit facility and for general corporate purposes. On January 1, 2014, the Company issued 13,948 common shares of beneficial interest and authorized an additional 6,064 deferred shares to the independent members of its Board of Trustees for their earned 2013 compensation pursuant to award arrangements existing on or before January 1, 2013. These common shares of beneficial interest were issued under the 2009 Plan. On January 1, 2014, the Company issued 35,652 nonvested shares with service conditions to executives related to the nonvested share awards with market conditions granted on January 24 and 26, 2011 (see Note 7 for additional details including vesting information). These common shares of beneficial interest were issued under the 2009 Plan. On January 22, 2014, the Company issued 9,385 common shares of beneficial interest related to the resignation of a former Board of Trustees member who retired from the Board of Trustees for a portion of his accumulated deferred shares granted as compensation for years 1999 through 2013. The accumulated deferred shares balance will be issued in five annual installments beginning January 22, 2014. These common shares of beneficial interest were issued under the 2009 Plan. On March 20, 2014, the Company issued 77,564 nonvested shares with service conditions to the Company’s executives and employees. The nonvested shares will vest in three annual installments starting January 1, 2015, subject to continued employment. These common shares of beneficial interest were issued under the 2009 Plan. On July 1, 2014, the Company issued 59,778 shares 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 issued shares vested immediately on July 1, 2014. These common shares of beneficial interest were issued under the 2009 Plan. On December 12, 2014, the Company issued 16,257 nonvested shares with service conditions to the Company’s employees. The nonvested shares will vest in three annual installments starting January 1, 2016, subject to continued employment. These common shares of beneficial interest were issued under the 2014 Plan. F-23 Table of Contents On December 12, 2014, the Company completed an underwritten public offering of 7,600,000 common shares of beneficial interest, par value $0.01 per share. On December 24, 2014, an additional 1,140,000 common shares of beneficial interest were issued pursuant to the full exercise of the underwriters’ option to purchase additional shares. After deducting the underwriters’ discounts and commissions and other offering costs, the Company raised net proceeds of $348,514. The net proceeds were used to fund the acquisition of The Heathman Hotel on December 18, 2014, to initially pay down amounts outstanding under the Company’s senior unsecured credit facility and under the LHL unsecured credit facility and to fund a portion of the acquisition of The Westin Market Street in San Francisco, CA (renamed Park Central San Francisco) on January 23, 2015 (see Note 13). Common Dividends The Company paid the following dividends on common shares/units during the year ended December 31, 2014: Dividend per Share/Unit (1) $ $ (1) 0.28 0.28 For the Quarter Ended Record Date Payable Date December 31, 2013 January 15, 2014 March 31, 2014 April 15, 2014 June 30, 2014 July 15, 2014 September 30, 2014 October 15, 2014 December 31, 2013 March 31, 2014 $ 0.38 June 30, 2014 $ 0.38 September 30, 2014 Amounts are rounded to the nearest whole cent for presentation purposes. Treasury Shares Treasury shares are accounted for under the cost method. During the year ended December 31, 2014, the Company received 91,394 common shares of beneficial interest related to employees surrendering shares to pay taxes at the time nonvested shares vested and forfeiting nonvested shares upon resignation. On August 29, 2011, the Company’s Board of Trustees authorized a share repurchase program (the “Repurchase Program”) to acquire up to $100,000 of the Company’s common shares of beneficial interest, with repurchased shares recorded at cost in treasury. As of December 31, 2014, the Company had availability under the Repurchase Program to acquire up to $75,498 of common shares of beneficial interest. However, the Company is not currently authorized by its Board of Trustees to repurchase or offer to repurchase any common shares. If authorized by its Board of Trustees, the Company may resume using the Repurchase Program on a future date. During the year ended December 31, 2014, the Company re-issued 87,876 treasury shares related to the grants of nonvested shares. At December 31, 2014, there were 4,028 common shares of beneficial interest in treasury. Preferred Shares On April 19, 2007, the common shareholders approved an amendment to the Company’s Amended and Restated Declaration of Trust increasing the number of authorized preferred shares of beneficial interest from 20,000,000 to 40,000,000. Accordingly, at December 31, 2014 and 2013, there were 40,000,000 authorized preferred shares. On March 4, 2013, the Company issued 4,000,000 6 ⅜% Series I Cumulative Redeemable Preferred Shares ($0.01 par value) (“Series I Preferred Shares”) at a price of $25.00 per share and received net proceeds, after deducting underwriting discounts and other offering costs, of $96,667. On March 12, 2013, the underwriters exercised their rights to cover overallotments and purchased 400,000 additional Series I Preferred Shares, resulting in additional net proceeds to the Company of $9,685. The net proceeds were used to redeem a portion of the Company’s 7 ¼% Series G Cumulative Redeemable Preferred Shares (“Series G Preferred Shares”) on April 5, 2013, to pay down amounts outstanding under the Company’s senior unsecured credit facility and for general corporate purposes. On April 5, 2013, the Company redeemed 4,000,000 of the 6,348,888 outstanding Series G Preferred Shares for $100,000 ($25.00 per share) plus accrued distributions through April 5, 2013 of $1,913. The redemption value of the Series G Preferred Shares exceeded their carrying value by $1,566, which is included in the determination of net income attributable to common shareholders for the year ended December 31, 2013. The $1,566 represents the offering costs related to the redeemed Series G Preferred Shares. On July 3, 2014, the Company redeemed the remaining 2,348,888 Series G Preferred Shares for $58,722 ($25.00 per share) plus accrued and unpaid dividends through the redemption date, July 3, 2014, of $1,100. The redemption value of the Series G Preferred Shares exceeded their carrying value by $951, which is included in the determination of net income attributable to F-24 Table of Contents common shareholders for the year ended December 31, 2014. The $951 represents the offering costs related to the redeemed Series G Preferred Shares. The following Preferred Shares were outstanding as of December 31, 2014: Security Type Number of Shares 7 ½% Series H Preferred Shares 2,750,000 6 ⅜% Series I Preferred Shares 4,400,000 The 7 ½% Series H Cumulative Redeemable Preferred Shares (“Series H Preferred Shares”) and the Series I 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 the current and all past dividend periods and, with respect to the Series H Preferred Shares, for the current dividend period. 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 H Preferred Shares and Series I Preferred Shares prior to January 24, 2016 and March 4, 2018, 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 Series H Preferred Shares and Series I 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 to and including the date of redemption. In addition, upon the occurrence of a change of control (as defined in the Company’s charter), 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 MKT 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 to and including 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 Series H Preferred Shares and Series I 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 4,680,500 common shares and 8,835,200 commons shares, respectively. Preferred Dividends The Company paid the following dividends on preferred shares during the year ended December 31, 2014: For the Dividend per Share (1) Security Type Quarter Ended Record Date Payable Date 7 ¼% Series G $ 0.45 December 31, 2013 January 1, 2014 January 15, 2014 7 ½% Series H $ 0.47 December 31, 2013 January 1, 2014 January 15, 2014 6 ⅜% Series I $ 0.40 December 31, 2013 January 1, 2014 January 15, 2014 7 ¼% Series G $ 0.45 March 31, 2014 April 1, 2014 April 15, 2014 7 ½% Series H $ 0.47 March 31, 2014 April 1, 2014 April 15, 2014 6 ⅜% Series I $ 0.40 March 31, 2014 April 1, 2014 April 15, 2014 7 ¼% Series G $ 0.47 June 30, 2014 July 1, 2014 July 3, 2014 7 ½% Series H $ 0.47 June 30, 2014 July 1, 2014 July 15, 2014 6 ⅜% Series I $ 0.40 June 30, 2014 July 1, 2014 July 15, 2014 7 ½% Series H $ 0.47 September 30, 2014 October 1, 2014 October 15, 2014 6 ⅜% Series I $ 0.40 September 30, 2014 October 1, 2014 October 15, 2014 (2) (1) (2) Amounts are rounded to the nearest whole cent for presentation purposes. Final dividend is through redemption date. Noncontrolling Interests of Common Units in Operating Partnership As of December 31, 2014, the Operating Partnership had 296,300 common units of limited partnership interest outstanding, representing a 0.3% partnership interest held by the limited partners. As of December 31, 2014, approximately $11,991 of cash or the equivalent value in common shares, at the Company’s option, would be paid to the limited partners of the Operating F-25 Table of Contents Partnership if the partnership were terminated. The approximate value of $11,991 is based on the Company’s closing common share price of $40.47 on December 31, 2014, which is assumed to be equal to the value provided to the limited partners upon liquidation of the Operating Partnership. Subject to certain restrictions, the outstanding common units of limited partnership are redeemable for cash, or at the Company’s option, for a like number of common shares of beneficial interest of the Company. The following schedule presents the effects of changes in the Company’s ownership interest in the Operating Partnership on the Company’s equity: For the year ended December 31, 2014 Net income attributable to common shareholders $ Decrease in additional paid-in capital from adjustments to noncontrolling interests of common units in Operating Partnership Change from net income attributable to common shareholders and adjustments to noncontrolling interests 2013 197,561 $ (397) $ 197,164 2012 70,984 $ (213) $ 70,771 45,146 (872) $ 44,274 7. Equity Incentive Plan The common shareholders approved the 2014 Plan at the 2014 Annual Meeting held on May 7, 2014, which 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 December 31, 2014, there were 2,881,272 common shares available for future grant under the 2014 Plan. Upon the approval of the 2014 Plan by the common shareholders on May 7, 2014, 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 grant date stock price of its common shares and target 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 shares with service conditions as of December 31, 2014 is as follows: Weighted Average Grant Date Fair Value Number of Shares Nonvested at January 1, 2014 333,417 $ 29.11 Granted Vested Forfeited Nonvested at December 31, 2014 (1) 93,821 33.23 (167,108) 28.53 (3,751) 29.19 256,379 $ 31.00 F-26 Table of Contents (1) Amount excludes 29,276 share awards with market conditions which were earned but nonvested due to a service condition as of December 31, 2014. As of December 31, 2014 and 2013, there were $5,113 and $5,160, respectively, of total unrecognized compensation costs related to nonvested share awards with service conditions. As of December 31, 2014 and 2013, these costs were expected to be recognized over a weighted–average period of 1.9 and 2.3 years, respectively. The total intrinsic value of shares vested (calculated as number of shares multiplied by vesting date share price) during the years ended December 31, 2014, 2013 and 2012 was $5,602, $8 and $5,267, respectively. Compensation costs (net of forfeitures) related to nonvested share awards with service conditions that have been included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income were $3,055, $2,959 and $3,090 for the years ended December 31, 2014, 2013 and 2012, respectively. Nonvested Share Awards with Market or Performance Conditions On May 31, 2008, the Company’s Board of Trustees entered into three Performance-Based Share Agreements (the “Share Agreements”), awarding 125,000 nonvested share awards with market conditions, in 25,000, 50,000 and 50,000 increments, of nonvested shares to an executive. The actual amounts of the shares awarded earned for each of the Share Agreements is based on the specified three-year performance measurement periods ending on July 1, 2011, 2014 and 2017, respectively. The actual amounts of the shares awarded are to range from 0% to 200% of the target amounts, depending on the performance analysis stipulated in the Share Agreements, and none of the shares are outstanding until issued in accordance with the Share Agreements. On July 1, 2014, the Company issued 59,778 shares to an executive who earned 119.6% 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, or 59,778 shares, vested immediately on July 1, 2014. The executive received a cash payment of $239 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, 2014. As of July 1, 2014, 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. With respect to the remaining 50,000 shares with a performance measurement period ending on July 1, 2017, the fair value of these shares was estimated on July 1, 2014, the beginning of the performance measurement period. On January 24 and January 26, 2011, the Company’s Board of Trustees granted a target of 8,925 and 35,920 nonvested share awards with market conditions to executives, respectively. On January 1, 2014, the executives earned 79.5% of the target number of shares, or 35,652 shares. The shares representing the difference between 79.5% and 100% of the target, or 9,193 shares, were forfeited on January 1, 2014. Of the earned shares, 11,885 shares vested immediately on January 1, 2014 and the remaining 23,767 shares will vest in equal amounts on January 1, 2015 and January 1, 2016 based on continued employment. The executives received cash payments of $75 on the earned shares equal to the value of all dividends paid on common shares from December 31, 2010 until the determination date, January 1, 2014. As of January 1, 2014, the executives are entitled to receive dividends as declared and paid on the earned shares and to vote the shares, including those shares subject to further vesting. 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 actual amounts of the shares awarded will be determined on January 1, 2015, based on the performance measurement period of January 1, 2012 through December 31, 2014, in accordance with the terms of the award 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 award agreements, and none of the shares are outstanding until issued in accordance with the award agreements. After the actual amounts of the shares awarded are determined (or earned) on January 1, 2015, the earned shares will be issued and outstanding with a portion subject to further vesting based on continued employment. The executives will receive cash payments on the earned shares, including those subject to further vesting, equal to the value of all dividends paid on common shares from December 31, 2011 until the determination date, January 1, 2015. Such amounts will be paid to the executives on or about January 1, 2015 (see Note 13). Thereafter, the executives will be entitled to receive dividends as declared and paid on the earned shares and to vote the shares, including those shares subject to further vesting. On January 30, 2013, the Company’s Board of Trustees granted a target of 80,559 nonvested share awards with either market or performance conditions to executives (the “January 30, 2013 Awards”). The actual amounts of the shares awarded with respect to 40,280 of the 80,559 shares will be determined on January 1, 2016, based on the performance measurement period of January 1, 2013 through December 31, 2015, in accordance with the terms of the award agreements. The actual amounts of the shares awarded with respect to the remaining 40,279 of the 80,559 shares will be determined on July 1, 2016, based on the performance measurement period of July 1, 2013 through June 30, 2016, in accordance with the terms of the award 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 award 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 F-27 Table of Contents 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, 2016 and July 1, 2016, 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 40,280 shares, amortization commenced on January 30, 2013, the beginning of the requisite service period, and, with respect to 40,279 shares, amortization commenced on July 1, 2013, the beginning of the requisite service period. On March 20, 2014, the Company’s Board of Trustees granted a target of 71,967 nonvested share awards with either market or performance conditions to executives (the “March 20, 2014 Awards”). The actual amounts of the shares awarded with respect to 35,983 of the 71,967 shares will be determined on January 1, 2017, based on the performance measurement period of January 1, 2014 through December 31, 2016, in accordance with the terms of the agreements. The actual amounts of the shares awarded with respect to the remaining 35,984 of the 71,967 shares will be determined on July 1, 2017, based on the performance measurement period of July 1, 2014 through June 30, 2017, 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, 2017 and July 1, 2017, 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 35,983 shares, amortization commenced on March 20, 2014, the beginning of the requisite service period, and, with respect to 35,984 shares, amortization commenced on July 1, 2014, the beginning of the requisite service period. The grant date fair values of the above described nonvested share awards with market conditions were determined by the Company using data under the Monte Carlo valuation method provided by a third-party consultant. The terms stipulated in the award agreements used to determine the total amount of the shares awarded for all awards granted prior to 2013 consist of the following three tranches: (1) a comparison of the Company’s “total return” (the increase in the market price of a Company’s common shares plus dividends declared thereon and assuming such dividends are reinvested as calculated by the FTSE NAREIT Equity Index) to the total return of the companies in the FTSE NAREIT Equity Index, (2) a comparison of the Company’s total return to the total returns’ of six companies in a designated peer group of the Company and (3) the Company’s actual performance as compared to a Board-established total return goal. For the January 30, 2013 Awards and the March 20, 2014 Awards, the nonvested awards consist of three tranches in each performance measurement period described above. Two of the tranches in the award agreements are nonvested share awards with market conditions, consistent with tranches described in (2) and (3) above, and were valued on the grant date via the methodology described above using a third-party consultant. 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. As of December 31, 2014, a change in the Company’s estimate of probable outcome occurred for all the award tranches with performance conditions as the return on invested capital measurement assumptions (see below) was revised from 100% to 200% resulting in a cumulative adjustment to compensation cost. 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. F-28 Table of Contents The assumptions used were as follows for each performance measure: Volatility Interest Rates Dividend Yield May 31, 2008 Awards (performance period starting July 1, 2014) Target amounts 33.30% 0.90% N/A NAREIT index 33.30% 0.90% N/A Peer companies 33.30% 0.90% N/A March 20, 2014 Awards (performance period starting January 1, 2014) Target amounts 33.70% 0.90% N/A Return on invested capital N/A N/A N/A Peer companies 33.70% 0.90% N/A March 20, 2014 Awards (performance period starting July 1, 2014) Target amounts 33.70% 0.90% N/A Return on invested capital N/A N/A N/A Peer companies 33.70% 0.90% N/A January 30, 2013 Awards (performance period starting January 1, 2013) Target amounts 38.70% 0.42% N/A Return on invested capital N/A N/A N/A Peer companies 38.70% 0.42% N/A January 30, 2013 Awards (performance period starting July 1, 2013) Target amounts 38.70% 0.42% N/A Return on invested capital N/A N/A N/A Peer companies 38.70% 0.42% N/A January 26, 2012 Awards Target amounts 65.30% 0.31% N/A NAREIT index 65.30% 0.31% N/A Peer companies 65.30% 0.31% N/A May 31, 2008 Awards (performance period starting July 1, 2011) Target amounts 83.30% 0.85% N/A NAREIT index 83.30% 0.85% N/A Peer companies 83.30% 0.85% N/A January 24 and 26, 2011 Awards Target amounts 84.30% 1.05% N/A NAREIT index 84.30% 1.05% N/A Peer companies 84.30% 1.05% N/A Fair Value of Components of Award Stock Beta Weighting of Total Awards N/A $ 32.57 20.00% 1.356 $ 39.26 40.00% 0.908 $ 38.15 40.00% N/A $ 31.94 33.40% N/A $ 31.82 33.30% 0.938 $ 31.02 33.30% N/A $ 31.23 33.40% N/A $ 31.82 33.30% 0.938 $ 34.53 33.30% N/A $ 29.38 33.40% N/A $ 27.20 33.30% 0.864 $ 30.51 33.30% N/A $ 27.70 33.40% N/A $ 27.20 33.30% 0.864 $ 31.34 33.30% N/A $ 36.22 33.40% 1.370 $ 35.25 33.30% 0.911 $ 35.33 33.30% N/A $ 37.64 20.00% 1.318 $ 36.27 40.00% 0.892 $ 38.79 40.00% N/A $ 40.43 33.40% 1.300 0.898 $ $ 38.85 41.24 33.30% 33.30% May 31, 2008 Awards (performance period starting July 1, 2008) Target amounts 30.80% 2.90% NAREIT index 30.80% 2.90% Peer companies 30.80% 2.90% F-29 N/A N/A $ 24.81 20.00% N/A 1.152 $ 27.61 40.00% N/A 1.022 $ 28.00 40.00% Table of Contents A summary of the Company’s restricted share awards with either market or performance conditions as of December 31, 2014 is as follows: WeightedAverage Grant Date Fair Value Number of Shares Nonvested at January 1, 2014 289,545 Granted (1) Vested Forfeited Nonvested at December 31, 2014 (1) $ 33.02 131,745 34.52 (100,472) 32.46 (9,193) 40.17 311,625 $ 33.62 Amount includes 50,000 shares from a May 2008 award agreement, for which fair value was determined at the beginning of the performance measurement period on July 1, 2014. As of December 31, 2014 and 2013, there were $6,637 and $5,260, respectively, of total unrecognized compensation costs related to restricted share awards with market or performance conditions. As of December 31, 2014 and 2013, these costs were expected to be recognized over a weighted–average period of 2.0 and 2.2 years, respectively. As of December 31, 2014 and 2013, there were 254,415 and 153,943 share awards with market or performance conditions vested, respectively. Additionally, there were 29,276 and 34,318 nonvested share awards with market or performance conditions earned but nonvested due to a service condition as of December 31, 2014 and 2013, respectively. Compensation costs (net of forfeitures) related to nonvested share awards with market or performance conditions are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income were $3,567, $2,681 and $2,006 for the years ended December 31, 2014, 2013 and 2012, respectively. Board of Trustees’ Compensation The Company issues common shares of beneficial interest to the independent members of the Board of Trustees for at least half of their compensation in lieu of cash. The Trustees may elect to receive the remaining half in cash or additional common shares. All or a portion of the shares issued may be deferred. The Company issued an aggregate of 15,865, 20,012 and 18,253 shares, including 4,183, 6,064 and 7,921 deferred shares, related to the Trustees’ compensation for the years 2014, 2013 and 2012, respectively. 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 year ended December 31, 2014 2013 2012 General and administrative $ 87,210 $ 76,699 $ 67,465 Sales and marketing 61,249 55,752 49,803 37,169 33,741 30,753 36,463 32,850 29,301 32,296 29,077 26,465 8,346 7,601 6,606 1,775 1,666 1,608 Repairs and maintenance Management and incentive fees Utilities and insurance Franchise fees Other expenses Total other indirect expenses $ 264,508 $ 237,386 $ 212,001 F-30 Table of Contents As of December 31, 2014, LHL leased all 45 hotels owned by the Company as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. Hotel Properties Hotel Amarano Burbank L’Auberge Del Mar Hilton San Diego Gaslamp Quarter Hotel Solamar San Diego Paradise Point Resort and Spa The Hilton San Diego Resort and Spa Harbor Court Hotel Hotel Monaco San Francisco Hotel Triton Hotel Vitale Serrano Hotel Villa Florence Chaminade Resort and Conference Center Viceroy Santa Monica Chamberlain West Hollywood Le Montrose Suite Hotel Le Parc Suite Hotel The Grafton on Sunset The Donovan Hotel George Hotel Helix Hotel Madera Hotel Palomar, Washington, DC Hotel Rouge Sofitel Washington, DC Lafayette Square The Liaison Capitol Hill Topaz Hotel Southernmost Hotel Collection Hotel Chicago Westin Michigan Avenue Indianapolis Marriott Downtown Hyatt Boston Harbor Onyx Hotel The Liberty Hotel Westin Copley Place Gild Hall The Roger Park Central Hotel (shared lease with WestHouse Hotel New York) WestHouse Hotel New York The Heathman Hotel Embassy Suites Philadelphia - Center City Westin Philadelphia Lansdowne Resort Alexis Hotel Hotel Deca F-31 Location Burbank, CA Del Mar, CA San Diego, CA San Diego, CA San Diego, CA San Diego, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA Santa Cruz, CA Santa Monica, CA West Hollywood, CA West Hollywood, CA West Hollywood, CA West Hollywood, CA Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Washington, D.C. Key West, FL Chicago, IL Chicago, IL Indianapolis, IN Boston, MA Boston, MA Boston, MA Boston, MA New York, NY New York, NY New York, NY New York, NY Portland, OR Philadelphia, PA Philadelphia, PA Lansdowne,VA Seattle, WA Seattle, WA Table of Contents 9. Income Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1998. 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 net income that is currently distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through a TRS is subject to federal, state and local income taxes. As a wholly owned TRS of the Company, LHL is required to pay income taxes at the applicable federal, state and local rates. For federal income tax purposes, the cash distributions paid to the Company’s common shareholders of beneficial interest and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions which could result in differences between cash basis and tax basis distribution amounts. F-32 Table of Contents The following characterizes distributions paid per common share of beneficial interest and preferred share on a tax basis for the years ended December 31, 2014, 2013 and 2012: 2014 $ 2013 % $ 2012 % $ % Common shares of beneficial interest Ordinary income $ 1.1900 81.75% $ 1.0305 100.00% $ 0.6989 100.00% 0.2656 18.25% 0.0000 0.00% 0.0000 0.00% Capital gain $ 1.4556 100.00% $ 1.0305 100.00% $ 0.6989 100.00% $ 0.0000 0.00% $ 0.0000 0.00% $ 1.2031 100.00% $ 0.0000 0.00% $ 0.0000 0.00% $ 1.2833 100.00% $ 0.0000 0.00% $ 1.8125 100.00% $ 1.8125 100.00% $ 0.0000 0.00% $ 0.9314 100.00% $ 1.8125 100.00% $ 1.1237 81.75% $ 1.8125 100.00% $ 1.8125 100.00% 0.2508 18.25% 0.0000 0.00% 0.0000 0.00% Preferred shares (Series D) Ordinary income Preferred shares (Series E) Ordinary income Preferred shares (Series G) Ordinary income Preferred shares (Series G redeemed) (1) Ordinary income Preferred shares (Series G redeemed) (2) Ordinary income Capital gain $ 1.3745 100.00% $ 1.8125 100.00% $ 1.8125 100.00% $ 1.5329 81.75% $ 1.8750 100.00% $ 1.8750 100.00% 0.3421 18.25% 0.0000 0.00% 0.0000 0.00% Preferred shares (Series H) Ordinary income Capital gain $ 1.8750 100.00% $ 1.8750 100.00% $ 1.8750 100.00% $ 1.3030 81.75% $ 0.9784 100.00% $ 0.0000 0.00% 0.2908 18.25% 0.0000 0.00% 0.0000 0.00% 0.0000 0.00% Preferred shares (Series I) Ordinary income Capital gain $ 1.5938 100.00% $ 0.9784 100.00% $ On April 5, 2013, the Company redeemed a portion of its Series G Preferred Shares (see Note 6). (2) On July 3, 2014, the Company redeemed its remaining Series G Preferred Shares (see Note 6). (1) Income tax expense was comprised of the following for the years ended December 31, 2014, 2013 and 2012: For the year ended December 31, 2014 2013 2012 LHL’s income tax expense (benefit) $ 1,260 $ (308) $ 8,983 Operating Partnership’s income tax expense 1,046 778 79 Total income tax expense $ F-33 2,306 $ 470 $ 9,062 Table of Contents The components of LHL’s income tax expense (benefit) and income before income tax expense (benefit) for the years ended December 31, 2014, 2013 and 2012 were as follows: For the year ended December 31, 2014 2013 2012 LHL’s income tax expense (benefit): Federal Current $ 912 $ (50) $ 3,325 Deferred 372 51 3,591 297 (47) 1,694 (321) (262) 373 State & local Current Deferred Total $ 1,260 $ $ 3,559 $ (308) $ 8,983 LHL’s income before income tax expense (benefit) 615 $ 21,089 LHL’s provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to LHL’s pretax income for the years ended December 31, 2014, 2013 and 2012 as a result of the following differences: For the year ended December 31, 2014 2013 2012 “Expected” federal tax expense at statutory rate $ 1,210 $ 209 $ 7,170 State income tax expense, net of federal income tax effect 302 50 (252) (567) 1,801 Other, net 12 Income tax expense (benefit) $ 1,260 $ (308) $ 8,983 LHL’s deferred tax assets (liabilities) as of December 31, 2014 and 2013 were as follows: December 31, 2014 2013 Net operating loss carryforwards $ 1,618 $ 1,297 Bad debt reserves 214 (256) Golf membership deferred revenue Other, net 228 (28) (129) 0 Total deferred tax assets $ 1,447 $ 1,497 During the year ended December 31, 2012, the Company exhausted its remaining federal net operating loss carryforwards. As of December 31, 2014, the Company had deferred tax assets of $1,447 primarily due to current and past years’ state tax net operating losses. These state loss carryforwards will generally expire in 2016 through 2034 if not utilized by then. The Company analyzes state loss carryforwards on a state by state basis and records a valuation allowance when management deems it more likely than not that future results will not generate sufficient taxable income in the respective state to realize the deferred tax asset prior to the expiration of the loss carryforwards. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets related to state loss carryforwards prior to the expiration of the loss carryforwards and has determined that no valuation allowance is necessary. From time to time, the Company may be subject to federal, state or local tax audits in the normal course of business. F-34 Table of Contents Regarding accounting for uncertainty in income taxes, GAAP guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the previously unrecognized benefit associated with the position is recognized in the financial statements. This guidance applies to all positions related to income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year ended December 31, 2014 2013 2012 Balance at beginning of year $ 0 $ 0 $ 708 Reductions 0 0 (708) Balance at end of year $ 0 $ 0 $ 0 All of such amount, if recognized, would have impacted our reconciliation between the income tax expense calculated at the statutory federal income tax rate of 34% and the actual income tax expense recorded each year. During the second quarter of 2012, the Company resolved its uncertain tax position as a result of a settlement with the applicable taxing authority. Accordingly, the Company has no material unrecognized income tax benefits as of December 31, 2014 and 2013. As of December 31, 2014, the tax years that remain subject to examination by major tax jurisdictions generally include 2010 through 2014. 10. Fair Value Measurements In evaluating fair value, GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The hierarchy ranks the quality and reliability of inputs used to determine fair value, which are then classified and disclosed in one of the three categories. The three levels are as follows: Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2—Observable inputs, other than quoted prices included in level 1, such as interest rates, yield curves, quoted prices in active markets for similar assets and liabilities, and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3—Unobservable inputs that are supported by limited market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques when observable inputs are not available. The Company estimates the fair value of its financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and subjectivity are involved in developing these estimates and, accordingly, such estimates are not necessarily indicative of amounts that would be realized upon disposition. Recurring Measurements For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of their fair value is as follows: Fair Value Measurements at December 31, 2014 December 31, 2013 Using Significant Other Observable Inputs (Level 2) Description Consolidated Balance Sheet Location Derivative interest rate instruments Prepaid expenses and other assets $ 1,520 (1) $ 4,616 Derivative interest rate instruments Accounts payable and accrued expenses (1) Amount relates to interest rate swaps for the Second Term Loan. (2) Amount relates to interest rate swaps for the First Term Loan. $ 770 (2) $ 0 The fair value of each derivative instrument is based on a discounted cash flow analysis of the expected cash flows under each arrangement. This analysis reflects the contractual terms of the derivative instrument, including the period to maturity, and F-35 Table of Contents utilizes observable market-based inputs, including interest rate curves and implied volatilities, which are classified within level 2 of the fair value hierarchy. The Company also incorporates credit value adjustments to appropriately reflect each parties’ nonperformance risk in the fair value measurement, which utilizes level 3 inputs such as estimates of current credit spreads. However, the Company has assessed that the credit valuation adjustments are not significant to the overall valuation of the derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified within level 2 of the fair value hierarchy. Financial Instruments Not Measured at Fair Value The following table represents the fair value, derived using level 2 inputs, of financial instruments presented at carrying value in the Company’s consolidated financial statements as of December 31, 2014 and 2013: December 31, 2014 Carrying Value December 31, 2013 Estimated Fair Value Carrying Value Estimated Fair Value Note receivable $ 0 $ 0 $ 71,014 $ 71,014 Borrowings under credit facilities $ 0 $ 0 $ 220,606 $ 220,957 Term loans $ 477,500 $ 476,996 $ 477,500 $ 477,053 Bonds payable $ 42,500 $ 42,500 $ 42,500 $ 42,500 Mortgage loans $ 501,090 $ 510,250 $ 514,456 $ 522,788 The Company estimates the fair value of its borrowings under credit facilities, term loans, bonds payable and mortgage loans using a weighted average effective interest rate of 2.9% and 3.1% as of December 31, 2014 and 2013, respectively. The assumptions reflect the terms currently available on similar borrowings to borrowers with credit profiles similar to the Company’s. As of December 31, 2013, the Company estimated that the fair value of its note receivable, which was repaid in full on February 10, 2014, approximated its carrying value due to the relatively short period until maturity. At December 31, 2014 and 2013, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable and accrued expenses were representative of their fair values due to the short-term nature of these instruments and the recent acquisition of these items. 11. Earnings per Common Share The limited partners’ outstanding limited partnership units in the Operating Partnership (which may be converted to common shares of beneficial interest) have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income or loss. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested restricted shares (participating securities) have been excluded, as applicable, from net income or loss attributable to common shareholders used in the basic and diluted earnings per share calculations. Net income or loss figures are presented net of noncontrolling interests in the earnings per share calculations. F-36 Table of Contents The computation of basic and diluted earnings per common share is as follows: For the year ended December 31, 2014 2013 2012 Numerator: Net income attributable to common shareholders $ Dividends paid on unvested restricted shares Undistributed earnings attributable to unvested restricted shares Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 197,561 $ (411) 70,984 $ (353) (138) 0 197,012 $ 70,631 45,146 (270) 0 $ 44,876 Denominator: Weighted average number of common shares - basic 104,188,785 97,041,484 85,757,969 357,110 187,187 139,305 104,545,895 97,228,671 85,897,274 Effect of dilutive securities: Compensation-related shares Weighted average number of common shares - diluted Earnings per Common Share - Basic: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 1.89 $ 0.73 $ 0.52 Earnings per Common Share - Diluted: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 1.88 $ 0.73 $ 0.52 12. Supplemental Information to Statements of Cash Flows For the year ended December 31, 2014 2013 2012 Interest paid, net of capitalized interest $ 54,558 $ 55,754 $ 50,154 Interest capitalized 400 649 370 815 2,353 8,012 13,227 10,044 9,899 Income taxes paid, net Increase in distributions payable on common shares Decrease in distributions payable on preferred shares (1,064) (59) (3,236) Write-off of fully depreciated furniture, fixtures and equipment 582 7,888 0 273 203 162 Write-off of fully amortized deferred financing costs (Decrease) increase in accrued capital expenditures (994) 3,116 (242) Grant of nonvested shares and awards to employees and executives, net 7,953 5,258 4,764 602 277 494 Issuance of common shares for Board of Trustees compensation In conjunction with the sale of properties, the Company disposed of the following assets and liabilities: Investment in properties, net of closing costs $ Other assets 167,921 1,397 $ 0 0 $ 0 0 Liabilities (1,480) 0 0 Sale of properties $ In conjunction with the acquisition of properties, the Company assumed assets and liabilities and issued units as follows: Investment in properties (after credits at closing) Other assets Liabilities Acquisition of properties $ $ 167,838 $ 0 $ 0 (194,198) $ (1,361) (349,802) $ (2,509) (390,076) (1,623) 4,448 (191,111) $ 50,176 (302,135) $ 5,084 (386,615) 13. Subsequent Events On January 1, 2015, the Company issued 11,682 common shares of beneficial interest and authorized an additional 4,183 deferred shares to the independent members of its Board of Trustees for their 2014 compensation. These common shares of beneficial interest were issued under the 2014 Plan. Additionally, the Company issued 9,757 common shares of beneficial interest, F-37 Table of Contents related to the resignation of a former Board of Trustees member, for the second of five payouts of his accumulated deferred shares granted as compensation for years 1999 through 2013. These common shares of beneficial interest were issued under the 2009 Plan. On January 5, 2015, the Company issued 108,779 nonvested shares with service conditions to executives who earned 136.3% of their 79,823 target number of shares from the nonvested share awards with market conditions granted on January 26, 2012 (see Note 7). One-third of the shares earned, or 36,261 shares, vested immediately on January 1, 2015, and the remaining two-thirds of the shares earned, or 72,518 shares, will vest in equal amounts on January 1, 2016 and January 1, 2017 based on continued employment. 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. These common shares of beneficial interest were issued under the 2009 Plan. On January 5, 2015, the Company received 41,300 common shares of beneficial interest related to executives and employees surrendering shares to pay taxes at the time restricted shares vested. The Company paid the following common and preferred share dividends subsequent to December 31, 2014: Dividend per Security Type Share/Unit For the Quarter Record Payable Ended Date Date (1) Common Shares/Units $ 0.38 December 31, 2014 December 31, 2014 January 15, 2015 7 ½% Series H Preferred Shares $ 0.47 December 31, 2014 January 1, 2015 January 15, 2015 6 ⅜% Series I Preferred Shares $ 0.40 December 31, 2014 January 1, 2015 January 15, 2015 (1) Amounts are rounded to the nearest whole cent for presentation purposes. On January 23, 2015 the Company acquired a 100% leasehold interest in The Westin Market Street, which the Company renamed Park Central San Francisco, a 681-room urban, full-service hotel located in San Francisco, CA, for $350,000. As of December 31, 2014, a $25,000 deposit was held in escrow for the acquisition of the hotel. The sources of the funding for the acquisition were cash on hand and borrowings under the Company’s senior unsecured credit facility. The property is leased to LHL and Highgate Hotels manages the property. The Company has not yet finalized its determination of fair value of Park Central San Francisco as the Company is awaiting certain valuation-related information. F-38 Table of Contents 14. Quarterly Operating Results (Unaudited) The Company’s unaudited consolidated quarterly operating data for the years ended December 31, 2014 and 2013 (in thousands, except per share data) follows. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management’s opinion, however, that quarterly operating data for hotel enterprises are not indicative of results to be achieved in succeeding quarters or years. Year Ended December 31, 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 220,653 $ 356,663 $ 357,661 $ 269,818 Total expenses 225,524 265,695 256,149 243,930 (4,871) 90,968 101,512 25,888 6 (4,107) (274) (4,142) (297) (3,042) (942) (9) Net (loss) income Net loss (income) attributable to noncontrolling interests Distributions to preferred shareholders Issuance costs of redeemed preferred shares 0 Net (loss) income attributable to common shareholders (87) (3,042) 0 $ (8,972) $ 85,610 $ 98,164 $ 22,759 Earnings per Common Share—Basic: Net (loss) income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ (0.09) $ 0.82 $ 0.94 $ 0.22 Earnings per Common Share—Diluted: Net (loss) income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ (0.09) $ 0.82 $ 0.94 $ 0.21 Weighted average number of common shares outstanding: Basic 103,691,657 103,698,332 103,798,853 105,550,157 103,691,657 104,024,472 104,133,553 105,902,098 Diluted Year Ended December 31, 2013 First Quarter Second Quarter Third Quarter Fourth Quarter Total revenues $ 194,073 $ 265,955 $ 272,434 $ 254,510 Total expenses 196,403 224,949 239,686 235,679 (2,330) 41,006 32,748 18,831 0 (5,065) (143) (4,107) (108) (4,106) (69) (4,107) Net (loss) income Net income attributable to noncontrolling interests Distributions to preferred shareholders Issuance costs of redeemed preferred shares 0 Net (loss) income attributable to common shareholders (1,566) 0 0 $ (7,395) $ 35,190 $ 28,534 $ 14,655 Earnings per Common Share—Basic: Net (loss) income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ (0.08) $ 0.37 $ 0.30 $ 0.14 Earnings per Common Share—Diluted: Net (loss) income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ (0.08) $ 0.37 $ 0.30 $ 0.14 Weighted average number of common shares outstanding: Basic 95,166,029 95,465,464 95,890,474 101,585,583 95,166,029 95,630,066 96,082,340 101,820,954 Diluted F-39 Table of Contents LASALLE HOTEL PROPERTIES Schedule III—Real Estate and Accumulated Depreciation As of December 31, 2014 (in thousands) Cost Capitalized Subsequent Initial Cost Encumbrances Land Gross Amounts at Which Carried at Close of Period to Acquisition (1) Building and Improvements Furniture, Fixtures and Equipment Building and Improvements Land Life on Which Depreciation in Statement of Operations is Computed Furniture, Fixtures and Equipment Building and Improvements Land Furniture, Fixtures and Equipment Accumulated Depreciation Net Book Value Date of Original Construction 20,318 1976 4/29/1998 3-40 years Date of Acquisition 1. Le Montrose Suite $ Hotel 0 2. San Diego Paradise Point Resort and Spa 0 0 69,639 3,665 154 37,256 30,435 154 106,895 34,100 83,193 57,956 1962 6/1/1998 3-40 years 3. Hyatt Boston Harbor 42,500 0 66,159 5,246 16 4,785 8,313 16 70,944 13,559 50,385 34,134 1993 6/24/1998 3-40 years 4. Topaz Hotel 0 2,137 8,549 0 12 4,307 6,254 2,149 12,856 6,254 11,115 10,144 1963 3/8/2001 3-40 years 5. Hotel Madera 0 1,682 6,726 0 15 5,311 6,283 1,697 12,037 6,283 9,685 10,332 1963 3/8/2001 3-40 years 6. Hotel Rouge 0 2,162 8,647 0 17 5,017 8,031 2,179 13,664 8,031 12,849 11,025 1963 3/8/2001 3-40 years 7. Hotel Helix 0 2,636 10,546 0 14 9,945 7,902 2,650 20,491 7,902 15,464 15,579 1962 3/8/2001 3-40 years 8. The Liaison Capitol Hill 0 8,353 33,412 2,742 19 15,007 21,045 8,372 48,419 23,787 40,940 39,638 1968 6/1/2001 3-40 years 9. Lansdowne Resort 0 27,421 74,835 3,114 33,147 27,399 25,195 60,568 102,234 28,309 69,004 122,107 1991 6/17/2003 3-40 years 10. Hotel George 0 1,743 22,221 531 0 805 8,211 1,743 23,026 8,742 12,851 20,660 1928 9/18/2003 3-40 years 11. Indianapolis Marriott Downtown 97,528 0 96,173 9,879 0 2,100 13,148 0 98,273 23,027 56,399 64,901 2001 2/10/2004 3-40 years 12. Chaminade Resort and Conference Center 0 5,240 13,111 299 24 9,023 9,386 5,264 22,134 9,685 17,230 19,853 1985 11/18/2004 3-40 years 13. Hilton San Diego Gaslamp Quarter 0 5,008 77,892 2,250 0 1,257 10,158 5,008 79,149 12,408 26,732 69,833 2000 1/6/2005 3-40 years 14. The Grafton on Sunset 0 1,882 23,226 431 11 1,038 7,703 1,893 24,264 8,134 9,353 24,938 1954 1/10/2005 3-40 years 15. Onyx Hotel 0 6,963 21,262 445 2,500 138 3,711 9,463 21,400 4,156 6,716 28,303 2004 5/18/2005 3-40 years 16. Westin Copley Place 210,000 0 295,809 28,223 0 19,267 39,055 0 315,076 67,278 132,078 250,276 1983 8/31/2005 3-40 years 17. Hotel Deca 0 4,938 21,720 577 0 826 5,648 4,938 22,546 6,225 9,557 24,152 1931 12/8/2005 3-40 years 18. The Hilton San Diego Resort and Spa 0 0 85,572 4,800 122 15,431 17,575 122 101,003 22,375 46,322 77,178 1962 12/15/2005 3-40 years 19. The Donovan 0 11,384 34,573 0 0 36,455 14,965 11,384 71,028 14,965 33,612 63,765 1972 12/16/2005 3-40 years 20. Le Parc Suite Hotel 0 13,971 31,742 2,741 3 2,300 8,994 13,974 34,042 11,735 16,242 43,509 1970 1/27/2006 3-40 years 21. Westin Michigan Avenue 133,347 38,158 154,181 24,112 17 14,303 17,301 38,175 168,484 41,413 77,367 170,705 1963/1972 3/1/2006 3-40 years 22. Hotel Chicago 0 9,403 104,148 889 155 25,947 21,138 9,558 130,095 22,027 50,544 111,136 1998 3/1/2006 3-40 years 23. Alexis Hotel 0 6,581 31,062 578 13 10,094 7,975 6,594 41,156 8,553 17,542 38,761 1901/1982 6/15/2006 3-40 years 24. Hotel Solamar 0 0 79,111 7,890 0 397 3,978 0 79,508 11,868 26,455 64,921 2005 8/1/2006 3-40 years 25. Gild Hall 0 6,732 45,016 984 2 3,139 9,822 6,734 48,155 10,806 20,934 44,761 1999 11/17/2006 3-40 years 26. Hotel Amarano Burbank 0 5,982 29,292 1,253 329 6,394 3,920 6,311 35,686 5,173 10,964 36,206 2002 12/19/2006 3-40 years 27. Sofitel Washington, DC Lafayette Square 0 11,082 80,342 2,619 0 150 6,866 11,082 80,492 9,485 14,491 86,568 2002 3/1/2010 3-40 years 28. Hotel Monaco San Francisco 0 11,435 53,186 3,736 0 0 4,981 11,435 53,186 8,717 10,898 62,440 1910/1995 9/1/2010 3-40 years 29. Westin Philadelphia 0 35,100 106,100 3,776 0 716 3,660 35,100 106,816 7,436 15,647 133,705 1990 9/1/2010 3-40 years 30. Embassy Suites Philadelphia Center City 0 13,600 62,900 2,504 0 1,810 4,513 13,600 64,710 7,017 11,510 73,817 1963/1993 9/1/2010 3-40 years 31. The Roger 60,215 0 95,079 3,509 0 (184) 11,615 0 94,895 15,124 20,632 89,387 1930/1998 10/6/2010 3-34 years 32. Chamberlain West Hollywood 0 6,470 29,085 2,895 0 104 2,784 6,470 29,189 5,679 6,229 35,109 1970/2005 12/6/2010 3-40 years 33. Viceroy Santa Monica 0 0 75,270 4,747 0 80 4,031 0 75,350 8,778 11,957 72,171 1967/2002 3/16/2011 3-40 years 34. Villa Florence 0 12,413 50,997 3,202 0 0 1,213 12,413 50,997 4,415 6,582 61,243 1908 10/5/2011 3-40 years 35/36 Park Central . Hotel/WestHouse Hotel New York $ 5,004 $ 19,752 $ 2,951 $ 0 $ 5,285 $ 12,625 $ 5,004 $ 25,037 $ 15,576 $ 25,299 $ 0 135,306 250,262 9,004 0 34,148 47,900 135,306 284,410 56,904 36,955 439,665 1928 12/29/2011 3-40 years 37. Hotel Palomar, Washington, DC 0 26,859 111,214 5,648 0 614 1,320 26,859 111,828 6,968 11,351 134,304 1962 3/8/2012 3-40 years 38. L’Auberge Del Mar 0 13,475 59,481 3,628 0 19 1,154 13,475 59,500 4,782 4,688 73,069 1989 12/6/2012 3-40 years 39. The Liberty Hotel 0 0 160,731 9,040 0 145 1,556 0 160,876 10,596 11,850 159,622 1851/2007 12/28/2012 3-40 years 40. Harbor Court Hotel 0 0 54,563 714 0 0 151 0 54,563 865 2,421 53,007 1926/1991 8/1/2013 3-35 years 41. Hotel Triton 0 0 37,253 1,379 0 18 243 0 37,271 1,622 1,936 36,957 1912/1991 8/1/2013 3-34.5 years 42. Serrano Hotel 0 20,475 48,501 2,500 0 (40) 456 20,475 48,461 2,956 2,790 69,102 1928/1999 8/21/2013 3-40 years 43. Southernmost Hotel Collection 0 101,517 79,795 3,105 0 141 1,221 101,517 79,936 4,326 3,686 182,093 1958-2008 8/27/2013 3-40 years 44. Hotel Vitale 0 0 125,150 4,766 0 0 70 0 125,150 4,836 3,063 126,923 2005 4/2/2014 3-40 years 45. The Heathman Hotel 0 10,280 50,001 4,002 0 0 0 10,280 50,001 4,002 0 64,283 1927 12/18/2014 3-40 years 543,590 $ 565,392 422,505 $ 601,962 1,065,518 $ 3,428,556 Total $ $ 2,994,286 $ 174,374 $ 36,570 $ 300,947 $ $ 3,295,233 $ 596,879 $ Costs of disposals, impairments and reclassifications to property under development are reflected as reductions to cost capitalized subsequent to acquisition. Reclassifications from property under development are reflected as increases to cost capitalized subsequent to acquisition. (1) F-40 Table of Contents LASALLE HOTEL PROPERTIES Schedule III—Real Estate and Accumulated Depreciation—Continued As of December 31, 2014 Reconciliation of Real Estate and Accumulated Depreciation: Reconciliation of Real Estate: Balance at December 31, 2011 $ 3,420,610 Acquisition of hotel properties 389,330 Improvements and additions to hotel properties 54,672 Reclassification from property under development 20,677 Balance at December 31, 2012 $ 3,885,289 Acquisition of hotel properties 349,802 Improvements and additions to hotel properties 108,034 Reclassification from property under development 16,317 (8,369) Disposal of assets Balance at December 31, 2013 $ 4,351,073 Acquisition of hotel properties 194,198 Improvements and additions to hotel properties 66,706 Reclassification from property under development 14,163 (130,846) (1,220) Disposal of hotels Disposal of assets Balance at December 31, 2014 $ 4,494,074 $ 708,436 Reconciliation of Accumulated Depreciation: Balance at December 31, 2011 Depreciation 123,809 Balance at December 31, 2012 $ 832,245 Depreciation 143,560 (7,920) Disposal of assets Balance at December 31, 2013 $ 967,885 Depreciation 154,585 (56,130) (822) Disposal of hotels Disposal of assets Balance at December 31, 2014 $ F-41 1,065,518 Exhibit 3.1 LASALLE HOTEL PROPERTIES ARTICLES OF AMENDMENT AND RESTATEMENT OF DECLARATION OF TRUST FIRST: LaSalle Hotel Properties, a Maryland real estate investment trust (the "Trust") under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland ("Title 8"), desires to amend and restate its Declaration of Trust as currently in effect (as so amended and restated, and as the same may be amended hereafter, the "Declaration of Trust"). SECOND: The following provisions are all the provisions of this Declaration of Trust currently in effect and as hereinafter amended: ARTICLE I FORMATION The Trust is a real estate investment trust within the meaning of Title 8. The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or, except as provided in Section 13.4 hereof, a corporation (but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Internal Revenue Code of 1986, as amended (the "Code")). ARTICLE II NAME The name of the Trust is: LaSalle Hotel Properties. So far as may be practicable, the business of the Trust shall be conducted and transacted under that name, which name (and the word "Trust" wherever used in this Declaration of Trust, except where the context otherwise requires) shall refer to the Trustees (as hereinafter defined) collectively but not individually or personally and shall not refer to the Shareholders (as hereinafter defined) or to any officers, employees or agents of the Trust or of such Trustees. Under circumstances in which the Board of Trustees of the Trust (the "Board of Trustees" or "Board") determines that the use of the name of the Trust is not practicable, the Trust may use any other designation or name for the Trust. ARTICLE III PURPOSES AND POWERS Section 3.1 Purposes. The purposes for which the Trust is formed are to invest in and to acquire, hold, finance, manage, administer, control and dispose of property, including, without limitation or obligation, engaging in business as a real estate investment trust under the Code. Section 3.2 Powers. The Trust shall have all of the powers granted to real estate investment trusts pursuant to Title 8 or any successor statute and shall have all other and further powers set forth in this Declaration of Trust which are not inconsistent with law and are appropriate to promote and attain the purposes set forth in this Declaration of Trust. Section 3.3 Investment Policy. The fundamental investment policy of the Trust is to make investments in such a manner as to comply with the provisions of the Code applicable to real estate investment trusts and with the requirements of Title 8, with respect to the composition of the Trust's investments and the derivation of its income. Subject to Section 5.2(u) hereof, the Trustees will use their best efforts to carry out this fundamental investment policy and to conduct the affairs of the Trust in such a manner as to continue to qualify the Trust for the tax treatment provided for real estate investment trusts in the Code; provided, however, no Trustee, officer, employee or agent of the Trust shall be liable for any act or omission resulting in the loss of tax benefits under the Code, except to the extent provided in Section 9.2 hereof. The Trustees may change from time to time by resolution or in the bylaws of the Trust (the "Bylaws"), such investment policies as they determine to be in the best interests of the Trust, including prohibitions or restrictions upon certain types of investments. ARTICLE IV RESIDENT AGENT The name of the resident agent of the Trust in the State of Maryland is The Corporation Trust Incorporated, 300 East Lombard Street, Suite 1400, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation. The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine. ARTICLE V BOARD OF TRUSTEES Section 5.1 Powers. Subject to any express limitations contained in this Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust. The Board may take any action as in its sole judgment and discretion is necessary or appropriate to conduct the business and affairs of the Trust. This Declaration of Trust shall be construed with a presumption in favor of the grant of power and authority to the Board. Any construction of this Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Trustees included in this Declaration of Trust or in the Bylaws shall in no way be limited or restricted by reference to or inference from the terms of this or any other provision of this Declaration of Trust or the Bylaws or construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland as now or hereafter in force or any other applicable laws. Section 5.2 Specific Powers and Authority. Subject only to the express limitations herein, and in addition to all other powers and authority conferred by this Declaration of Trust or by law, the Trustees, without any vote, action or consent by the Shareholders, shall have and may exercise, at any time or times, in the name of the Trust or on its behalf the following powers and authorities: (a) Investments. Subject to Section 9.4 hereof, to invest in, purchase or otherwise acquire and to hold real, personal or mixed, tangible or intangible, property of any kind wherever located, or rights or interests therein or in connection therewith, all without regard to whether such property, interests or rights are authorized by law for the investment of funds held by trustees or other fiduciaries, or whether obligations the Trust acquires have a term greater or lesser than the term of office of the Trustees or the possible termination of the Trust, for such consideration as the Trustees may deem proper (including cash, property of any kind or securities of the Trust); provided, however, that the Trustees shall take such actions as they deem necessary and desirable to comply with any requirements of Title 8 relating to the types of assets held by the Trust. (b) Sale, Disposition and Use of Property. Subject to Sections 3.3 and 9.4 and Article XI hereof: (i) to sell, rent, lease, hire, exchange, release, partition, assign, mortgage, grant security interests in, encumber, negotiate, dedicate, grant easements in and options with respect to, convey, transfer (including transfers to entities wholly or partially owned by the Trust or the Trustees) or otherwise dispose of any or all of the property of the Trust by deeds (including deeds in lieu of foreclosure with or without consideration), trust deeds, assignments, bills of sale, transfers, leases, mortgages, financing statements, security agreements and other instruments for any of such purposes executed and delivered for and on behalf of the Trust or the Trustees by one or more of the Trustees or by a duly authorized officer, employee, agent or nominee of the Trust, on such terms as they deem appropriate; (ii) to give consents and make contracts relating to the property of the Trust and its use or other property or matters; (iii) to develop, improve, manage, use, alter or otherwise deal with the property of the Trust; and (iv) to rent, lease or hire from others property of any kind; provided, however, that the Trust may not use or apply land for any purposes not permitted by applicable law. (c) Financings. To borrow or in any other manner raise money for the purposes and on the terms they determine, and to evidence the same by issuance of securities of the Trust, which may have such provisions as the Trustees determine; to reacquire such securities of the Trust; to enter into other contracts or obligations on behalf of the Trust; to guarantee, indemnify or act as surety with respect to payment or performance of obligations of any person; to mortgage, pledge, assign, grant security interests in or otherwise encumber the property of the Trust to secure any such securities of the Trust, contracts or obligations 2 (including guarantees, indemnifications and suretyships); and to renew, modify, release, compromise, extend, consolidate or cancel, in whole or in part, any obligation to or of the Trust or participate in any reorganization of obligors to the Trust. (d) Loans. Subject to the provisions of Section 9.4 hereof, to lend money or other property of the Trust on such terms, for such purposes and to such persons as they may determine. (e) Issuance of Securities. Subject to the provisions of Article VI hereof: (i) to create and authorize and direct the issuance (on either a pro rata or a non-pro rata basis) by the Trust, in Shares (as hereinafter defined), units or amounts of one or more types, series or classes, of securities of the Trust, which may have such voting rights, dividend or interest rates, preferences, subordinations, conversion or redemption prices or rights, maturity dates, distribution, exchange, or liquidation rights or other rights as the Trustees may determine, without vote of or other action by the Shareholders, to such persons for such consideration, at such time or times and in such manner and on such terms as the Trustees determine; (ii) to list or to designate for listing or quotation any of the securities of the Trust on any national securities exchange or automated inter-dealer quotation system; and (iii) to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any securities of the Trust. (f) Expenses and Taxes. To pay any charges, expenses or liabilities necessary or desirable, in the sole discretion of the Trustees, for carrying out the purposes of this Declaration of Trust and conducting the business of the Trust, including compensation or fees to Trustees, officers, employees and agents of the Trust, and to persons contracting with the Trust, and any taxes, levies, charges and assessments of any kind imposed upon or chargeable against the Trust, the property of the Trust or the Trustees in connection therewith; and to prepare and file any tax returns, reports or other documents and take any other appropriate action relating to the payment of any such charges, expenses or liabilities. (g) Collection and Enforcement. To collect, sue for and receive money or other property due to the Trust; to consent to extensions of the time for payment, or to the renewal, of any securities or obligations; to engage or to intervene in, prosecute, defend, compound, enforce, compromise, release, abandon or adjust any actions, suits, proceedings, disputes, claims, demands, security interests or things relating to the Trust, the property of the Trust or the Trust's affairs; to exercise any rights and enter into any agreements and take any other action necessary or desirable in connection with the foregoing. (h) Deposits. To deposit funds or securities constituting part of the property of the Trust in banks, trust companies, savings and loan associations, financial institutions and other depositories, whether or not such deposits will draw interest, subject to withdrawal on such terms and in such manner as the Trustees determine. (i) Allocation; Accounts. To determine whether moneys, profits or other assets of the Trust shall be charged or credited to, or allocated between, income and capital, including whether or not to amortize any premium or discount and to determine in what manner any expenses or disbursements are to be borne as between income and capital (regardless of how such items would normally or otherwise be charged to or allocated between income and capital without such determination); to treat any dividend or other distribution on any investment as, or apportion it between, income and capital; in their discretion to provide reserves for depreciation, amortization, obsolescence or other purposes in respect of any property of the Trust in such amounts and by such methods as they determine; to determine what constitutes net earnings, profits or surplus; to determine the method or form in which the accounts and records of the Trust shall be maintained; and to allocate to the Shareholders' equity account less than all of the consideration paid for Shares and to allocate the balance to paid-in capital or capital surplus. (j) Valuation of Property. To determine the value of all or any part of the property of the Trust and of any services, securities, property or other consideration to be furnished to or acquired by the Trust, and to revalue all or any part of the property of the Trust, all in accordance with such appraisals or other information as are reasonable, in their sole judgment. (k) Ownership and Voting Powers. To exercise all of the rights, powers, options and privileges pertaining to the ownership of any mortgages, securities, real estate and other property of the Trust to the same extent that an individual owner might, including, without limitation, to vote or give any consent, request or notice or waive any notice, either in person or by proxy or power of attorney, which proxies and powers of attorney may be for any general or special meetings or action, and may include the exercise of discretionary powers. (l) Officers; Delegation of Powers. To elect, appoint or employ such officers for the Trust and such committees of the Board of Trustees with such powers and duties as the Trustees may determine or the Bylaws provide; to engage, employ or contract with and pay compensation to any person (including, subject to Section 9.4 hereof, any Trustee and any person who is an affiliate of any Trustee) as agent, representative, advisor, member of an advisory board, employee or independent contractor (including advisers, consultants, transfer agents, registrars, underwriters, accountants, attorneys-at-law, real estate agents, property and other managers, appraisers, brokers, architects, engineers, construction managers, general contractors or otherwise) in one or more capacities, to perform such services on such terms as the Trustees may determine; and to delegate to 3 one or more Trustees, officers or other persons engaged or employed as aforesaid, or to committees of Trustees, the performance of acts or other things (including granting of consents), the making of decisions and the execution of such deeds, contracts or other instruments, in the name of the Trust or the Trustees, or as their attorneys or otherwise, as the Trustees may determine. (m) Associations. Subject to Section 9.4 hereof, to cause the Trust to enter into joint ventures, general or limited partnerships, participation or agency arrangements or any other lawful combinations, relationships or associations of any kind. (n) Reorganization; Merger, Consolidation or Sale of Trust Property. Subject to Article XI hereof: (i) to cause to be organized or assist in organizing any person under the laws of any jurisdiction to acquire all or any part of the property of the Trust, carry on any business in which the Trust shall have an interest or otherwise exercise the powers the Trustees deem necessary, useful or desirable to carry on the business of the Trust or to carry out the provisions of this Declaration of Trust; (ii) to merge or consolidate the Trust with any person; (iii) to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any part of the property of the Trust to or with any person in exchange for securities of such person or otherwise; and (iv) to lend money to, subscribe for and purchase the securities of, and enter into any contracts with, any person in which the Trust holds, or is about to acquire, securities or any other interests. (o) Insurance. To purchase and pay for out of property of the Trust insurance policies insuring the Trust and the property of the Trust against any and all risks, and insuring the Shareholders, Trustees, officers, employees and agents of the Trust individually against all claims and liabilities of every nature arising by reason of holding or having held any such status, office or position or by reason of any action alleged to have been taken or omitted (including those alleged to constitute misconduct, gross negligence, reckless disregard of duty or bad faith) by any such person in such capacity, whether or not the Trust would have the power to indemnify such person against such claim or liability. (p) Executive Compensation, Pension and Other Plans. To adopt and implement executive compensation, pension, profit sharing, share option, share bonus, share purchase, share appreciation rights, restricted share, savings, thrift, retirement, incentive or benefit plans, trusts or provisions, applicable to any or all Trustees, officers, employees or agents of the Trust, or to other persons who have benefited the Trust, all on such terms and for such purposes as the Trustees may determine. (q) Distributions. To declare and pay dividends or other distributions to Shareholders, subject to the provisions of Section 6.5 hereof. (r) Indemnification. In addition to the indemnification provided for in Section 9.3 hereof, to indemnify any person, including any independent contractor, with whom the Trust has dealings. (s) Charitable Contributions. To make donations for the public welfare or for community, charitable, religious, educational, scientific, civic or similar purposes, regardless of any direct benefit to the Trust. (t) Advisory Services. To engage or terminate any advisor to perform or assist in the performance of any of the activities of the Trust. (u) Discontinue Operations; Bankruptcy. To discontinue the operations of the Trust (subject to Section 12.2 hereof); to petition or apply for relief under any provision of federal or state bankruptcy, insolvency or reorganization laws or similar laws for the relief of debtors; to permit any property of the Trust to be foreclosed upon without raising any legal or equitable defenses that may be available to the Trust or the Trustees or otherwise defending or responding to such foreclosure; to confess judgment against the Trust; or to take such other action with respect to indebtedness or other obligations of the Trustees, in such capacity, the property of the Trust or the Trust as the Trustees in their discretion may determine. (v) Termination of Status. To terminate the status of the Trust as a real estate investment trust under the Code; provided, however, that the Board of Trustees shall take no action to terminate the Trust's status as a real estate investment trust under the Code until such time as (i) the Board of Trustees adopts a resolution recommending that the Trust terminate its status as a real estate investment trust under the Code, (ii) the Board of Trustees presents the resolution at an annual or special meeting of the Shareholders and (iii) such resolution is approved by the holders of a majority of the issued and outstanding Common Shares (as hereinafter defined). (w) Fiscal Year. Subject to the Code, to adopt, and from time to time change, a fiscal year for the Trust. (x) Seal. To adopt and use a seal, but the use of a seal shall not be required for the execution of instruments or obligations of the Trust. 4 (y) Bylaws. To adopt, implement and from time to time alter, amend or repeal Bylaws relating to the business and organization of the Trust which are not inconsistent with the provisions of this Declaration of Trust. (z) Accounts and Books. To determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Trust, or any of them, shall be open to the inspection of Shareholders. (aa) Voting Trust. To participate in, and accept securities issued under or subject to, any voting trust. (ab) Proxies. To solicit proxies of the Shareholders at the expense of the Trust. (bb) Ownership Limits. To determine that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a real estate investment trust under the Code or that compliance with any restriction or limitations on ownership and transfers of Shares set forth in Article VII hereof is no longer required for the Trust to qualify as a real estate investment trust under the Code. (cc) Further Powers. To do all other acts and things and execute and deliver all instruments incident to the foregoing powers, and to exercise all powers which they deem necessary, useful or desirable to carry on the business of the Trust or to carry out the provisions of this Declaration of Trust, even if such powers are not specifically provided hereby. Section 5.3 Determination of Best Interest of Trust. In determining what is in the best interest of the Trust, a Trustee shall consider the interests of the Shareholders of the Trust and, in his sole and absolute discretion, may consider (a) the interests of the Trust's employees, suppliers, creditors and customers, (b) the economy of the nation, (c) community and societal interests and (d) the long-term as well as short-term interests of the Trust and its Shareholders, including the possibility that these interests may be best served by the continued independence of the Trust. Section 5.4 Number and Classification. The number of Trustees (the "Trustees") shall initially be two (2), which number (i) shall automatically be increased to seven (7) effective immediately following the closing of the Trust's initial public offering and (ii) may be thereafter increased or decreased from time to time in accordance with the Bylaws of the Trust; provided, however, that, effective immediately following the closing of the Trust's initial public offering, the total number of Trustees shall not be fewer than three (3) and not more than nine (9). Notwithstanding the foregoing, if for any reason any or all of the Trustees cease to be Trustees, such event shall not terminate the Trust or affect this Declaration of Trust or the powers of any remaining Trustees. The names and addresses of the initial two (2) Trustees are: Name Address Stuart L. Scott 200 East Randolph Drive Chicago, Illinois 60601 Jon E. Bortz 220 East 42nd Street York, New Yorkoffering, 10017 the number of Trustees shall automatically be Effective immediately following the closing of theNew Trust's initial public increased to seven (7), whereupon the Trustees, including the initial Trustees, shall be divided into three classes as nearly equal in number as possible and initially consisting of two, two and three members, respectively, with the term of office of one class expiring each year. One class of Trustees, consisting initially of two member, shall hold office initially for a term expiring at the annual meeting of Shareholders in 1999; another class, consisting initially of two members, shall hold office initially for a term expiring at the annual meeting of Shareholders in 2000; and the third class, consisting initially of three members, shall hold office initially for a term expiring at the annual meeting of Shareholders in 2001. The Board of Trustees, by resolution, shall designate the Trustees who will serve in each class. The Trustees may fill any vacancy, whether resulting from an increase in the number of Trustees or otherwise, on the Board of Trustees. Beginning with the annual meeting of Shareholders in 1999 and at each succeeding annual meeting of Shareholders, the successor or successors to the class of Trustees whose term expires at such meeting shall be elected to hold office for a term expiring at the third succeeding annual meeting of Shareholders. Trustees shall hold office until their 5 successors are duly elected and qualify. Election of Trustees by Shareholders shall require the vote and be in accordance with the procedures set forth in the Bylaws. It shall not be necessary to list in this Declaration of Trust the names and addresses of any Trustees hereafter elected. Section 5.5 Resignation, Removal or Death. Any Trustee may resign by written notice to the Board, effective upon execution and delivery to the Trust of such written notice or upon any future date specified in the notice. Subject to the rights of holders of one or more classes or series of Preferred Shares, as hereinafter defined, to elect one or more Trustees, a Trustee may be removed at any time, only with cause, at a meeting of the Shareholders, by the affirmative vote of the holders of a majority of the Shares then outstanding and entitled to vote for the election of Trustees. Upon the resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall automatically cease to have any right, title or interest in and to the property of the Trust and shall execute and deliver such documents as the remaining Trustees require for the conveyance of any property of the Trust held in his name, and shall account to the remaining Trustees as they require for all property which he holds as Trustee. Upon the incapacity or death of any Trustee, his legal representative shall perform the acts described in the foregoing sentence. Section 5.6 Title to Property of the Trust. Legal title to all property of the Trust shall be vested in the Trustees, but they may cause legal title to any property of the Trust to be held by or in the name of any Trustee, or the Trust, or any other person as nominee. The right, title and interest of the Trustees in and to the property of the Trust shall automatically vest in successor and additional Trustees upon their qualification and acceptance of election or appointment as Trustees, and they shall thereupon have all the rights and obligations of Trustees, whether or not conveyancing documents have been executed and delivered pursuant to Section 5.5 hereof or otherwise. Written evidence of the qualification and acceptance of election or appointment of successor and additional Trustees may be filed with the records of the Trust and in such other offices, agencies or places as the Trustees may deem necessary or desirable. ARTICLE VI SHARES OF BENEFICIAL INTEREST Section 6.1 Authorized Shares. The Trust shall have the authority to issue a total of 120 million shares of beneficial interest ("Shares"), of which 100 million shall be common shares of beneficial interest, $.01 par value per share ("Common Shares"), and 20 million shall be preferred shares of beneficial interest, $.01 par value per share ("Preferred Shares"). The Board of Trustees, with the approval of the holders of record of outstanding Shares (the "Shareholders") by a majority of the votes entitled to be cast at a meeting of Shareholders duly called and at which a quorum is present, may amend this Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue. Section 6.2 Common Shares. Subject to the provisions of Article VII, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote, and all Common Shares shall have equal dividend, distribution, liquidation and other rights, and shall have no preference, cumulative, preemptive, appraisal, conversion or exchange rights. Section 6.3 Preferred Shares. The Board of Trustees may classify any unissued Preferred Shares, and may reclassify any previously classified but unissued Preferred Shares of any series from time to time, in one or more series of Preferred Shares. Prior to issuance of classified or reclassified Preferred Shares of any series, the Board of Trustees by resolution shall (a) designate that series to distinguish it from all other series of Preferred Shares; (b) specify the number of Preferred Shares to be included in the series; (c) set, subject to the provisions of Article VII and subject to the express terms of any series of Preferred Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each series; and (d) cause the Trust to file Articles Supplementary with the State Department of Assessments and Taxation of Maryland (the "SDAT"). Any of the terms of any series of Preferred Shares set pursuant to clause (c) of this Section 6.3 may be made dependent upon facts ascertainable outside this Declaration of Trust (including, without limitation, the occurrence of any event or a determination or action by the Trust or any other person or body) and may vary among holders thereof, provided that the manner in which such facts or variations shall operate upon the terms of such series of Shares is clearly and expressly set forth in the Articles Supplementary filed with the SDAT. Section 6.4 Authorization by Board of Share Issuance. The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, 6 obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a Share split or Share dividend), subject to such restrictions or limitations, if any, as may be set forth in this Declaration of Trust or the Bylaws. Section 6.5 Dividends and Distributions. The Board of Trustees may from time to time authorize, declare and pay to Shareholders such dividends or distributions, in cash, property or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine. The Board of Trustees shall endeavor to declare and pay such dividends and distributions as shall be necessary for the Trust to qualify as a real estate investment trust under the Code; provided, however, that Shareholders shall have no right to any dividend or distribution unless and until authorized and declared by the Board. The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.5 shall be subject to the provisions of any class or series of Shares at the time outstanding. The receipt by any person in whose name any Shares are registered on the records of the Trust or by his duly authorized agent shall be a sufficient discharge for all dividends or distributions payable or deliverable in respect of such Shares and from all liability to see to the application thereof. Unless the status of the Trust as a real estate investment trust under the Code has been terminated pursuant to Section 5.2(u) hereof, no determination shall be made by the Board of Trustees nor shall any transaction be entered into by the Trust which would cause any Shares or other beneficial interest in the Trust not to constitute "transferable shares" or "transferable certificates of beneficial interest" under Section 856(a)(2) of the Code or which would cause any distribution to constitute a preferential dividend as described in Section 562(c) of the Code. Section 6.6 General Nature of Shares. All Shares shall be personal property entitling the Shareholders only to those rights provided in this Declaration of Trust. The Shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust. The death of a Shareholder shall not terminate the Trust or give his legal representative any rights against other Shareholders, the Trustees or the property of the Trust, except the right, exercised in accordance with applicable provisions of the Bylaws, to receive a new certificate for Shares in exchange for the certificate held by the deceased Shareholder. The Trust is entitled to treat as Shareholders only those persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust. Section 6.7 Fractional Shares. The Trust may, without the consent or approval of any Shareholders, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it, or pay cash for the fair value of a fraction of a Share. Section 6.8 Declaration and Bylaws. All Shareholders are subject to the provisions of this Declaration of Trust and the Bylaws. ARTICLE VII RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES Section 7.1 Definitions. For the purpose of this Article VII, the following terms shall have the following meanings: Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially Own," "Beneficially Owns," "Beneficially Owning" and "Beneficially Owned" shall have the correlative meanings. Benefit Plan Investor. The term "Benefit Plan Investor" shall have the meaning provided in 29 C.F.R. ss. 2510.3-101(f)(2), or any successor regulation thereto. Business Day. The term "Business Day" shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 7.3.7, provided that each such organization must be described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and 170(c)(2) of the Code. 7 Charitable Trust. The term "Charitable Trust" shall mean any trust provided for in Section 7.2.1(b)(i) and Section 7.3.1. Charitable Trustee. The term "Charitable Trustee" shall mean the Person unaffiliated with the Trust and a Prohibited Owner, that is appointed by the Trust to serve as trustee of the Charitable Trust. Closing Price. The "Closing Price" on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such Shares are not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Shares are listed or admitted to trading or, if such Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASDAQ Stock Market or, if such system is no longer in use, the principal other automated inter-dealer quotation system that may then be in use or, if such Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Shares selected by the Board of Trustees or, in the event that no trading price is available for such Shares, the fair market value of Shares, as determined in good faith by the Board of Trustees. Constructive Ownership. The term "Constructive Ownership" shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Own," "Constructively Owns," "Constructively Owning" and "Constructively Owned" shall have the correlative meanings. Effective Date. The term "Effective Date" shall mean the date of the closing of the initial public offering of Common Shares. ERISA Investor. The term "ERISA Investor" shall mean any holder of Shares that is (i) an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) a plan as defined in Section 4975(e) of the Code (any such employee benefit plan or plan described in clause (i) or this clause (ii) being referred to herein as a "Plan"), (iii) a trust which was established pursuant to a Plan, or a nominee for such trust or Plan, or (iv) an entity whose underlying assets include assets of a Plan by reason of such Plan's investment in such entity. Initial Date. The term "Initial Date" shall mean January 15, 1998. Initial Shareholder. The term Initial Shareholder shall mean . Market Price. The term "Market Price" on any date shall mean, with respect to any class or series of outstanding Shares, the Closing Price for such Shares on such date. NYSE. The term "NYSE" shall mean the New York Stock Exchange, Inc. Ownership Limit. The term "Ownership Limit" shall mean (i) with respect to the Common Shares, 9.8% (in value or number of Shares, whichever is more restrictive) of the outstanding Common Shares of the Trust; and (ii) with respect to any class or series of Preferred Shares, 9.8% (in value or number of Shares, whichever is more restrictive) of the outstanding Shares of such class or series of Preferred Shares of the Trust. Person. The term "Person" shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. Prohibited Owner. The term "Prohibited Owner" shall mean, with respect to any purported Transfer, any Person who, but for the provisions of Section 7.2.1, would Beneficially Own or Constructively Own Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of Shares that the Prohibited Owner would have so owned. 8 Publicly Offered Securities. The term "Publicly Offered Securities" shall have the meaning provided in 29 C.F.R. ss. 2510.3-101(b)(2), or any successor regulation thereto. REIT. The term "REIT" shall mean a real estate investment trust within the meaning of Section 856 of the Code. Restriction Termination Date. The term "Restriction Termination Date" shall mean the first day after the Initial Date on which the Board of Trustees determines that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of Shares set forth herein is no longer required in order for the Trust to qualify as a REIT. Transfer. The term "Transfer" shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Shares or the right to vote or receive dividends on Shares, including (a) a change in the capital structure of the Trust, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 544 of the Code, as modified by Section 856(h), (c) the granting or exercise of any option or warrant (or any disposition of any option or warrant), pledge, security interest, or similar right to acquire Shares, (d) any disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right and (e) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. (For purposes of this Article VII, the right of a limited partner in LaSalle Hotel Operating Partnership, L.P., a Delaware limited partnership, to require the partnership to redeem such limited partner's units of partnership interest pursuant to Section 8.6 of the Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P. shall not be considered to be an option or similar right to acquire Shares of the Trust.) The terms "Transferring" and "Transferred" shall have the correlative meanings. Section 7.2 Restrictions on Ownership and Transfer of Shares. Section 7.2.1 Ownership Limitations. From the Initial Date and prior to the Restriction Termination Date: (a) Basic Restrictions. (i) (1) No Person, other than the Initial Shareholder, shall Beneficially Own or Constructively Own Shares in excess of the Ownership Limit and (2) the Initial Shareholder shall not Beneficially Own or Constructively Own Shares in excess of the Ownership Limit on any date after the Effective Date. (ii) No Person shall Beneficially Own or Constructively Own Shares to the extent that (1) such Beneficial Ownership of Shares would result in the Trust being "closely held" within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or (2) such Beneficial Ownership or Constructive Ownership of Shares would result in the Trust otherwise failing to qualify as a REIT (including, but not limited to, ownership that would result in the Trust actually owning or Constructively Owning an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code). (iii) No Person shall Transfer any Shares if, as a result of the Transfer, the Shares would be Beneficially Owned by less than 100 Persons (determined without reference to the rules of attribution under Section 544 of the Code). Notwithstanding any other provisions contained herein (but subject to Section 7.5), any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) that, if effective, would result in Shares being Beneficially Owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares. (b) Transfer in Trust. If any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 7.2.1(a)(i) or (ii), then: (i) that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 7.2.1(a)(i) or (ii) (rounded to the nearest whole share) shall be automatically transferred to a 9 Charitable Trust for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such Shares; or (ii) subject to Section 7.5, if the transfer to the Charitable Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that number of Shares that otherwise would cause any Person to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares. Section 7.2.2 Remedies for Breach. Subject to Section 7.5, if the Board of Trustees or any duly authorized committee thereof shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 7.2.1 or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 7.2.1 (whether or not such violation is intended), the Board of Trustees or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfer or attempted Transfer or other event in violation of Section 7.2.1 shall automatically result in the transfer to the Charitable Trust described above, and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Trustees or a committee thereof. Section 7.2.3 Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 7.2.1(a), or any Person who would have owned Shares that resulted in a transfer to the Charitable Trust pursuant to the provisions of Section 7.2.1(b), shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such acquisition or ownership on the Trust's status as a REIT. Section 7.2.4 Owners Required To Provide Information. From the Initial Date and prior to the Restriction Termination Date: (a) every owner of more than five percent (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the outstanding Shares, within 30 days after the end of each taxable year, shall give written notice to the Trust stating the name and address of such owner, the number of Shares Beneficially Owned and a description of the manner in which such Shares are held; provided that a Shareholder of record who holds outstanding Shares as nominee for another Person, which other Person is required to include in gross income the dividends received on such Shares (an "Actual Owner"), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the Shareholder of record is nominee. Each owner shall provide to the Trust such additional information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership on the Trust's status as a REIT and to ensure compliance with the Ownership Limit. (b) each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the Shareholders of record) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust's status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance. Section 7.2.5 Remedies Not Limited. Subject to Section 5.2(u) and Section 7.5, nothing contained in this Section 7.2 shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Trust and the interests of its Shareholders in preserving the Trust's status as a REIT. Section 7.2.6 Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 7.2, Section 7.3 or any definition contained in Section 7.1, the Board of Trustees shall have the power to determine the application of the provisions of this Section 7.2 or Section 7.3 with respect to any situation based on the facts known to it. If this Section 7.2 or Section 7.3 requires an action by the Board of Trustees and this Declaration of Trust fails to provide specific guidance with respect to such action, the Board of Trustees shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of this Section 7.2 or Sections 7.1 or 7.3. Section 7.2.7 Exceptions. (a) The Board, in its sole and absolute discretion, may grant to any Person who makes a request therefor an exception to the Ownership Limit or the Excluded Holder Limit with respect to the ownership of any series or class of Preferred Shares, 10 subject to the following conditions and limitations: (A) the Board shall have determined that (x) assuming such Person would Beneficially Own or Constructively Own the maximum amount of Common Shares and Preferred Shares permitted as a result of the exception to be granted and (y) assuming that all other Persons who would be treated as "individuals" for purposes of Section 542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of the Code) would Beneficially Own or Constructively Own the maximum amount of Common Shares and Preferred Shares permitted under this Article VII (taking into account any exception, waiver, or exemption granted under this Section 7.2.7 to (or with respect to) such Persons), the Trust would not be "closely held" within the meaning of Section 856(h) of the Code (assuming that the ownership of Shares is determined during the second half of a taxable year) and would not otherwise fail to qualify as a REIT; and (B) such Person provides to the Board such representations and undertakings, if any, as the Board may, in its sole and absolute discretion, determine to be necessary in order for it to make the determination that the conditions set forth in clause (A) above of this Section 7.2.7(a) have been or will continue to be satisfied (including, without limitation, an agreement as to a reduced Ownership Limit, for such Person with respect to the Beneficial Ownership or Constructive Ownership of one or more other classes of Shares not subject to the exception), and such Person agrees that any violation of such representations and undertakings or any attempted violation thereof will result in the application of the remedies set forth in Section 7.2 with respect to Shares held in excess of the Ownership Limit (as may be applicable) with respect to such Person (determined without regard to the exception granted such Person under this subparagraph (a)). If a member of the Board requests that the Board grant an exception pursuant to this subparagraph (a) with respect to such member or with respect to any other Person if such Board member would be considered to be the Beneficial Owner or Constructive Owner of Shares owned by such Person, such member of the Board shall not participate in the decision of the Board as to whether to grant any such exception. (b) In addition to exceptions permitted under subparagraph (a) above, the Board in its sole and absolute discretion, may grant to any Person who makes a request therefor an exception from the Ownership Limit if: (i) such Person submits to the Board information satisfactory to the Board, in its reasonable discretion, demonstrating that such Person is not an individual for purposes of Section 542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of the Code) and (ii) such Person provides to the Board such representations and undertakings, if any, as the Board may, in its reasonable discretion, require to ensure that the conditions in clause (i) hereof is satisfied and will continue to be satisfied throughout the period during which such Person owns Shares in excess of the Ownership Limit pursuant to any exception thereto granted under this subparagraph (b), and such Person agrees that any violation of such representations and undertakings or any attempted violation thereof will result in the application of the remedies set forth in Section 7.2 with respect to Shares held in excess of the Ownership Limit with respect to such Person (determined without regard to the exception granted such Person under this subparagraph (b)). (c) Prior to granting any exception or exemption pursuant to subparagraph (a) or (b), the Board must receive a ruling from the Internal Revenue Service or advice of counsel, in either case in form and substance satisfactory to the Board, in its sole and absolute discretion, as it may deem necessary or advisable in order to determine or ensure the Trust's status as a REIT. (d) Subject to Section 7.2.1(a)(ii), an underwriter that participates in a public offering or a private placement of Shares (or securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement; and, provided, that the ownership of Shares by such underwriter would not result in the Trust being "closely held" within the meaning of Section 856(h) of the Code, or otherwise result in the Trust's failing to qualify as a REIT. Section 7.2.8 Increase in Ownership Limit. The Board of Trustees may from time to time increase the Ownership Limit, subject to the limitations provided in this Section 7.2.8. (a) The Ownership Limit may not be increased if, after giving effect to such increase, five Persons who are considered individuals pursuant to Section 542 of the Code, as modified by Section 856(h)(3) of the Code, could Beneficially Own, in the aggregate, more than 49.5% of the value of the outstanding Shares. (b) Prior to the modification of the Ownership Limit pursuant to this Section 7.2.8, the Board may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure the Trust's status as a REIT if the modification in the Ownership Limit were to be made. Section 7.2.9 Legend. Each certificate for Shares shall bear substantially the following legend: The Shares represented by this certificate are subject to restrictions on Beneficial and Constructive Ownership and Transfer for the purpose of the Trust's maintenance of its status as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Subject to certain further restrictions and except as 11 expressly provided in the Trust's Declaration of Trust, (i) no Person may Beneficially Own or Constructively Own Common Shares of the Trust in excess of 9.8 percent (in value or number of Shares) of the outstanding Common Shares of the Trust; (ii) with respect to any class or series of Preferred Shares, no Person may Beneficially Own or Constructively Own more than 9.8 percent (in value or number of Shares) of the outstanding Shares of such class or series of Preferred Shares of the Trust; (iii) no Person may Beneficially Own or Constructively Own Shares that would result in the Trust being "closely held" under Section 856(h) of the Code or otherwise cause the Trust to fail to qualify as a REIT; and (iv) no Person may Transfer Shares if such Transfer would result in Shares of the Trust being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own Shares which cause or will cause a Person to Beneficially Own or Constructively Own Shares in excess or in violation of the above limitations must immediately notify the Trust. If any of the restrictions on transfer or ownership are violated, the Shares represented hereby will be automatically transferred to a Charitable Trustee of a Charitable Trust for the benefit of one or more Charitable Beneficiaries. In addition, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab initio. A Person who attempts to Beneficially Own or Constructively Own Shares in violation of the ownership limitations described above shall have no claim, cause of action, or any recourse whatsoever against a transferor of such Shares. Unless otherwise defined herein, all capitalized terms in this legend have the meanings defined in the Trust's Declaration of Trust, as the same may be amended from time to time, a copy of which, including the restrictions on transfer and ownership, will be furnished to each holder of Shares of the Trust on request and without charge. Instead of the foregoing legend, the certificate may state that the Trust will furnish a full statement about certain restrictions on transferability to a Shareholder on request and without charge. Section 7.3 Transfer of Shares in Trust. Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other event described in Section 7.2.1(b) that would result in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Charitable Trust pursuant to Section 7.2.1(b). The Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3.7. Section 7.3.2 Status of Shares Held by the Charitable Trustee. Shares held by the Charitable Trustee shall be issued and outstanding Shares of the Company. The Prohibited Owner shall have no rights in the Shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any Shares held in trust by the Charitable Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust. The Prohibited Owner shall have no claim, cause of action, or any other recourse whatsoever against the purported transferor of such Shares. Section 7.3.3 Dividend and Voting Rights. The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee shall be paid by the recipient thereof with respect to such Shares to the Charitable Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividends or distributions so paid over to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to Shares held in the Charitable Trust and, subject to Maryland law, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible action, then the Charitable Trustee shall not have the power to rescind and recast such vote. Notwithstanding the provisions of this Article VII, until the Trust has received notification that Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other Shareholder records for purposes of preparing lists of Shareholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of Shareholders. Section 7.3.4 Rights Upon Liquidation. Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Trust, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Trust available for 12 distribution to the holders of such class or series (determined based upon the ratio that the number of Shares or such class or series of Shares held by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding). The Charitable Trustee shall distribute any such assets received in respect of the Shares held in the Charitable Trust in any liquidation, dissolution or winding up of, or distribution of the assets of the Trust, in accordance with Section 7.3.5. Section 7.3.5 Sale of Shares by Charitable Trustee. Within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the Shares held in the Charitable Trust to a person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3.5. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust and (2) the price per share received by the Charitable Trustee from the sale or other disposition of the Shares held in the Charitable Trust. Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i) such Shares shall be deemed to have been sold on behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3.5, such excess shall be paid to the Charitable Trustee upon demand. Section 7.3.6 Purchase Right in Shares Transferred to the Charitable Trustee. Shares transferred to the Charitable Trustee shall be deemed to have been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Charitable Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer until the Charitable Trustee has sold the Shares held in the Charitable Trust pursuant to Section 7.3.5. Upon such a sale to the Trust, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner. Section 7.3.7 Designation of Charitable Beneficiaries. By written notice to the Charitable Trustee, the Trust shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that (i) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 7.2.1(a) in the hands of such Charitable Beneficiary and (ii) each such organization must be described in Sections 501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code. Section 7.4 Restrictions on Ownership and Transfer of Shares by Benefit Plans. Section 7.4.1 Ownership Limitations. Notwithstanding any other provisions herein, if and to the extent that any Shares do not constitute Publicly Offered Securities, then Benefit Plan Investors may not, on any date, hold, individually or in the aggregate, 25 percent or more of the value of such class of Shares. For purposes of determining whether Benefit Plan Investors hold, individually or in the aggregate, 25 percent or more of the value of such class of Shares, the value of Shares of such class held by any Trustee or officer of the Trust, or any other Person who has discretionary authority or control with respect to the assets of the Trust, or any Person who provides investment advice for a fee to the Trust in connection with its assets, shall be disregarded. Section 7.4.2 Remedies for Violations by Benefit Plan Investors. If the Board of Trustees or any duly authorized committee thereof shall at any time determine in good faith that (i) a Transfer or other event has taken place that results in a violation of Section 7.4.1 or will otherwise result in the underlying assets and property of the Trust becoming assets of any ERISA Investor or (ii) that a Person intends to acquire or has attempted to acquire or hold Shares in a manner that will result in a violation of Section 7.4.1 or will otherwise result in the underlying assets and property of the Trust becoming assets of any ERISA Investor, the Board of Trustees or a committee thereof shall take such action as it deems advisable to mitigate, prevent or cure the consequences that might result to the Trust from such Transfer or other event, including without limitation, refusing to give effect to or preventing such Transfer or event through redemption of such Shares or refusal to give effect to the Transfer or event on the books of the Trust, or instituting proceedings to enjoin such Transfer or other event. Section 7.4.3 Information on Benefit Plan Status. Any Person who acquires or attempts or intends to acquire or hold Shares shall provide to the Trust such information as the Trust may request in order to determine whether such acquisition or holding has or will result in a violation of Section 7.4.1 or otherwise result in the underlying assets and property of the Trust 13 becoming assets of any ERISA Investor, including the name and address of any Person for whom a nominee holds Shares and whether the underlying assets of such Person include assets of any Benefit Plan Investor. Section 7.5 NYSE Transactions. Nothing in this Article VII shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system; provided, that the fact that the settlement of any transaction takes place shall not negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII. Section 7.6 Enforcement. The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VII. Section 7.7 Non-Waiver. No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing. ARTICLE VIII SHAREHOLDERS Section 8.1 Meetings. There shall be an annual meeting of the Shareholders, to be held on proper notice at such time (after the delivery of the annual report as provided in the Bylaws) and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust. Except as otherwise provided in this Declaration of Trust, special meetings of Shareholders may be called in the manner provided in the Bylaws. If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the Shareholders entitled to vote for the election of successor Trustees. Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws. Section 8.2 Voting Rights. Subject to the provisions of any class or series of Shares then outstanding, the Shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.4 and the removal of Trustees as provided in Section 5.5; (b) amendment of this Declaration of Trust as provided in Article X; (c) termination of the Trust as provided in Section 12.2; (d) reorganization, merger or consolidation of the Trust, or the sale or disposition of substantially all of the property of the Trust, as provided in Article XI; (e) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the Shareholders for approval or ratification (including, without limitation, a resolution recommending the termination of the Trust's status as a real estate investment trust under the Code pursuant to Section 5.2(u) hereof); and (f) such other matters as may be properly brought before a meeting by a Shareholder pursuant to the Bylaws. Except with respect to the foregoing matters, no action taken by the Shareholders at any meeting shall in any way bind the Board of Trustees. Section 8.3 Preemptive and Appraisal Rights. Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Preferred Shares pursuant to Section 6.3, no holder of Shares shall, as such holder, (a) have any preemptive right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust which it may issue or sell or (b) except as expressly required by Title 8, have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding. Section 8.4 Extraordinary Actions. Except as otherwise specifically provided in this Declaration of Trust (including without limitation, in those provisions relating to election and removal of Trustees and changes in the number of authorized Shares), notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if taken or authorized by the affirmative vote of not less than [sixty-six and two-thirds percent (66 2/3%)] of all the votes entitled to be cast on the matter. Section 8.5 Action By Shareholders without a Meeting. Subject to Title 8 and any other applicable provisions of law, the Bylaws may provide that any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting by the written consent of all Shareholders entitled to vote on such matter; provided, that all Shareholders entitled to notice of any such meeting but not entitled to vote on such matter shall have made a written waiver of any right to dissent to such action taken without a meeting. 14 ARTICLE IX LIABILITY LIMITATION, INDEMNIFICATION AND TRANSACTIONS WITH THE TRUST Section 9.1 Limitation of Shareholders' Liability. No Shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his being a Shareholder, nor shall any Shareholders be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the property or the affairs of the Trust by reason of his being a Shareholder. Section 9.2 Limitation of Trustee and Officer Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no Trustee or officer of the Trust shall be liable to the Trust or to any Shareholders for money damages. Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of this Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any Shareholders, no Trustee or officer of the Trust shall be liable to the Trust or to any Shareholders for money damages except to the extent that (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee's or officer's action or failure to act was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty. Section 9.3 Indemnification. The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former Shareholder, Trustee or officer of the Trust or (b) any individual who, while a Trustee of the Trust and at the request of the Trust, serves or has served as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former Shareholder, Trustee or officer of the Trust. The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any employee or agent of the Trust or a predecessor of the Trust. Section 9.4 Transactions Between the Trust and its Trustees, Officers, Employees and Agents. Subject to any express restrictions in this Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction. Section 9.5 Express Exculpatory Clauses in Instruments. The Board of Trustees shall cause to be inserted in every written agreement, undertaking or obligation made or issued on behalf of the Trust, an appropriate provision to the effect that neither the Shareholders nor the Trustees, officers, employees or agents of the Trust shall be liable under any written instrument creating an obligation of the Trust, and all persons shall look solely to the property of the Trust for the payment of any claim under or for the performance of that instrument. The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such instrument and shall not render any Shareholder, Trustee, officer, employee or agent liable thereunder to any third party nor shall the Trustees or any officer, employee or agent of the Trust be liable to anyone for such omission. ARTICLE X AMENDMENTS Section 10.1 General. The Trust reserves the right from time to time to make any amendment to this Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in this Declaration of Trust, of any Shares. All rights and powers conferred by this Declaration of Trust on Shareholders, Trustees and officers are granted subject to this reservation. Articles of Amendment to this Declaration of Trust (a) shall be signed and acknowledged by at least a majority of the Trustees, or an officer duly authorized by at least a majority of the 15 Trustees, (b) shall be filed for record as provided in Section 13.5 and (c) shall become effective as of the later of the time the SDAT accepts the Articles of Amendment for record or the time established in the Articles of Amendment, not to exceed 30 days after the Articles of Amendment are accepted for record. All references to this Declaration of Trust shall include all amendments thereto. Section 10.2 By Trustees. The Trustees may amend this Declaration of Trust from time to time, in the manner provided by Title 8, without any action by the Shareholders, to qualify as a real estate investment trust under the Code or under Title 8. Section 10.3 By Shareholders. Except as otherwise provided in this Declaration of Trust, any amendment to this Declaration of Trust shall be valid only if proposed in a resolution adopted by the Board of Trustees, which resolution shall set forth the proposed amendment and declare that it is advisable, and approved at an annual or special meeting of Shareholders by the affirmative vote of not less than two-thirds of all the votes entitled to be cast on the matter. ARTICLE XI REORGANIZATION; MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY Section 11.1 Reorganization. Subject to the provisions of any class or series of Shares at the time outstanding, the Trustees shall have the power (i) to cause the organization of a corporation, association, trust or other organization to take over the property of the Trust and carry on the affairs of the Trust, or (ii) merge the Trust into, or sell, convey and transfer the property of the Trust to, any such corporation, association, trust or organization in exchange for securities thereof or beneficial interests therein, and the assumption by the transferee of the liabilities of the Trust, and upon the occurrence of (i) or (ii) above terminate the Trust and deliver such securities or beneficial interests ratably among the Shareholders according to the respective rights of the class or series of Shares held by them; provided, however, that any such action shall have been approved, at a meeting of the Shareholders called for that purpose, by the affirmative vote of the holders of not less than two-thirds of the Shares then outstanding and entitled to vote thereon. Section 11.2 Merger, Consolidation or Sale of Property of the Trust. Subject to the provisions of any class or series of Shares at the time outstanding, the Trustees shall have the power to (a) merge into another entity, (b) consolidate the Trust with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer or dispose of all or substantially all of the property of the Trust. Any such action must be approved by the Board of Trustees and, after notice to all Shareholders entitled to vote on the matter, by the affirmative vote of not less than two-thirds of all the votes entitled to be cast on the matter. ARTICLE XII DURATION AND TERMINATION OF TRUST Section 12.1 Duration. The Trust shall continue perpetually unless terminated pursuant to Section 12.2 or pursuant to any applicable provision of Title 8. Section 12.2 Termination. (a) Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may be terminated at any meeting of Shareholders, by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. Upon the termination of the Trust: (i) The Trust shall carry on no business except for the purpose of winding up its affairs. (ii) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust's contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining property of the Trust to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business. (iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as they deem necessary for their protection, the Trustees may distribute the remaining property of the Trust among the Shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining property of the Trust shall, 16 subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding. (b) After termination of the Trust, the liquidation of its business and the distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and file with the Trust's records a document certifying that the Trust has been duly terminated, and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all Shareholders shall cease. ARTICLE XIII MISCELLANEOUS Section 13.1 Governing Law. This Declaration of Trust is executed by the undersigned Trustees and delivered in the State of Maryland with reference to the laws thereof, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof. Section 13.2 Reliance by Third Parties. Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or Shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or Shareholders; (d) a copy of this Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment to this Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact or relating to the affairs of the Trust. No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust. Section 13.3 Severability. (a) The provisions of this Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the "Conflicting Provisions") are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of this Declaration of Trust, even without any amendment of this Declaration of Trust pursuant to Article X and without affecting or impairing any of the remaining provisions of this Declaration of Trust or rendering invalid or improper any action taken or omitted prior to such determination. No Trustee shall be liable for making or failing to make such a determination. (b) If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction. Section 13.4 Construction. In this Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of this Declaration of Trust. In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. Section 13.5 Recordation. This Declaration of Trust and any Articles of Amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record this Declaration of Trust or any Articles of Amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of this Declaration of Trust or any amendment hereto. A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various Articles of Amendment thereto. THIRD: The amendment to and restatement of the Declaration of Trust of the Trust as hereinabove set forth has been duly approved and advised by the Board of Trustees by majority vote thereof and approved by the sole shareholder of the Trust as required by law. 17 FOURTH: The current address of the principal office of the Trust is 220 East 42nd Street, New York, New York 10017. FIFTH: The name and address of the Trust's current resident agent is as set forth in Article IV of the foregoing amendment and restatement of the Declaration of Trust of the Trust. SIXTH: The number of trustees of the Trust and the names of those currently in office are as set forth in Article V of the foregoing amendment and restatement of the Declaration of Trust of the Trust. 18 IN WITNESS WHEREOF, these Articles of Amendment and Restatement of Declaration of Trust have been signed on this 24th day of April, 1998 by all of the Trustees of the Trust, each of whom acknowledges, that this document is his free act and deed, and that to the best of his knowledge, information, and belief, the matters and facts set forth herein are true in all material respects and that the statement is made under the penalties for perjury. /s/ Stuart L. Scott__________________ Stuart L. Scott /s/ Jon E. Bortz_____________________ Jon E. Bortz 19 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 10 1/4% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the "Trust"), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the "Declaration of Trust"), the Trustees have duly classified and designated 4,000,000 Preferred Shares of the Trust as 10 1/4% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust ("Series A Preferred Shares"). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series A Preferred Shares are as follows, 10 1/4% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the "10 1/4% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share", is hereby established. The number of authorized Series A Preferred Shares shall be 4,000,000. 2. Relative Seniority. The Series A Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series A Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series A Preferred Shares in accordance with Section 6(d). The term "equity securities" shall not include convertible debt securities. 3. Distributions. (a) Holders of Series A Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of ten and one-quarter percent (10 1/4%) per annum of the Twenty-five Dollars ($25.00) per share liquidation preference of the Series A Preferred Shares (equivalent to a fixed annual amount of $2.5625 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) March 6, 2002 and be payable quarterly in equal amounts in arrears on the fifteenth day of January, April, July and October of each year, beginning on April 15, 2002 (each such day being hereinafter called a "Distribution Payment Date"); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series A Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a "Distribution Record Date"). (b) No distribution on the Series A Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series A Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not 20 there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series A Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. (d) If any Series A Preferred Shares are outstanding, no full distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series A Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series A Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series A Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series A Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series A Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series A Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series A Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series A Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set aside for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series A Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series A Preferred Shares as described above. Any distribution payment made on the Series A Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) "Business Day" shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a "liquidation"), the holders of Series A Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series A Preferred Share, plus an amount equal to all accumulated and unpaid distributions to the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series A Preferred Shares as to liquidation rights. (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series A Preferred Shares and to the corresponding amounts payable 21 on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series A Preferred Shares as to liquidation rights, then the holders of the Series A Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) The Series A Preferred Shares are not redeemable prior to March 6, 2007. To ensure that the Trust remains qualified as a real estate investment trust ("REIT") for federal income tax purposes, however, the Series A Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series A Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after March 6, 2007, the Trust, at its option, upon giving notice as provided below, may redeem the Series A Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of Twenty-five Dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series A Preferred Shares to the date of such redemption (the "Redemption Right"). (b) If fewer than all of the outstanding Series A Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series A Preferred Shares would become a holder of a number of Series A Preferred Shares in excess of the Ownership Limit because such holder's Series A Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series A Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series A Preferred Shares shall be redeemed unless all outstanding Series A Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series A Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series A Preferred Shares. In addition, unless full cumulative distributions on all Series A Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series A Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series A Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series A Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares.) (d) Immediately prior to any redemption of Series A Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series A Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution 22 Payment Date notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series A Preferred Shares to be redeemed; (D) the place or places where the Series A Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series A Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series A Preferred Shares to be redeemed shall present and surrender the certificates representing his Series A Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate representing Series A Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares represented by any such certificate representing Series A Preferred Shares are to be redeemed, a new certificate shall be issued representing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series A Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series A Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series A Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series A Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series A Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Voting Rights. (a) Holders of the Series A Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series A Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series A Preferred Share held by such holder. If the holders of the Series A Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series A Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. 23 (b) Whenever distributions on any Series A Preferred Shares shall be in arrears for six or more consecutive quarterly periods (a "Preferred Distribution Default"), the holders of Series A Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable ("Parity Preferred Shares")) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a "Preferred Share Trustee") at a special meeting called by the holders of at least 10% of the outstanding Series A Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series A Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set aside for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series A Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series A Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series A Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series A Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series A Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an "Event") or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of any Event set forth in (ii) above, so long as Series A Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series A Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the holders of the Series A Preferred Shares; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series A Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series A Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 7. Conversion. The Series A Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 8. Application of Article VII. The Series A Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. 24 SECOND: The Series A Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. THIRD: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FOURTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. FIFTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 25 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on February 28, 2002. WITNESS: LASALLE HOTEL PROPERTIES /s/ Hans S. Weger By: /s/ Jon E. Bortz Hans S. Weger Jon E. Bortz Secretary President 26 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 8.375% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 1,200,000 Preferred Shares of the Trust as 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series B Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series B Preferred Shares are as follows, 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series B Preferred Shares shall be 1,200,000. 2. Relative Seniority. The Series B Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series B Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series B Preferred Shares in accordance with Section 6(d). The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series B Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of eight and three-eighths percent (8.375%) per annum of the Twenty-five Dollars ($25.00) per share liquidation preference of the Series B Preferred Shares (equivalent to a fixed annual amount of $2.09375 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) September 30, 2003 and be payable quarterly in equal amounts in arrears on the fifteenth day of January, April, July and October of each year, beginning on January 15, 2004 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series B Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). (b) No distribution on the Series B Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. 27 (c) Notwithstanding anything to the contrary contained herein, distributions on the Series B Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series B Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. (d) If any Series B Preferred Shares are outstanding, no full distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series B Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series B Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series B Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series B Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series B Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series B Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series B Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series B Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series B Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set aside for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series B Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series B Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series B Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series B Preferred Shares as described above. Any distribution payment made on the Series B Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series B Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series B Preferred Share, plus an amount equal to all accumulated and unpaid distributions to the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series B Preferred Shares as to liquidation rights. 28 (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series B Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series B Preferred Shares as to liquidation rights, then the holders of the Series B Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series B Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series B Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) The Series B Preferred Shares are not redeemable prior to September 30, 2008. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series B Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series B Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after September 30, 2008, the Trust, at its option, upon giving notice as provided below, may redeem the Series B Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of Twenty-five Dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series B Preferred Shares to the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series B Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series B Preferred Shares would become a holder of a number of Series B Preferred Shares in excess of the Ownership Limit because such holder's Series B Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series B Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series B Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Shares shall be redeemed unless all outstanding Series B Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series B Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series B Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series B Preferred Shares. In addition, unless full cumulative distributions on all Series B Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series B Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series B Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series B Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Shares.) (d) Immediately prior to any redemption of Series B Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior 29 to the corresponding Distribution Payment Date, in which case each holder of Series B Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series B Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series B Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series B Preferred Shares to be redeemed; (D) the place or places where the Series B Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series B Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series B Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series B Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series B Preferred Shares to be redeemed shall present and surrender the certificates representing his Series B Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate representing Series B Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares represented by any such certificate representing Series B Preferred Shares are to be redeemed, a new certificate shall be issued representing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series B Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series B Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series B Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series B Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series B Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Voting Rights. (a) Holders of the Series B Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series B Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series B Preferred Share held by such holder. If the holders of the Series B Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series B Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. 30 (b) Whenever distributions on any Series B Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series B Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series B Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series B Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set aside for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series B Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series B Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series B Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series B Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series B Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series B Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series B Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series B Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the holders of the Series B Preferred Shares; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series B Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series B Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 7. Conversion. The Series B Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 8. Application of Article VII. The Series B Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. 31 SECOND: The Series B Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. THIRD: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FOURTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. FIFTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 32 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on September 23, 2003. WITNESS: LASALLE HOTEL PROPERTIES /s/ HANS S. WEGER Hans S. Weger Secretary By: 33 /s/ JON E. BORTZ Jon E. Bortz President LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 7.25% SERIES C CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI, Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 2,450,000 shares of the authorized but unissued preferred shares of the Trust as 7.25% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series C Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series C Preferred Shares are as follows: 7.25% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “7.25% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series C Preferred Shares shall be 2,450,000. 2. Relative Seniority. The Series C Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series C Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series C Preferred Shares in accordance with Section 6(d). The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series C Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of seven and one-quarter percent (7.25%) per annum of the Twenty-five Dollars ($25.00) per share liquidation preference of the Series C Preferred Shares (equivalent to a fixed annual amount of $1.8125 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on the fifteenth day of January, April, July and October of each year, beginning on October 15, 2005 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series C Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). (b) No distribution on the Series C Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. 34 (c) Notwithstanding anything to the contrary contained herein, distributions on the Series C Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series C Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption, as the case may be. Accumulated and unpaid distributions will not bear interest. (d) If any Series C Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series C Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series C Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series C Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series C Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series C Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series C Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series C Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series C Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series C Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series C Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series C Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series C Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series C Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series C Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series C Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series C Preferred Shares as described above. Any distribution payment made on the Series C Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series C Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series C Preferred Share, plus an amount equal to all accumulated and unpaid distributions to the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series C Preferred Shares as to liquidation rights. 35 (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series C Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series C Preferred Shares as to liquidation rights, then the holders of the Series C Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series C Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series C Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption. (a) Except as provided below, the Series C Preferred Shares are not redeemable prior to January 1, 2021. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series C Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series C Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. Notwithstanding the first sentence of this Section 5(a), at any time during the period from January 1, 2016 to and including December 31, 2016, the Trust, at its option, upon giving notice as provided below, may redeem the Series C Preferred Shares, in whole or in part, for cash, at a redemption price of Twenty-five Dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series C Preferred Shares to the date of such redemption (the “Redemption Right”). The Trust may also exercise its Redemption Right at any time and from time to time on or after January 1, 2021, upon giving notice as provided below. (b) If fewer than all of the outstanding Series C Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series C Preferred Shares would become a holder of a number of Series C Preferred Shares in excess of the Ownership Limit because such holder's Series C Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series C Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series C Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series C Preferred Shares shall be redeemed unless all outstanding Series C Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series C Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series C Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series C Preferred Shares. In addition, unless full cumulative distributions on all Series C Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series C Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series C Preferred Shares as to distributions and upon liquidation; provided, however, that the foregoing shall not prevent any purchase or acquisition of Series C Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series C Preferred Shares.) 36 (d) Immediately prior to any redemption of Series C Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series C Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series C Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in The City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date (and in any event no later than March 31, 2016, in the case of a redemption to occur between January 1, 2016 and December 31, 2016). A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date (and in any event no later than March 31, 2016, in the case of a redemption to occur between January 1, 2016 and December 31, 2016), addressed to the respective holders of record of the Series C Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series C Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series C Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series C Preferred Shares to be redeemed; (D) the place or places where the Series C Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series C Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series C Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series C Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series C Preferred Shares to be redeemed shall present and surrender the certificates representing his Series C Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series C Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series C Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series C Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series C Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series C Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series C Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series C Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Voting Rights. (a) Holders of the Series C Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series C Preferred Shares are entitled to vote, each 37 such holder shall have the right to one vote for each Series C Preferred Share held by such holder. If the holders of the Series C Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series C Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. (b) Whenever distributions on any Series C Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series C Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series C Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series C Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set aside for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series C Preferred Shares shall have been paid in full or authorized and set apart for payment in full, the holders of Series C Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set apart for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series C Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series C Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series C Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series C Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series C Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series C Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of any Event set forth in (ii) above, so long as Series C Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series C Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series C Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series C Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series C Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series C Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 7. Conversion. The Series C Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 38 8. Application of Article VII. The Series C Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. THIRD: The Series C Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 39 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on August 24, 2005. WITNESS: LASALLE HOTEL PROPERTIES /s/ Hans S. Weger By: /s/ Jon E. Bortz Hans S. Weger Secretary Jon E. Bortz President 40 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 7.5% SERIES D CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 3,300,000 Preferred Shares of the Trust as 7.5% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series D Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series D Preferred Shares are as follows, 7.5% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “7.5% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series D Preferred Shares shall be 3,300,000. 2. Relative Seniority. The Series D Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series D Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series D Preferred Shares in accordance with Section 6(d). The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series D Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of seven and one-half percent (7.5%) per annum of the Twenty-five Dollars ($25.00) per share liquidation preference of the Series D Preferred Shares (equivalent to a fixed annual amount of $1.875 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on October 17, 2005 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series D Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). (b) No distribution on the Series D Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series D Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not 41 there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series D Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest. (d) If any Series D Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series D Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series D Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series D Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series D Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series D Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series D Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series D Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series D Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series D Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series D Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series D Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series D Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series D Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series D Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series D Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series D Preferred Shares as described above. Any distribution payment made on the Series D Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series D Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series D Preferred Share, plus an amount equal to all accumulated and unpaid distributions through and including the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series D Preferred Shares as to liquidation rights. 42 (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series D Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series D Preferred Shares as to liquidation rights, then the holders of the Series D Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series D Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series D Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) The Series D Preferred Shares are not redeemable prior to August 24, 2010. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series D Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series D Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after August 24, 2010, the Trust, at its option, upon giving notice as provided below, may redeem the Series D Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of Twenty-five Dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series D Preferred Shares through the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series D Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series D Preferred Shares would become a holder of a number of Series D Preferred Shares in excess of the Ownership Limit because such holder's Series D Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series D Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series D Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series D Preferred Shares shall be redeemed unless all outstanding Series D Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series D Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series D Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series D Preferred Shares. In addition, unless full cumulative distributions on all Series D Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series D Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series D Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series D Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series D Preferred Shares.) (d) Immediately prior to any redemption of Series D Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior 43 to the corresponding Distribution Payment Date, in which case each holder of Series D Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series D Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series D Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series D Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series D Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series D Preferred Shares to be redeemed; (D) the place or places where the Series D Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series D Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series D Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series D Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series D Preferred Shares to be redeemed shall present and surrender the certificates representing his Series D Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series D Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series D Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series D Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series D Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series D Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series D Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series D Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Voting Rights. (a) Holders of the Series D Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series D Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series D Preferred Share held by such holder. If the holders of the Series D Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series D Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. 44 (b) Whenever distributions on any Series D Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series D Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series D Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series D Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series D Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series D Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series D Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series D Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series D Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series D Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series D Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series D Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series D Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series D Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series D Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series D Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series D Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series D Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 7. Conversion. The Series D Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 8. Application of Article VII. The Series D Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. 45 THIRD: The Series D Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 46 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on August 22, 2005. WITNESS: LASALLE HOTEL PROPERTIES /s/ Hans S. Weger By: Hans S. Weger Secretary /s/ Jon E. Bortz Jon E. Bortz President 47 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 8% SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 3,500,000 Preferred Shares of the Trust as 8% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series E Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series E Preferred Shares are as follows, 8% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “8% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series E Preferred Shares shall be 3,500,000. 2. Relative Seniority. The Series E Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series E Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series E Preferred Shares in accordance with Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series E Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of eight percent (8%) per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series E Preferred Shares (equivalent to a fixed annual amount of $2.00 per share); provided, however, that during any period of time that both (i) the Series E Preferred Shares are not listed on the New York Stock Exchange (“NYSE”) or the American Stock Exchange (“AMEX”), or quoted on the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any Series E Preferred Shares are outstanding, the holders of Series E Preferred Shares shall be entitled to receive, when and as authorized by the Board of Trustees and declared by the Trust, out of legally available funds, cumulative preferential cash distributions at the rate of nine percent 9% per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series E Preferred Shares (equivalent to a fixed annual amount of $2.25 per share) (the “Special Distribution”). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance or, with respect to the Special Distribution, if applicable, from the date following the date on which both (i) the Series E Preferred Shares are not listed on the NYSE or the AMEX or quoted on NASDAQ, or are not listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on April 17, 2006 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series E Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the 48 applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). The Special Distribution, if applicable, shall cease to accrue on the date following the earlier of (i) the listing of the Series E Preferred Shares on the NYSE or the AMEX or their quotation on NASDAQ, or listing or quotation on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, or (ii) the Trust becoming subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act. (b) No distribution on the Series E Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series E Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series E Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest. (d) If any Series E Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series E Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series E Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series E Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series E Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series E Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series E Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series E Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series E Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series E Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series E Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series E Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series E Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series E Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series E Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series E Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series E Preferred Shares as described above. Any distribution payment made on the Series E Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. 49 (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series E Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series E Preferred Share, plus an amount equal to all accumulated and unpaid distributions through and including the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series E Preferred Shares as to liquidation rights. (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series E Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series E Preferred Shares as to liquidation rights, then the holders of the Series E Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series E Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series E Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) Except as described in Section 6 below and this Section 5, the Series E Preferred Shares are not redeemable prior to February 8, 2011. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series E Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series E Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after February 8, 2011, the Trust, at its option, upon giving notice as provided below, may redeem the Series E Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series E Preferred Shares through the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series E Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series E Preferred Shares would become a holder of a number of Series E Preferred Shares in excess of the Ownership Limit because such holder's Series E Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series E Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series E Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series E Preferred Shares shall be redeemed unless all outstanding Series E Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series E Preferred Shares pursuant to Article VII of 50 the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series E Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series E Preferred Shares. In addition, unless full cumulative distributions on all Series E Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series E Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series E Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series E Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series E Preferred Shares). (d) Immediately prior to any redemption of Series E Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series E Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series E Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series E Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series E Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series E Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series E Preferred Shares to be redeemed; (D) the place or places where the Series E Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series E Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series E Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series E Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series E Preferred Shares to be redeemed shall present and surrender the certificates representing his Series E Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series E Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series E Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series E Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series E Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series E Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which 51 remain unclaimed by the holders of the Series E Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series E Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Special Optional Redemption by the Trust. (a) If at any time both (i) the Series E Preferred Shares are not listed on the NYSE or the AMEX, or quoted on the NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of the Exchange Act, and the Series E Preferred Shares are outstanding, the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series E Preferred Shares at their addresses as shown on the share transfer books of the Trust, to redeem the Series E Preferred Shares, in whole but not in part, within 90 days of the first date upon which both (i) the Series E Preferred Shares are not listed and (ii) the Trust is not subject to such reporting requirements of the Exchange Act, for cash at twenty-five dollars ($25.00) per share plus accrued and unpaid distributions, if any, to and including the redemption date, whether or not authorized. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series E Preferred Shares except as to the holder to whom notice was defective or not given. (b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series E Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series E Preferred Shares to be redeemed; (D) the place or places where the Series E Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series E Preferred Shares to be redeemed will cease to accumulate on such redemption date. (c) Immediately prior to any redemption of Series E Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series E Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series E Preferred Shares for which a notice of redemption has been given. (d) On or after the redemption date, each holder of Series E Preferred Shares to be redeemed shall present and surrender the certificates representing his Series E Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series E Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. (e) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series E Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series E Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series E Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series E Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series E Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 52 7. Voting Rights. (a) Holders of the Series E Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series E Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series E Preferred Share held by such holder. If the holders of the Series E Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series E Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. (b) Whenever distributions on any Series E Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series E Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series E Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series E Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series E Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series E Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series E Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series E Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series E Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series E Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series E Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series E Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series E Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series E Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series E Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series E Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series E Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. 53 (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series E Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 8. Information Rights. During any period in which the Trust is required to pay a Special Distribution, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series E Preferred Shares, as their names and addresses appear in the Trust's record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the SEC, pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject to such sections (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series E Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series E Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. 9. Conversion. The Series E Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 10. Application of Article VII. The Series E Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. THIRD: The Series E Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 54 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on February 6, 2006. WITNESS: LASALLE HOTEL PROPERTIES By: /s/ Hans S. Weger /s/ Michael D. Barnello Hans S. Weger Michael D. Barnello Secretary Chief Operating Officer and Executive Vice President of Acquisitions 55 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 7.25% SERIES G CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 4,000,000 Preferred Shares of the Trust as 7.25% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series G Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series G Preferred Shares are as follows, 7.25% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “7.25% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series G Preferred Shares shall be 4,000,000. 2. Relative Seniority. The Series G Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series G Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series G Preferred Shares in accordance with Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series G Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of seven and one quarter percent (7.25%) per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series G Preferred Shares (equivalent to a fixed annual amount of $1.8125 per share); provided, however, that during any period of time that both (i) the Series G Preferred Shares are not listed on the New York Stock Exchange (“NYSE”) or the American Stock Exchange (“AMEX”), or quoted on The NASDAQ Global Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any Series G Preferred Shares are outstanding, the holders of Series G Preferred Shares shall be entitled to receive, when and as authorized by the Board of Trustees and declared by the Trust, out of legally available funds, cumulative preferential cash distributions at the rate of eight and one quarter percent 8.25% per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series G Preferred Shares (equivalent to a fixed annual amount of $2.0625 per share) (the “Special Distribution”). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance or, with respect to the Special Distribution, if applicable, from the date following the date on which both (i) the Series G Preferred Shares are not listed on the NYSE or the AMEX or quoted on NASDAQ, or are not listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on January 12, 2007 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series G Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. 56 Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). The Special Distribution, if applicable, shall cease to accrue on the date following the earlier of (i) the listing of the Series G Preferred Shares on the NYSE or the AMEX or their quotation on NASDAQ, or listing or quotation on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, or (ii) the Trust becoming subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act. (b) No distribution on the Series G Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series G Preferred Shares shall accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series G Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest. (d) If any Series G Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series G Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series G Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series G Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series G Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series G Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series G Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series G Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series G Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series G Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series G Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series G Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series G Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series G Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series G Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series G Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series G Preferred Shares as described above. Any distribution payment made on the Series G Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the 57 time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series G Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series G Preferred Share, plus an amount equal to all accumulated and unpaid distributions through and including the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series G Preferred Shares as to liquidation rights. (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series G Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series G Preferred Shares as to liquidation rights, then the holders of the Series G Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series G Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series G Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) Except as described in Section 6 below and this Section 5, the Series G Preferred Shares are not redeemable prior to November 17, 2011. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series G Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series G Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after November 17, 2011, the Trust, at its option, upon giving notice as provided below, may redeem the Series G Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series G Preferred Shares through the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series G Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series G Preferred Shares would become a holder of a number of Series G Preferred Shares in excess of the Ownership Limit because such holder's Series G Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series G Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. 58 (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series G Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series G Preferred Shares shall be redeemed unless all outstanding Series G Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series G Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series G Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series G Preferred Shares. In addition, unless full cumulative distributions on all Series G Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distributions periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series G Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series G Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series G Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series G Preferred Shares). (d) Immediately prior to any redemption of Series G Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series G Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series G Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series G Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series G Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series G Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series G Preferred Shares to be redeemed; (D) the place or places where the Series G Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series G Preferred Shares to be redeemed will cease to accumulate on such redemption date. If less than all of the Series G Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series G Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series G Preferred Shares to be redeemed shall present and surrender the certificates representing his Series G Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series G Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series G Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series G Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may 59 irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series G Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series G Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series G Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series G Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Special Optional Redemption by the Trust. (a) If at any time both (i) the Series G Preferred Shares are not listed on the NYSE or the AMEX, or quoted on the NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, AMEX or NASDAQ, and (ii) the Trust is not subject to the reporting requirements of the Exchange Act, and the Series G Preferred Shares are outstanding, the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series G Preferred Shares at their addresses as shown on the share transfer books of the Trust, to redeem the Series G Preferred Shares, in whole but not in part, within 90 days of the first date upon which both (i) the Series G Preferred Shares are not listed and (ii) the Trust is not subject to such reporting requirements of the Exchange Act, for cash at twenty-five dollars ($25.00) per share plus accrued and unpaid distributions, if any, to and including the redemption date, whether or not authorized. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series G Preferred Shares except as to the holder to whom notice was defective or not given. (b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series G Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series G Preferred Shares to be redeemed; (D) the place or places where the Series G Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series G Preferred Shares to be redeemed will cease to accumulate on such redemption date. (c) Immediately prior to any redemption of Series G Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series G Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series G Preferred Shares for which a notice of redemption has been given. (d) On or after the redemption date, each holder of Series G Preferred Shares to be redeemed shall present and surrender the certificates representing his Series G Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series G Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. (e) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series G Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series G Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in 60 which case the redemption notice to holders of the Series G Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series G Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series G Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 7. Voting Rights. (a) Holders of the Series G Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series G Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series G Preferred Share held by such holder. If the holders of the Series G Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series G Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. (b) Whenever distributions on any Series G Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series G Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series G Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series G Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full. (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series G Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series G Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series G Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series G Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series G Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series G Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series G Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to 61 materially and adversely affect any right, preference, privilege or voting power of the Series G Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series G Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series G Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series G Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series G Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series G Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series G Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 8. Information Rights. During any period in which the Trust is required to pay a Special Distribution, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series G Preferred Shares, as their names and addresses appear in the Trust's record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the SEC, pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject to such sections (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series G Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series G Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. 9. Conversion. The Series G Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust at the option of holders thereof. 10. Application of Article VII. The Series G Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. THIRD: The Series G Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 62 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on November 16, 2006. WITNESS: LASALLE HOTEL PROPERTIES /s/ Hans S. Weger By: Hans S. Weger Secretary /s/ Jon E. Bortz Jon E. Bortz Chairman, President and Chief Executive Officer 63 ARTICLES OF AMENDMENT TO LASALLE HOTEL PROPERTIES AMENDED AND RESTATED DECLARATION OF TRUST LaSalle Hotel Properties, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland (“SDAT”) that: 1. The Trust desires to and does amend its Amended and Restated Declaration of Trust as currently in effect and as hereinafter provided. 2. Article VI, Section 6.1 is hereby amended by deleting the following text from such section: “Authorized Shares. The Trust shall have the authority to issue a total of 120 million shares of beneficial interest (“Shares”), of which 100 million shall be common shares of beneficial interest, $.01 par value per share (“Common Shares”), and 20 million shall be preferred shares of beneficial interest, $.01 par value per share (“Preferred Shares”). The Board of Trustees, with the approval of the holders of record of outstanding Shares (the “Shareholders”) by a majority of the votes entitled to be cast at a meeting of Shareholders duly called and at which a quorum is present, may amend this Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue.” and replacing it with the following: “Authorized Shares. The Trust shall have the authority to issue a total of 240 million shares of beneficial interest (“Shares”), of which 200 million shall be common shares of beneficial interest, $.01 par value per share (“Common Shares”), and 40 million shall be preferred shares of beneficial interest, $.01 par value per share (“Preferred Shares”). The Board of Trustees, with the approval of the holders of record of outstanding Shares (the “Shareholders”) by a majority of the votes entitled to be cast at a meeting of Shareholders duly called and at which a quorum is present, may amend this Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue.” 3. The foregoing amendment has been duly advised by the Trust's Board of Trustees and approved by the Trust's shareholders in accordance with the applicable provisions of law. 4. The aggregate par value of all authorized shares without giving effect to these Articles of Amendment is $1,200,000. The aggregate par value of all authorized shares upon giving effect to these Articles of Amendment will be $2,400,000. 5. These Articles of Amendment have not changed the information required by subsection (b)(2)(i) of Section 2-607 of the Maryland General Corporation Law. 6. The undersigned Chairman, President and Chief Executive Officer acknowledges these Articles of Amendment to be the act of the Trust and as to all matters or facts required to be verified under oath, the undersigned Chairman, President and Chief Executive Officer acknowledges that, to the best of his knowledge, information, and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 64 IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment to be signed in its name and on its behalf as of July 3, 2007, by its undersigned Chairman, President and Chief Executive Officer and attested to by its Secretary. LASALLE HOTEL PROPERTIES /s/ Jon E. Bortz Jon E. Bortz, Chairman, President and Chief Executive Officer ATTEST: /s/ Hans S. Weger Hans S. Weger, Chief Financial Officer, Executive Vice President, Treasurer and Secretary 65 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Trust by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Board of Trustees of the Trust has reclassified 2,350,000 shares of the Trust's Preferred Shares of Beneficial Interest, par value $0.01 per share (the “Preferred Shares”), into shares of the Trust's 7.25% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (the “Series G Preferred Shares”). SECOND: The reclassification increases the number of shares classified as Series G Preferred Shares from 4,000,000 shares immediately prior to the reclassification to 6,350,000 shares immediately after the reclassification. The reclassification decreases the number of shares classified as Preferred Shares from 25,550,000 immediately prior to the reclassification to 23,200,000 shares immediately after the reclassification. THIRD: The terms of the Series G Preferred Shares (including, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption) are as provided in the Declaration of Trust and remain unchanged by these Articles Supplementary. FOURTH: The undersigned Chief Executive Officer of the Trust acknowledges these Articles Supplementary to be the act of the Trust and as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer of the Trust acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and this statement is made under the penalties of perjury. 66 IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be signed in its name and on its behalf by its Chief Executive Officer and attested to by its Secretary on this 14th day of April, 2009. LASALLE HOTEL PROPERTIES By: /s/ Jon E. Bortz Jon E. Bortz Chief Executive Officer Attest: /s/ Hans S. Weger Hans S. Weger Secretary 67 LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 7.50% SERIES H CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 2,990,000 Preferred Shares of the Trust as 7.50% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series H Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series H Preferred Shares are as follows, 7.50% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “7.50% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series H Preferred Shares shall be 2,990,000. 2. Relative Seniority. The Series H Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series H Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series H Preferred Shares in accordance with Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series H Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of seven and one-half percent (7.50%) per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series H Preferred Shares (equivalent to a fixed annual amount of $1.875 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on April 15, 2011 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series H Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). (b) No distribution on the Series H Preferred Shares shall be authorized by the Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series H Preferred Shares shall 68 accumulate whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accumulated but unpaid distributions on the Series H Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accumulated and unpaid distributions will not bear interest. (d) If any Series H Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series H Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series H Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series H Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series H Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series H Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series H Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series H Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accumulated distributions per Series H Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series H Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series H Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series H Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series H Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series H Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series H Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a REIT). (f) Holders of Series H Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series H Preferred Shares as described above. Any distribution payment made on the Series H Preferred Shares shall first be credited against the earliest accumulated but unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series H Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), a liquidation preference in cash of Twenty-five Dollars ($25.00) per Series H Preferred Share, plus an amount equal to all accumulated and unpaid distributions through and including the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series H Preferred Shares as to liquidation rights. 69 (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series H Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series H Preferred Shares as to liquidation rights, then the holders of the Series H Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series H Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series H Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation, dissolution or winding up of the Trust. 5. Redemption (a) Except as described in Section 6 below and this Section 5, the Series H Preferred Shares are not redeemable prior to January 24, 2016. To ensure that the Trust remains qualified as a real estate investment trust (“REIT”) for federal income tax purposes, however, the Series H Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series H Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after January 24, 2016, the Trust, at its option, upon giving notice as provided below, may redeem the Series H Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accumulated and unpaid distributions on such Series H Preferred Shares through the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series H Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series H Preferred Shares would become a holder of a number of Series H Preferred Shares in excess of the Ownership Limit because such holder's Series H Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series H Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series H Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series H Preferred Shares shall be redeemed unless all outstanding Series H Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series H Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series H Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series H Preferred Shares. In addition, unless full cumulative distributions on all Series H Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series H Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series H Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series H Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series H Preferred Shares). (d) Immediately prior to any redemption of Series H Preferred Shares, the Trust shall pay, in cash, any accumulated 70 and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series H Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series H Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption pursuant to the Redemption Right: (i) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Trust, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series H Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series H Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series H Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series H Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series H Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series H Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series H Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series H Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series H Preferred Shares to be redeemed shall present and surrender the certificates representing his Series H Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series H Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series H Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series H Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series H Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series H Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series H Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series H Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Special Optional Redemption by the Trust. (a) Upon the occurrence of a Change of Control (as defined below), the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series H Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust, to redeem the Series H Preferred Shares, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at twenty-five dollars ($25.00) per share plus accrued and unpaid 71 distributions, if any, to and including the redemption date (“Special Optional Redemption Right”). No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series H Preferred Shares except as to the holder to whom notice was defective or not given. If, prior to the Change of Control Conversion Date (as defined below), the Trust has provided or provides notice of redemption with respect to the Series H Preferred Shares (whether pursuant to the Redemption Right or the Special Optional Redemption Right), the holders of Series H Preferred Shares will not have the conversion right described below in Section 9. A “Change of Control” is when, after the original issuance of the Series H Preferred Shares, the following have occurred and are continuing: (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Trust entitling that person to exercise more than 50% of the total voting power of all shares of the Trust entitled to vote generally in elections of Trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), and (ii) following the closing of any transaction referred to in (i) above, neither the Trust nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the New York Stock Exchange (“NYSE”), the NYSE Amex Equities (“Amex”), or the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, Amex or NASDAQ. (b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series H Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series H Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series H Preferred Shares are to be surrendered for payment of the redemption price; (E) that the Series H Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control; (F) that holders of the Series H Preferred Shares to which the notice relates will not be able to tender such Series H Preferred Shares for conversion in connection with the Change of Control and each Series H Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date; and (G) that distributions on the Series H Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series H Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series H Preferred Shares held by such holder to be redeemed. If fewer than all of the outstanding Series H Preferred Shares are to be redeemed pursuant to the Special Optional Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series H Preferred Shares would become a holder of a number of Series H Preferred Shares in excess of the Ownership Limit because such holder's Series H Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series H Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series H Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series H Preferred Shares shall be redeemed unless all outstanding Series H Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series H Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series H Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series H Preferred Shares. In addition, unless full cumulative distributions on all Series H Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series H Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series H Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series H Preferred Shares for the purpose of 72 preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series H Preferred Shares). (d) Immediately prior to any redemption of Series H Preferred Shares pursuant to the Special Optional Redemption Right, the Trust shall pay, in cash, any accumulated and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series H Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series H Preferred Shares for which a notice of redemption has been given. (e) On or after the redemption date, each holder of Series H Preferred Shares to be redeemed shall present and surrender the certificates representing his Series H Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accumulated and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series H Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series H Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (f) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series H Preferred Shares designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accumulated and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid distributions to the redemption date) of the Series H Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series H Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series H Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (g) Any Series H Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 7. Voting Rights. (a) Holders of the Series H Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series H Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series H Preferred Share held by such holder. If the holders of the Series H Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series H Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. (b) Whenever distributions on any Series H Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series H Preferred Shares (voting as a single class with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series H Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accumulated on the Series H Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full. 73 (c) If and when all accumulated distributions and the distribution for the then current distribution period on the Series H Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series H Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accumulated distributions and the distribution for the current distribution period have been paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series H Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series H Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series H Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series H Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series H Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series H Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series H Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series H Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series H Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series H Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series H Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series H Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 8. Information Rights. During any period in which the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series H Preferred Shares are outstanding, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series H Preferred Shares, as their names and addresses appear in the Trust's record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the Securities and Exchange Commission (the “SEC”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject thereto (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series H Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series H Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act. 9. Conversion. The Series H Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust, except as provided in this Section 9. (a) Upon the occurrence of a Change of Control, each holder of Series H Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem the Series H Preferred Shares pursuant to the Redemption Right or Special Optional Redemption Right, to convert some or all of the Series H Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of Common Shares per Series H Preferred Share (the “Common Share Conversion 74 Consideration”) equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference per Series H Preferred Share to be converted, plus (y) the amount of any accrued and unpaid distributions to and including the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case no additional amount for such accrued and unpaid distribution will be included in such sum), by (ii) the Common Share Price (as defined below) (such quotient, the “Conversion Rate”), and (B) 1.702 (the “Share Cap”), subject to the immediately succeeding paragraph. The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a Common Share distribution), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split shall be the number of Common Shares that is equivalent to the product of (i) the Share Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split. For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 4,425,200 Common Shares (or equivalent Alternative Conversion Consideration, as applicable), subject to increase to the extent the underwriters' over-allotment option to purchase additional Series H Preferred Shares in the initial public offering of Series H Preferred Shares is exercised, not to exceed 5,088,980 Common Shares in total (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap. In the case of a Change of Control pursuant to which Common Shares shall be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series H Preferred Shares shall receive upon conversion of such Series H Preferred Shares the kind and amount of Alternative Form Consideration which such holder of Series H Preferred Shares would have owned or been entitled to receive upon the Change of Control had such holder of Series H Preferred Shares held a number of Common Shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, shall be referred to herein as the “Conversion Consideration”). In the event that holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of Series H Preferred Shares shall receive shall be the form of consideration elected by the holders of the Common Shares who participate in the determination (based on the weighted average of elections) and shall be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control. The “Change of Control Conversion Date” shall be a Business Day set forth in the notice of Change of Control provided in accordance with clause (c) below that is no less than 20 days nor more than 35 days after the date on which the Trust provides such notice pursuant to clause (c) below. The “Common Share Price” shall be (i) if the consideration to be received in the Change of Control by holders of Common Shares is solely cash, the amount of cash consideration per Common Share, and (ii) if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash, the average of the closing price per Common Share on the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control. (b) No fractional Common Shares shall be issued upon the conversion of Series H Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price. (c) Within 15 days following the occurrence of a Change of Control, a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, shall be delivered to the holders of record of the Series H Preferred Shares at their addresses as they appear on the Trust's share transfer records and notice shall be provided to the Trust's transfer agent. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any Series H Preferred Shares except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series H Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date, which shall be a 75 Business Day occurring within 20 to 35 days following the date of such notice; (vi) that if, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem all or any portion of the Series H Preferred Shares, the holder will not be able to convert Series H Preferred Shares and such Series H Preferred Shares shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series H Preferred Share; (viii) the name and address of the paying agent and the conversion agent; and (ix) the procedures that the holders of Series H Preferred Shares must follow to exercise the Change of Control Conversion Right. (d) The Trust shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Trust's website, in any event prior to the opening of business on the first Business Day following any date on which the Trust provides notice pursuant to clause (c) above to the holders of Series H Preferred Shares. (e) In order to exercise the Change of Control Conversion Right, a holder of Series H Preferred Shares shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) evidencing the Series H Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Trust's transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of Series H Preferred Shares to be converted; and (iii) that the Series H Preferred Shares are to be converted pursuant to the applicable provisions of the Series H Preferred Shares. Notwithstanding the foregoing, if the Series H Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company (“DTC”). (f) Holders of Series H Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Trust's transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn Series H Preferred Shares; (ii) if certificated Series H Preferred Shares have been issued, the certificate numbers of the withdrawn Series H Preferred Shares; and (iii) the number of Series H Preferred Shares, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the Series H Preferred Shares are held in global form, the notice of withdrawal shall comply with applicable procedures of DTC. (g) Series H Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem such Series H Preferred Shares, whether pursuant to its Redemption Right or Special Optional Redemption Right. If the Trust elects to redeem Series H Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series H Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to and including the redemption date. (h) The Trust shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of Control Conversion Date. (i) Notwithstanding anything to the contrary contained herein, no holder of Series H Preferred Shares will be entitled to convert such Series H Preferred Shares into Common Shares to the extent that receipt of such Common Shares would cause the holder of such Common Shares (or any other person) to Beneficially Own or Constructively Own, within the meaning of the Declaration of Trust, Common Shares of the Trust in excess of the Ownership Limit, as such term is defined in the Declaration of Trust, as applicable. 10. Application of Article VII. The Series H Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. THIRD: The Series H Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and 76 Taxation of Maryland accepts these Articles Supplementary for record. SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 77 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on January 20, 2011. WITNESS: LASALLE HOTEL PROPERTIES /s/ Hans S. Weger Hans S. Weger Secretary By: 78 /s/ Michael D. Barnello Michael D. Barnello President and Chief Executive Officer LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 6.375% SERIES I CUMULATIVE REDEEMABLE PREFERRED SHARES, $.01 PAR VALUE PER SHARE LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), having its principal office in Bethesda, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Trustees by Article VI Section 6.3 of the Articles of Amendment and Restatement of Declaration of Trust, dated April 24, 1998, as amended (the “Declaration of Trust”), the Trustees have duly classified and designated 4,600,000 Preferred Shares (as defined in the Declaration of Trust) of the Trust as 6.375% Series I Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share, of the Trust (“Series I Preferred Shares”). SECOND: The preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the Series I Preferred Shares are as follows, 6.375% Series I Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share 1. Designation and Number. A series of Preferred Shares, designated the “6.375% Series I Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share”, is hereby established. The number of authorized Series I Preferred Shares shall be 4,600,000. 2. Relative Seniority. The Series I Preferred Shares will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares (as defined in the Declaration of Trust) and to all equity securities the terms of which provide that such equity securities shall rank junior to such Series I Preferred Shares; (b) on a parity with all equity securities issued by the Trust, other than those equity securities referred to in clauses (a) and (c); and (c) junior to all equity securities issued by the Trust which rank senior to the Series I Preferred Shares in accordance with Section 7(d) hereof. The term “equity securities” shall not include convertible debt securities. 3. Distributions. (a) Holders of Series I Preferred Shares shall be entitled to receive, when and as authorized by the Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of 6.375% per annum of the twenty-five dollars ($25.00) per share liquidation preference of the Series I Preferred Shares (equivalent to a fixed annual amount of $1.59375 per share). Such distributions shall accumulate on a daily basis and be cumulative from (but excluding) the original date of issuance and be payable quarterly in equal amounts in arrears on or about the fifteenth day of each January, April, July and October of each year, beginning on April 15, 2013 (each such day being hereinafter called a “Distribution Payment Date”); provided that if any Distribution Payment Date is not a Business Day (as hereinafter defined), then the distribution which would otherwise have been payable on such Distribution Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Distribution Payment Date, and no interest or additional distributions or other sums shall accrue on the amount so payable from such Distribution Payment Date to such next succeeding Business Day. Any distribution payable on the Series I Preferred Shares for any partial distribution period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions shall be payable to holders of record as they appear in the share records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Distribution Payment Date falls or such other date designated by the Trustees for the payment of distributions that is not more than 90 nor less than 10 days prior to such Distribution Payment Date (each, a “Distribution Record Date”). (b) No distribution on the Series I Preferred Shares shall be authorized by the Trustees or paid or set aside for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such authorization, payment or setting aside of funds or provides that such authorization, payment or setting aside of funds would constitute a breach thereof, or a default thereunder, or if such authorization, payment or setting aside of funds shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, distributions on the Series I Preferred Shares shall accrue whether or not the restrictions referred to in clause (b) exist, whether or not the Trust has earnings, whether or not there 79 are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accrued but unpaid distributions on the Series I Preferred Shares will accumulate as of the Distribution Payment Date on which they first become payable or on the date of redemption as the case may be. Accrued but unpaid distributions will not bear interest. (d) If any Series I Preferred Shares are outstanding, no distributions will be authorized or paid or set apart for payment on any equity securities of the Trust of any other class or series ranking, as to distributions, on a parity with or junior to the Series I Preferred Shares unless full cumulative distributions have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for such payment on the Series I Preferred Shares for all past distribution periods. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series I Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series I Preferred Shares, all distributions authorized, paid or set apart for payment upon the Series I Preferred Shares and all other equity securities ranking on a parity, as to distributions, with the Series I Preferred Shares shall be authorized and paid pro rata or authorized and set apart for payment pro rata so that the amount of distributions authorized per Series I Preferred Share and each such other equity security shall in all cases bear to each other the same ratio that accrued distributions per Series I Preferred Share and other equity security (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such equity securities do not have a cumulative distribution) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series I Preferred Shares which may be in arrears. (e) Except as provided in clause (d), unless full cumulative distributions on the Series I Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof is set apart for payment for all past distribution periods, no distributions (other than in Common Shares or other equity securities of the Trust ranking junior to the Series I Preferred Shares as to distributions and upon liquidation) shall be authorized or paid or set apart for payment nor shall any other distribution be authorized or made upon the Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series I Preferred Shares as to distributions or upon liquidation, nor shall any Common Shares or any other equity securities of the Trust ranking junior to or on a parity with the Series I Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such equity securities) by the Trust (except by conversion into or exchange for other equity securities of the Trust ranking junior to the Series I Preferred Shares as to distributions and upon liquidation, by redemption, purchase or acquisition of equity securities under incentive, benefit or share purchase plans of the Trust for officers, Trustees or employees or others performing or providing similar services, or by other redemption, purchase or acquisition of such equity securities for the purpose of preserving the Trust's status as a real estate investment trust (“REIT”) for federal income tax purposes). (f) Holders of Series I Preferred Shares shall not be entitled to any distribution, whether payable in cash, property or shares, in excess of full cumulative distributions on the Series I Preferred Shares as described above. Any distribution payment made on the Series I Preferred Shares shall first be credited against the earliest accrued and unpaid distribution due with respect to such shares which remains payable. (g) In determining whether a distribution by dividend, redemption or other acquisition of the Trust's equity securities is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution. (h) “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. 4. Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust (referred to herein sometimes as a “liquidation”), the holders of Series I Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Trust legally available for distribution to shareholders (after payment or provision for payment of all debts and other liabilities of the Trust), liquidating distributions in cash or property at fair market value as determined by the Trustees equal to a liquidation preference of Twenty-five Dollars ($25.00) per Series I Preferred Share, plus an amount equal to all accrued and unpaid distributions to and including the date of payment, before any distribution of assets is made to holders of Common Shares or any other equity securities of the Trust that rank junior to the Series I Preferred Shares as to liquidation rights. 80 (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Trust, the assets of the Trust are insufficient to make full payment to holders of Series I Preferred Shares and to the corresponding amounts payable on all shares of other classes or series of equity securities of the Trust ranking on a parity with the Series I Preferred Shares as to liquidation rights, then the holders of the Series I Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 days nor more than 60 days prior to the payment date stated therein, to each record holder of the Series I Preferred Shares at the respective address of such holders as the same shall appear on the share transfer records of the Trust. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series I Preferred Shares will have no right or claim to any of the remaining assets of the Trust. (e) None of a consolidation or merger of the Trust with or into another entity, a merger of another entity with or into the Trust, a statutory share exchange by the Trust or a sale, lease, transfer or conveyance of all or substantially all of the Trust's property or business shall be considered a liquidation of the Trust. 5. Redemption (a) Except as described in Section 6 below and this Section 5, the Series I Preferred Shares are not redeemable prior to March 4, 2018. To ensure that the Trust remains qualified as a REIT for federal income tax purposes, however, the Series I Preferred Shares shall be subject to the provisions of Article VII of the Declaration of Trust pursuant to which Series I Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in Article VII of the Declaration of Trust) shall automatically be transferred to a Charitable Trust (as defined in Article VII of the Declaration of Trust) and the Trust shall have the right to purchase such shares, as provided in Article VII of the Declaration of Trust. On and after March 4, 2018, the Trust, at its option, upon giving notice as provided below, may redeem the Series I Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of twenty-five dollars ($25.00) per share, plus all accrued and unpaid distributions on such Series I Preferred Shares to and including the date of such redemption (the “Redemption Right”). (b) If fewer than all of the outstanding Series I Preferred Shares are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series I Preferred Shares would become a holder of a number of Series I Preferred Shares in excess of the Ownership Limit because such holder's Series I Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series I Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series I Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods, no Series I Preferred Shares shall be redeemed unless all outstanding Series I Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series I Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series I Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series I Preferred Shares. In addition, unless full cumulative distributions on all Series I Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series I Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series I Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series I Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series I Preferred Shares). (d) Immediately prior to any redemption of Series I Preferred Shares, the Trust shall pay, in cash, any accrued and unpaid distributions through the redemption date, unless a redemption date falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series I Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution 81 Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series I Preferred Shares for which a notice of redemption has been given. (e) The following provisions set forth the procedures for redemption pursuant to the Redemption Right: (i) Notice of redemption will be mailed by the Trust, postage prepaid, no less than 30 days nor more than 60 days before the redemption date, addressed to the respective holders of record of the Series I Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series I Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series I Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series I Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series I Preferred Shares are to be surrendered for payment of the redemption price; and (E) that distributions on the Series I Preferred Shares to be redeemed will cease to accrue on such redemption date. If fewer than all of the Series I Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series I Preferred Shares held by such holder to be redeemed. (iii) On or after the redemption date, each holder of Series I Preferred Shares to be redeemed shall present and surrender the certificates representing his Series I Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accrued and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series I Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series I Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (iv) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series I Preferred Shares designated for redemption in such notice shall cease to accrue and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accrued and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accrued and unpaid distributions to the redemption date) of the Series I Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series I Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accrued and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series I Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (f) Any Series I Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 6. Special Optional Redemption by the Trust. (a) Upon the occurrence of a Change of Control (as defined below), the Trust will have the option upon written notice mailed by the Trust, postage pre-paid, no less than 30 days nor more than 60 days before the redemption date and addressed to the holders of record of the Series I Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Trust, to redeem the Series I Preferred Shares, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at twenty-five dollars ($25.00) per share, plus accrued and unpaid distributions, if any, to and including the redemption date (“Special Optional Redemption Right”). No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series I Preferred Shares except as to the holder to whom notice was defective or not given. If, prior to the Change of Control Conversion Date (as defined below), the Trust has provided or provides notice of redemption with respect to the Series I 82 Preferred Shares (whether pursuant to the Redemption Right or the Special Optional Redemption Right), the holders of Series I Preferred Shares will not have the conversion right described below in Section 9. A “Change of Control” is when, after the original issuance of the Series I Preferred Shares, the following have occurred and are continuing: (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Trust entitling that person to exercise more than 50% of the total voting power of all shares of the Trust entitled to vote generally in elections of Trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), and (ii) following the closing of any transaction referred to in (i) above, neither the Trust nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (“NYSE”), the NYSE MKT, or the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ. (b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series I Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series I Preferred Shares to be redeemed; (D) the place or places where the certificates for the Series I Preferred Shares are to be surrendered for payment of the redemption price; (E) that the Series I Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control; (F) that holders of the Series I Preferred Shares to which the notice relates will not be able to tender such Series I Preferred Shares for conversion in connection with the Change of Control and each Series I Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date; and (G) that distributions on the Series I Preferred Shares to be redeemed will cease to accrue on such redemption date. If fewer than all of the Series I Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series I Preferred Shares held by such holder to be redeemed. If fewer than all of the outstanding Series I Preferred Shares are to be redeemed pursuant to the Special Optional Redemption Right, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or in such other equitable method prescribed by the Trustees. If such redemption is to be by lot and, as a result of such redemption, any holder of Series I Preferred Shares would become a holder of a number of Series I Preferred Shares in excess of the Ownership Limit because such holder's Series I Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Trust will redeem the requisite number of Series I Preferred Shares of such holder such that no holder will hold in excess of the Ownership Limit subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative distributions on all Series I Preferred Shares shall have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods, no Series I Preferred Shares shall be redeemed unless all outstanding Series I Preferred Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase by the Trust of Series I Preferred Shares pursuant to Article VII of the Declaration of Trust or otherwise in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series I Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all Series I Preferred Shares. In addition, unless full cumulative distributions on all Series I Preferred Shares have been or contemporaneously are authorized and paid or authorized and a sum sufficient for the payment thereof set apart for payment for all past distribution periods, the Trust shall not purchase or otherwise acquire directly or indirectly for any consideration, nor shall any monies be paid to or be made available for a sinking fund for the redemption of, any Series I Preferred Shares (except by conversion into or exchange for equity securities of the Trust ranking junior to the Series I Preferred Shares as to distributions and upon liquidation; provided, however , that the foregoing shall not prevent any purchase or acquisition of Series I Preferred Shares for the purpose of preserving the Trust's status as a REIT or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series I Preferred Shares). (d) Immediately prior to any redemption of Series I Preferred Shares pursuant to the Special Optional Redemption Right, the Trust shall pay, in cash, any accrued and unpaid distributions through the redemption date, unless a redemption date 83 falls after a Distribution Record Date and prior to the corresponding Distribution Payment Date, in which case each holder of Series I Preferred Shares at the close of business on such Distribution Record Date shall be entitled to the distribution payable on such shares on the corresponding Distribution Payment Date (including any accrued and unpaid distributions for prior periods) notwithstanding the redemption of such shares before such Distribution Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series I Preferred Shares for which a notice of redemption has been given. (e) On or after the redemption date, each holder of Series I Preferred Shares to be redeemed shall present and surrender the certificates representing his Series I Preferred Shares to the Trust at the place designated in the notice of redemption and thereupon the redemption price of such shares (including all accrued and unpaid distributions up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate evidencing Series I Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares evidenced by any such certificate evidencing Series I Preferred Shares are to be redeemed, a new certificate shall be issued evidencing the unredeemed shares. (f) From and after the redemption date (unless the Trust defaults in payment of the redemption price), all distributions on the Series I Preferred Shares designated for redemption in such notice shall cease to accrue and all rights of the holders thereof, except the right to receive the redemption price thereof (including all accrued and unpaid distributions up to the redemption date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Trust) on the Trust's share transfer records, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election, the Trust, prior to a redemption date, may irrevocably deposit the redemption price (including accrued and unpaid distributions to the redemption date) of the Series I Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series I Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates evidencing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accrued and unpaid distributions to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series I Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Trust. (g) Any Series I Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are once more designated as part of a particular series by the Trustees. 7. Voting Rights. (a) Holders of the Series I Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law. In any matter in which the holders of Series I Preferred Shares are entitled to vote, each such holder shall have the right to one vote for each Series I Preferred Share held by such holder. If the holders of the Series I Preferred Shares and the holders of another series of preferred shares are entitled to vote together as a single class on any matter, the holders of the Series I Preferred Shares and the holders of such other preferred shares shall each have one vote for each $25.00 of liquidation preference. (b) Whenever distributions on any Series I Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Distribution Default”), the holders of Series I Preferred Shares (voting separately as a single class together with all other equity securities upon which like voting rights have been conferred and are exercisable (“Parity Preferred Shares”)) will be entitled to vote for the election of a total of two additional trustees of the Trust (each, a “Preferred Share Trustee”) at a special meeting called by the holders of at least 10% of the outstanding Series I Preferred Shares or the holders of at least 10% of any other series of Parity Preferred Shares so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders) or, if the request for a special meeting is received by the Trust less than 90 days before the date fixed for the next annual or special meeting of shareholders, at the next annual meeting of shareholders, and at each subsequent annual meeting until all distributions accrued on the Series I Preferred Shares for the past distribution periods and the then current distribution period shall have been fully paid or authorized and a sum sufficient for the payment thereof set apart for payment in full. (c) If and when all accrued distributions and the distribution for the then current distribution period on the Series I Preferred Shares shall have been paid in full or authorized and set aside for payment in full, the holders of Series I Preferred Shares shall be divested of the voting rights set forth in clause (b) above (subject to revesting in the event of each and every Preferred Distribution Default) and, if all accrued distributions and the distribution for the current distribution period have been 84 paid in full or authorized by the Trustees and set aside for payment in full on all other series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series I Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series I Preferred Shares when they have the voting rights set forth in clause (b) above and all other series of Parity Preferred Shares (voting as a single class). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter. (d) So long as any Series I Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series I Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of equity securities ranking senior to the Series I Preferred Shares with respect to payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, or reclassify any authorized equity securities of the Trust into any such equity securities, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such equity securities; or (ii) amend, alter or repeal the provisions of the Declaration of Trust (including these Articles Supplementary), whether by merger or consolidation (in either case, an “Event”) or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series I Preferred Shares or the holders thereof; provided, however , that with respect to the occurrence of any Event set forth in (ii) above, so long as Series I Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event, the Trust may not be the surviving entity and such surviving entity may thereafter be the issuer of the Series I Preferred Shares, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series I Preferred Shares or the holders thereof; and provided further that (x) any increase in the amount of the authorized Preferred Shares or the creation or issuance of any other class or series of equity securities, or (y) any increase in the amount of authorized Series I Preferred Shares or any other class or series of equity securities, in the case of each of (x) or (y) above ranking on a parity with or junior to the Series I Preferred Shares with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series I Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 8. Information Rights. During any period in which the Trust is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Series I Preferred Shares are outstanding, the Trust will (i) transmit by mail or other permissible means under the Exchange Act to all holders of the Series I Preferred Shares, as their names and addresses appear in the Trust's record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Trust would have been required to file with the Securities and Exchange Commission (the “SEC”), pursuant to Section 13 or Section 15(d) of the Exchange Act if the Trust were subject thereto (other than any exhibits that would have been required), and (ii) within 15 days following written request, supply copies of such reports to any prospective holder of the Series I Preferred Shares. The Trust will mail (or otherwise provide) the reports to the holders of Series I Preferred Shares within 15 days after the respective dates by which the Trust would have been required to file such reports with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we were a “non-accelerated filer” within the meaning of the Exchange Act. 9. Conversion. The Series I Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust, except as provided in this Section 9. (a) Upon the occurrence of a Change of Control, each holder of Series I Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem the Series I Preferred Shares pursuant to the Redemption Right or Special Optional Redemption Right, to convert some or all of the Series I Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of Common Shares per Series I Preferred Share (the “Common Share Conversion Consideration”) equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference per Series I Preferred Share to be converted, plus (y) the amount of any accrued and unpaid distributions to and including the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Distribution Record Date and prior to the 85 corresponding Distribution Payment Date, in which case no additional amount for such accrued and unpaid distribution will be included in such sum), by (ii) the Common Share Price (as defined below) (such quotient, the “Conversion Rate”), and (B) 2.0080 (the “Share Cap”), subject to the immediately succeeding paragraph. The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a Common Share distribution), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split shall be the number of Common Shares that is equivalent to the product of (i) the Share Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split. For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 8,032,000 Common Shares (or equivalent Alternative Conversion Consideration, as applicable), subject to increase to the extent the underwriters' over-allotment option to purchase additional Series I Preferred Shares in the initial public offering of Series I Preferred Shares is exercised, not to exceed 9,236,800 Common Shares in total (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap. In the case of a Change of Control pursuant to which Common Shares shall be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of Series I Preferred Shares shall receive upon conversion of such Series I Preferred Shares the kind and amount of Alternative Form Consideration which such holder of Series I Preferred Shares would have owned or been entitled to receive upon the Change of Control had such holder of Series I Preferred Shares held a number of Common Shares equal to the Common Share Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; and the Common Share Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, shall be referred to herein as the “Conversion Consideration”). In the event that holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of Series I Preferred Shares shall receive shall be the form of consideration elected by the holders of the Common Shares who participate in the determination (based on the weighted average of elections) and shall be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control. The “Change of Control Conversion Date” shall be a Business Day set forth in the notice of Change of Control provided in accordance with clause (c) below that is no less than 20 days nor more than 35 days after the date on which the Trust provides such notice pursuant to clause (c) below. The “Common Share Price” shall be (i) if the consideration to be received in the Change of Control by holders of Common Shares is solely cash, the amount of cash consideration per Common Share, and (ii) if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash, the average of the closing price per Common Share on the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control. (b) No fractional Common Shares shall be issued upon the conversion of Series I Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price. (c) Within 15 days following the occurrence of a Change of Control, a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, shall be delivered to the holders of record of the Series I Preferred Shares at their addresses as they appear on the Trust's share transfer records and notice shall be provided to the Trust's transfer agent. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any Series I Preferred Shares except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series I Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date, which shall be a Business Day occurring within 20 to 35 days following the date of such notice; (vi) that if, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem all or any portion of the Series I Preferred Shares, the holder will not be able to convert Series I Preferred Shares and such Series I Preferred Shares shall be redeemed on 86 the related redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series I Preferred Share; (viii) the name and address of the paying agent and the conversion agent; and (ix) the procedures that the holders of Series I Preferred Shares must follow to exercise the Change of Control Conversion Right. (d) The Trust shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Trust's website, in any event prior to the opening of business on the first Business Day following any date on which the Trust provides notice pursuant to clause (c) above to the holders of Series I Preferred Shares. (e) In order to exercise the Change of Control Conversion Right, a holder of Series I Preferred Shares shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) evidencing the Series I Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Trust's transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of Series I Preferred Shares to be converted; and (iii) that the Series I Preferred Shares are to be converted pursuant to the applicable provisions of the Series I Preferred Shares. Notwithstanding the foregoing, if the Series I Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company (“DTC”). (f) Holders of Series I Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Trust's transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn Series I Preferred Shares; (ii) if certificated Series I Preferred Shares have been issued, the certificate numbers of the withdrawn Series I Preferred Shares; and (iii) the number of Series I Preferred Shares, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the Series I Preferred Shares are held in global form, the notice of withdrawal shall comply with applicable procedures of DTC. (g) Series I Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Trust has provided or provides notice of its election to redeem such Series I Preferred Shares, whether pursuant to its Redemption Right or Special Optional Redemption Right. If the Trust elects to redeem Series I Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series I Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid distributions thereon to and including the redemption date. (h) The Trust shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of Control Conversion Date. (i) Notwithstanding anything to the contrary contained herein, no holder of Series I Preferred Shares will be entitled to convert such Series I Preferred Shares into Common Shares to the extent that receipt of such Common Shares would cause the holder of such Common Shares (or any other person) to Beneficially Own or Constructively Own, within the meaning of the Declaration of Trust, Common Shares of the Trust in excess of the Ownership Limit, as such term is defined in the Declaration of Trust, as applicable. 10. Application of Article VII. The Series I Preferred Shares are subject to the provisions of Article VII of the Declaration of Trust. THIRD: The Series I Preferred Shares have been classified and designated by the Trustees under the authority contained in the Declaration of Trust. FOURTH: These Articles Supplementary have been approved by the Trustees in the manner and by the vote required by law. FIFTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. 87 SIXTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 88 IN WITNESS WHEREOF, LASALLE HOTEL PROPERTIES has caused these Articles Supplementary to be signed in its name and on its behalf by its President and witnessed by its Secretary on March 1, 2013. WITNESS: By: LASALLE HOTEL PROPERTIES /s/ Bruce A. Riggins Bruce A. Riggins Secretary By: 89 /s/ Michael D. Barnello Michael D. Barnello President and Chief Executive Officer LASALLE HOTEL PROPERTIES ARTICLES OF AMENDMENT TO AMENDED AND RESTATED DECLARATION OF TRUST The undersigned, having been authorized by the Board of Trustees (the “Board”) of LaSalle Hotel Properties, a Maryland real estate investment trust (the “Trust”), does hereby certify pursuant to the provisions of Article X of the Articles of Amendment and Restatement of the Declaration of Trust of the Trust, as amended (the “Declaration of Trust”), filed with the Maryland Department of Assessments and Taxation (the “Department”) on April 27, 1998, and in accordance with the applicable provisions of Maryland law, that: 1.The Board has unanimously adopted resolutions to amend the Declaration of Trust as hereinafter set forth and has declared that such amendment is advisable. 2.Pursuant to Section 10.3 of the Declaration of Trust, the amendment to the Declaration of Trust set forth below shall be approved by the shareholders of the Trust by the affirmative vote of not less than two-thirds of all the votes entitled to be cast on the matter. 3.The amendment has been approved by the shareholders of the Trust by the affirmative vote of not less than two-thirds of all the votes entitled to be cast on the matter by the shareholders entitled to notice of, and to vote at, the annual meeting of the shareholders of the Trust held on May 7, 2014. 4.Therefore, the Declaration of Trust is hereby amended by deleting Section 5.4 in its entirety and inserting in its place, the following: Section 5.4 Number and Classification. The number of Trustees (the “Trustees”) is seven, which number may be increased or decreased from time to time by the Board of Trustees in accordance with the Bylaws, except that the total number of Trustees shall be not less than three (3) and not greater than nine (9). Notwithstanding the foregoing, if for any reason any or all of the Trustees cease to be Trustees, such event shall not terminate the Trust or affect this Declaration of Trust or the powers of any remaining Trustees. Except for Trustees elected solely by holders of one or more series of Preferred Shares and subject to the phasing-in process described below, the Trustees shall be elected at every annual meeting of shareholders beginning with the annual meeting of shareholders in 2015 in the manner provided in the Bylaws or, in order to fill any vacancy on the Board of Trustees, in the manner provided in the Bylaws. The Trustees may fill any vacancy, whether resulting from an increase in the number of Trustees or otherwise, on the Board of Trustees. Trustees shall hold office until their successors are duly elected and qualify. Election of Trustees by Shareholders shall require the vote and be in accordance with the procedures set forth in the Bylaws. It shall not be necessary to list in this Declaration of Trust the names and addresses of any Trustees hereinafter elected. The class of Trustees whose current term expires at the annual meeting of shareholders in 2015 shall hold office until that term expires and the successors to that class of Trustees shall be elected for a one-year term to hold office until the 2016 annual meeting of shareholders and until their successors are duly elected and qualify. The class of Trustees whose current term expires at the annual meeting of shareholders in 2016 shall hold office until that term expires and the successors to that class of Trustees, together with Trustees elected at the 2015 annual meeting of shareholders, shall be elected for a one-year term to hold office until the 2017 annual meeting of shareholders and until their successors are duly elected and qualify. The class of Trustees elected at the annual meeting of shareholders in 2014 whose term expires at the annual meeting of shareholders in 2017 shall hold office until that term expires and the successors to that class of Trustees, together with all other Trustees, shall be elected for a one-year term to hold office until the 2018 annual meeting of shareholders and until their successors are duly elected and qualify. 5.This amendment to the Declaration of Trust has not changed the information required by subsection (b)(2)(i) of Section 2-607 of the Maryland General Corporation Law. 6.This amendment to the Declaration of Trust shall be effective at the time the Department accepts these Articles of Amendment for record. 7.The undersigned President and Chief Executive Officer of the Trust acknowledges these Articles of Amendment to be the act of the Trust and as to all matters or facts required to be verified under oath, the undersigned President 1 and Chief Executive Officer acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury. [Signature page follows] 2 IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment to be signed in its name and on its behalf by its President and Chief Executive Officer and attested to by its Secretary as of May 8, 2014. LASALLE HOTEL PROPERTIES [SEAL] /s/ Michael D. Barnello Michael D. Barnello President and Executive Officer ATTEST: /s/ Bruce A. Riggins Bruce A. Riggins Chief Financial Officer [Signature page to Articles of Amendment] LASALLE HOTEL PROPERTIES ARTICLES SUPPLEMENTARY LASALLE HOTEL PROPERTIES, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Under a power contained in Section 3-802(c) of Title 3, Subtitle 8 of the Maryland General Corporation Law (the “MGCL”), the Trust, by resolution of its Board of Trustees (the “Board”) duly adopted at a meeting duly called and held, prohibited the Trust from electing to be subject to Section 3-803 of the MGCL as provided herein. SECOND: The resolution referred to above provides that the Trust is prohibited from electing to be subject to the provisions of Section 3-803 of the MGCL, and that the foregoing prohibition may not be repealed unless the repeal of such prohibition is approved by the shareholders of the Trust by the affirmative vote of at least a majority of the votes cast on the matter by shareholders entitled to vote generally in the election of trustees. THIRD: The action to prohibit the Trust from becoming subject to Section 3-803 of the MGCL without the shareholder approval referenced above has been approved by the Board in the manner and by the vote required by law. FOURTH: The undersigned President and Chief Executive Officer of the Trust acknowledges these Articles Supplementary to be the act of the Trust and as to all matters or facts required to be verified under oath, the undersigned President and Chief Executive Officer acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury. [Signature page follows] IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be signed in its name and on its behalf by its President and Chief Executive Officer and attested to by its Secretary as of December 19, 2014. LASALLE HOTEL PROPERTIES [SEAL] /s/ Michael D. Barnello Michael D. Barnello President and Chief Executive Officer ATTEST: /s/ Bruce A. Riggins Bruce A. Riggins Chief Financial Officer and Secretary Exhibit 12.1 LaSalle Hotel Properties Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends (in thousands, except ratio data) (unaudited) For the year ended December 31, 2014 2013 2012 2011 2010 (A) Net income (loss) attributable to common shareholders $ 197,561 $ 70,984 $ 45,146 $ 12,934 $ (24,793) Discontinued operations 0 0 0 (796) 851 2,306 470 9,062 652 320 281 73,848 75,550 74,999 70,115 63,454 0 0 0 0 8,427 690 683 840 792 749 0 (400) 0 (649) 0 (370) 0 (459) 0 (200) Income tax expense 7,048 5,075 Noncontrolling interests (1) (191) Fixed charges Impairment of investment in hotel property Amortization of capitalized interest Distributions from unconsolidated entities Capitalized interest Earnings $ 274,657 $ 147,358 $ 129,958 $ 89,633 $ 53,372 $ 54,459 $ 55,263 $ 50,981 $ 38,737 $ 35,593 Fixed Charges Interest Loss on extinguishment of debt 2,487 0 0 0 0 400 649 370 459 200 2,169 2,253 1,915 967 907 14,333 17,385 21,733 29,952 26,754 Capitalized interest Amort. of discounts and capitalized cost related to indebtness Preference security dividends Total fixed charges and preference security dividends Ratio of earnings to combined fixed charges and preferred share dividends (A) $ 73,848 3.72 $ 75,550 1.95 $ 74,999 1.73 $ 70,115 1.28 $ 63,454 0.84 The shortfall of earnings to combined fixed charges and preferred share dividends for the year ended December 31, 2010 was approximately $10,082. Exhibit 21.1 List of Subsidiaries 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. LaSalle Hotel Operating Partnership, L.P. LHO Hollywood Financing, Inc. (QRS) LHO New Orleans Financing, Inc. LHO Hollywood LM, LP LHO New Orleans LM, LP LHO Viking Hotel, LLC LHO Harborside Hotel, LLC LHO Mission Bay Hotel, LP LHO San Diego Financing, LLC LaSalle Washington One Lessee, Inc. LHO Washington Hotel One, LLC LHO Washington Hotel Two, LLC LHO Washington Hotel Three, LLC LHO Washington Hotel Four, LLC I&G Capital, LLC LaSalle Hotel Lessee, Inc. LHO Leesburg One Lessee, Inc. LHO Washington Hotel Six, LLC LHO Indianapolis One Lessee, LLC LHO Indianapolis Hotel One MM, LLC LHO Indianapolis Hotel One CMM, Inc. LHO Indianapolis Hotel One, LLC LHO Alexandria One, LLC LHO Alexandria One Lessee, LLC LHO Santa Cruz Hotel One, LLC LHO San Diego Hotel One, LLC LHO San Diego Hotel One, LP LHO Santa Cruz Hotel One, LP LHO San Diego One Lessee, Inc. LHO Santa Cruz One Lessee, Inc. LHO Grafton Hotel, LP LHO Grafton Hotel Lessee, Inc. LHO Grafton Hotel, LLC Park Sunset, LLC LHO Onyx One Lessee, LLC LHO Onyx Hotel One, LLC LHO Badlands, LLC LHO Badlands Lessee, LLC LHO Le Parc, LLC LHO Le Parc, LP LHO Le Parc Lessee, Inc. Westban Hotel Investors, LLC LHO Backstreets, LLC LHO Backstreets Lessee, LLC LHO Tom Joad Circle DC Lessee, LLC 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. LHO Tom Joad Circle DC, LLC LHO Mission Bay Rosie Hotel, LLC LHO Mission Bay Rosie Hotel, LP LHO Mission Bay Rosie Lessee, Inc. LHO Alexis Hotel, LLC LHO Alexis Lessee, LLC LHO Chicago River, LLC LHO Chicago River Lessee, LLC LHO Michigan Avenue Freezeout Lessee, LLC LHO Michigan Avenue Freezeout, LLC Lucky Town Burbank, LP Lucky Town Burbank Lessee, Inc. Lucky Town Burbank, LLC NYC Serenade Lessee, LLC NYC Serenade, LLC Souldriver Lessee, Inc. Souldriver, LLC Souldriver, LP Ramrod Lessee, Inc. Paradise Lessee, Inc. Glass Houses DC One Lessee, LLC DC Two Lessee, LLC DC Three Lessee, LLC DC Four Lessee, LLC DC Six Lessee, LLC DC I&G Capital Lessee, LLC DA Entity, LLC RDA Entity, Inc. H Street Shuffle, LLC H Street Shuffle Lessee, LLC Wild Innocent I, LP Wild I, LLC Innocent I, LLC Wild Innocent I Lessee, LLC Chimes of Freedom, LLC Chimes I, LLC Of Freedom I, LLC Chimes of Freedom Lessee, LLC Geary Darling, LP Geary Darling, LLC Geary Darling Lessee, Inc. RW New York, LLC RW New York Lessee, LLC Chamber Maid, LP 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. Chamber Maid, LLC Chamber Maid Lessee, Inc. Seaside Hotel, LP Seaside Hotel, LLC Seaside Hotel Lessee, Inc. Let It FLHO, LP Let It FLHO, LLC Let It FLHO Lessee, Inc. PC Festivus, LLC PC Festivus Lessee, LLC Micasa Shucasa, LLC Silver P, LLC Silver P Lessee, LLC LHOberge, LP LHOberge, LLC LHOberge Lessee, Inc. Don't Look Back, LLC Look Forward, LLC Don't Look Back Lessee, LLC Look Forward Lessee, LLC Dim Sum, LP Dim Sum, LLC Dim Sum Lessee, Inc. Fun to Stay, LP Fun to Stay, LLC Fun to Stay Lessee, Inc. Serenity Now, LP Serenity Now, LLC Serenity Now Lessee, Inc. Sunset City, LLC Sunset City Lessee, LLC SF Treat, LP SF Treat, LLC SF Treat Lessee, Inc. PDX Pioneer, LLC PDX Pioneer Lessee, LLC Bonanza, LP Bonanza, LLC Bonanza Lessee, Inc. Viva Soma, LP Viva Soma, LLC Viva Soma Lessee, Inc. Exhibit 23.1 Consent of Independent Registered Public Accounting Firm The Board of Trustees LaSalle Hotel Properties: We consent to the incorporation by reference in the registration statements on Forms S-3 (No. 333-185081) and on Forms S-8 (Nos. 333-196411, 333-158873, 333-125058, 333-104056, 333-86911, and 333-72265) of LaSalle Hotel Properties of our reports dated February 18, 2015, with respect to the consolidated balance sheets of LaSalle Hotel Properties as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 10-K of LaSalle Hotel Properties. Our reports refer to a change in the method of accounting for discontinued operations. /s/ KPMG LLP Chicago, Illinois February 18, 2015 Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael D. Barnello, certify that: 1. I have reviewed this Annual Report on Form 10-K of LaSalle Hotel Properties; 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 directors (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. Date: February 18, 2015 /s/ MICHAEL D. BARNELLO Michael D. Barnello President and Chief Executive Officer Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Bruce A. Riggins, certify that: 1. I have reviewed this Annual Report on Form 10-K of LaSalle Hotel Properties; 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 directors (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. Date: February 18, 2015 /s/ BRUCE A. RIGGINS Bruce A. Riggins Executive Vice President and Chief Financial Officer Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer 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 LaSalle Hotel Properties (“LHO”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Officers of LHO, 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, containing the financial statements, 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 LHO. Date: February 18, 2015 /s/ MICHAEL D. BARNELLO Michael D. Barnello President and Chief Executive Officer /s/ BRUCE A. RIGGINS Bruce A. Riggins Executive Vice President and Chief Financial Officer