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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________

Commission File Number: 001-32514
DIAMONDROCK HOSPITALITY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Maryland20-1180098
(State of Incorporation)(I.R.S. Employer Identification No.)
  
2 Bethesda Metro Center, Suite 1400, Bethesda,Maryland20814
(Address of Principal Executive Offices)(Zip Code)

(240744-1150
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareDRHNew York Stock Exchange
8.250% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per shareDRH Pr ANew York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filerNon-accelerated filerSmaller reporting company
 Emerging growth company

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




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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The registrant had 210,923,015 shares of its $0.01 par value common stock outstanding as of August 4, 2022.



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INDEX
  
 Page No.
  
 
  
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  



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PART I. FINANCIAL INFORMATION
Item I.Financial Statements

DIAMONDROCK HOSPITALITY COMPANY

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30, 2022December 31, 2021
ASSETS(unaudited) 
Property and equipment, net$2,689,059 $2,651,444 
Right-of-use assets99,617 100,212 
Restricted cash42,354 36,887 
Due from hotel managers174,407 120,671 
Prepaid and other assets67,656 17,472 
Cash and cash equivalents71,713 38,620 
Total assets$3,144,806 $2,965,306 
LIABILITIES AND EQUITY  
Liabilities:  
Mortgage and other debt, net of unamortized debt issuance costs$571,192 $578,651 
Unsecured term loans, net of unamortized debt issuance costs398,822 398,572 
Senior unsecured credit facility200,000 90,000 
Total debt1,170,014 1,067,223 
Lease liabilities109,708 108,605 
Deferred rent63,064 60,800 
Due to hotel managers106,048 85,493 
Unfavorable contract liabilities, net61,898 62,780 
Accounts payable and accrued expenses43,162 51,238 
Deferred income related to key money, net8,996 8,203 
Total liabilities1,562,890 1,444,342 
Equity:  
Preferred stock, $0.01 par value; 10,000,000 shares authorized:
8.250% Series A Cumulative Redeemable Preferred Stock (liquidation preference $25.00 per share), 4,760,000 shares issued and outstanding at June 30, 2022 and December 31, 2021
48 48 
Common stock, $0.01 par value; 400,000,000 shares authorized; 210,923,015 and 210,746,895 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
2,109 2,107 
Additional paid-in capital2,296,864 2,293,990 
Distributions in excess of earnings(723,294)(780,931)
Total stockholders’ equity1,575,727 1,515,214 
Noncontrolling interests6,189 5,750 
Total equity1,581,916 1,520,964 
Total liabilities and equity$3,144,806 $2,965,306 

The accompanying notes are an integral part of these consolidated financial statements.
-1-


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DIAMONDROCK HOSPITALITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues:  
Rooms$193,025 $86,896 $325,195 $137,308 
Food and beverage68,606 25,614 114,354 39,539 
Other19,776 12,281 38,691 20,881 
Total revenues281,407 124,791 478,240 197,728 
Operating Expenses:  
Rooms42,645 21,466 76,475 35,294 
Food and beverage43,471 19,573 76,692 31,134 
Management fees6,312 2,291 10,332 3,410 
Franchise fees8,693 3,735 14,503 6,182 
Other hotel expenses80,498 51,874 151,007 100,809 
Depreciation and amortization27,389 24,692 54,044 51,654 
Impairment losses 4,145 2,843 126,697 
Corporate expenses8,726 8,290 14,759 15,449 
Business interruption insurance income  (499) 
Total operating expenses, net217,734 136,066 400,156 370,629 
Interest and other expense (income), net606 (315)892 (471)
Interest expense9,675 10,710 13,794 19,194 
Total other expenses, net10,281 10,395 14,686 18,723 
Income (loss) before income taxes53,392 (21,670)63,398 (191,624)
Income tax (expense) benefit(691)2,551 (637)938 
Net income (loss)52,701 (19,119)62,761 (190,686)
Less: Net (income) loss attributable to noncontrolling interests(184)86 (216)806 
Net income (loss) attributable to the Company52,517 (19,033)62,545 (189,880)
Distributions to preferred stockholders(2,454)(2,454)(4,908)(4,908)
Net income (loss) attributable to common stockholders$50,063 $(21,487)$57,637 $(194,788)
Earnings (loss) per share: 
Earnings (loss) per share available to common stockholders—basic$0.24 $(0.10)$0.27 $(0.92)
Earnings (loss) per share available to common stockholders—diluted$0.23 $(0.10)$0.27 $(0.92)





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

CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
(unaudited)
Preferred StockCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
Balance at December 31, 20214,760,000 $48 210,746,895 $2,107 $2,293,990 $(780,931)$1,515,214 $5,750 $1,520,964 
Distributions on preferred stock ($0.5156 per preferred share)
— — — — — (2,454)(2,454)— (2,454)
Share-based compensation— — 114,210 2 139 — 141 209 350 
Net income— — — — — 10,028 10,028 32 10,060 
Balance at March 31, 20224,760,000 $48 210,861,105 $2,109 $2,294,129 $(773,357)$1,522,929 $5,991 $1,528,920 
Distributions on preferred stock ($0.5156 per preferred share)
— — — — — (2,454)(2,454)— (2,454)
Share-based compensation— — 54,910 — 2,684 — 2,684 65 2,749 
Redemption of Operating Partnership units— — 7,000 — 51 — 51 (51) 
Net income— — — — — 52,517 52,517 184 52,701 
Balance at June 30, 20224,760,000 $48 210,923,015 $2,109 $2,296,864 $(723,294)$1,575,727 $6,189 $1,581,916 


Preferred StockCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
Balance at December 31, 20204,760,000 48 210,073,514 $2,101 $2,285,491 $(576,531)$1,711,109 $7,816 $1,718,925 
Distributions on preferred stock ($0.5156 per preferred share)
— — — — — (2,454)(2,454)— (2,454)
Share-based compensation— — 170,251 2 18 — 20 281 301 
Net loss— — — — — (170,847)(170,847)(720)(171,567)
Balance at March 31, 20214,760,000 $48 210,243,765 $2,103 $2,285,509 $(749,832)$1,537,828 $7,377 $1,545,205 
Distributions on preferred stock ($0.516 per preferred share)
— — — — — (2,454)(2,454)— (2,454)
Share-based compensation— — 52,085 — 2,502 1 2,503 280 2,783 
Redemption of Operating Partnership Units— — 8,000 — 59 — 59 (59) 
Net loss— — — — — (19,033)(19,033)(86)(19,119)
Balance at June 30, 20214,760,000 $48 210,303,850 $2,103 $2,288,070 $(771,318)$1,518,903 $7,512 $1,526,415 



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

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
20222021
Cash flows from operating activities:  
Net income (loss)$62,761 $(190,686)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization54,044 51,654 
Corporate asset depreciation as corporate expenses115 112 
Non-cash lease expense and other amortization3,124 3,343 
Non-cash interest rate swap fair value adjustment(10,222)3,569 
Amortization of debt issuance costs1,310 1,257 
Impairment losses2,843 126,697 
Amortization of deferred income related to key money(207)(198)
Share-based compensation3,927 4,567 
Changes in assets and liabilities:
Prepaid expenses and other assets(8,933)2,348 
Due to/from hotel managers(33,936)(26,692)
Accounts payable and accrued expenses659 (12,399)
Net cash provided by (used in) operating activities75,485 (36,428)
Cash flows from investing activities:  
Capital expenditures(28,031)(19,607)
Extension of the Salt Lake City Marriott Downtown ground lease (2,781)
Property acquisitions(106,184) 
Net proceeds from sale of hotel properties 213,817 
Receipt of deferred key money1,000  
Net cash (used in) provided by investing activities(133,215)191,429 
Cash flows from financing activities:  
Scheduled mortgage debt principal payments(7,844)(7,561)
Draws on senior unsecured credit facility110,000 115,500 
Repayments of senior unsecured credit facility (170,500)
Payment of debt financing costs(120)(1,149)
Distributions on common stock and units(10)(118)
Distributions on preferred stock(4,908)(4,909)
Shares redeemed to satisfy tax withholdings on vested share-based compensation(828)(1,482)
Net cash provided by (used in) financing activities96,290 (70,219)
Net increase in cash, cash equivalents, and restricted cash38,560 84,782 
Cash, cash equivalents, and restricted cash at beginning of period75,507 134,846 
Cash, cash equivalents, and restricted cash at end of period$114,067 $219,628 


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

CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(in thousands)
(unaudited)


Supplemental Disclosure of Cash Flow Information:
Six Months Ended June 30,
20222021
Cash paid for interest$24,389 $21,614 
Cash paid for income taxes, net$3,261 $611 
Non-cash investing and financing activities:
Unpaid dividends and distributions declared$9 $20 
Accrued capital expenditures$8,672 $2,520 
Transfer of land interest in consideration for extension of ground lease (see Note 4)$ $855 
Redemption of Operating Partnership units for common stock$51 $59 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the amount shown within the consolidated statements of cash flows:
June 30, 2022December 31, 2021
Cash and cash equivalents$71,713 $38,620 
Restricted cash42,354 36,887 
Total cash, cash equivalents and restricted cash$114,067 $75,507 





























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

Notes to the Consolidated Financial Statements
(Unaudited)

1. Organization

DiamondRock Hospitality Company (the “Company” or “we”) is a lodging-focused real estate company that owns a portfolio of premium hotels and resorts. Our hotels are concentrated in major urban markets and in destination resort locations, and the majority of our hotels are operated under a brand owned by one of the leading global lodging brand companies (Marriott International, Inc. or Hilton Worldwide). We are an owner, as opposed to an operator, of the hotels in our portfolio. As an owner, we receive all of the operating profits or losses generated by our hotels after we pay fees to the hotel managers and hotel brands, which are based on the revenues and profitability of the hotels.

As of June 30, 2022, we owned 34 hotels with 9,567 guest rooms, located in the following markets: Atlanta, Georgia; Boston, Massachusetts (2); Burlington, Vermont; Charleston, South Carolina; Chicago, Illinois (2); Denver, Colorado (2); Destin, Florida (2); Fort Lauderdale, Florida (2); Fort Worth, Texas; Huntington Beach, California; Key West, Florida (2); Marathon, Florida; New Orleans, Louisiana; New York, New York (3); Phoenix, Arizona; Salt Lake City, Utah; San Diego, California; San Francisco, California (2); Sedona, Arizona (2); Sonoma, California; South Lake Tahoe, California; Washington, D.C. (2); and Vail, Colorado.

During the six months ended June 30, 2022, we acquired the Tranquility Bay Beachfront Resort located in Marathon, Florida and Kimpton Fort Lauderdale Beach Resort located in Fort Lauderdale, Florida. See Note 9 for further discussion of these acquisitions.

We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT, in which our hotel properties are owned by our operating partnership, DiamondRock Hospitality Limited Partnership, or subsidiaries of our operating partnership. The Company is the sole general partner of our operating partnership and owns 99.7% of the limited partnership units (“common OP units”) of our operating partnership as of June 30, 2022. The remaining 0.3% of the common OP units are held by third parties and executive officers of the Company. See Note 5 for additional disclosures related to common OP units.

2.Summary of Significant Accounting Policies

Basis of Presentation

Our financial statements include all of the accounts of the Company and its subsidiaries in accordance with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation. If the Company determines that it has an interest in a variable interest entity within the meaning of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. Our operating partnership meets the criteria of a variable interest entity. The Company is the primary beneficiary and, accordingly, we consolidate our operating partnership.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments necessary to present fairly our financial position, the results of our operations, the statements of equity, and cash flows. Interim results are not necessarily indicative of full-year performance because of the impact of seasonal and short-term variations. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed on February 22, 2022.

Change in Presentation

We have made certain financial statement line item reclassifications from prior year in order to conform to current year presentation. The changes in presentation are not material to the financial statements.




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Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Risks and Uncertainties

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

Currently, one of the most significant risks and uncertainties relates to the COVID-19 pandemic. The COVID-19 pandemic has adversely affected the hospitality industry in general and our business in particular. The extent to which our business will continue to be affected by COVID-19 will largely depend on future developments, which we cannot predict with a high degree of confidence, including the potential emergence of a new variant strain of COVID-19 and the actions of governments and individuals to contain COVID-19 and its variants or mitigate its impact. To the extent that certain travel activity in the U.S. is materially and adversely affected by COVID-19, the overall business and financial results of the hospitality industry, as well as our business and financial results, would similarly continue to be materially and adversely impacted.

Fair Value Measurements

In evaluating fair value, U.S. 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 observability 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
Level 2 - Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets in markets that are not active and model-derived valuations whose inputs are observable
Level 3 - Model-derived valuations with unobservable inputs

Property and Equipment

Investment purchases of hotel properties, land, land improvements, building and furniture, fixtures and equipment and identifiable intangible assets that are not businesses are accounted for as asset acquisitions and recorded at relative fair value based upon total accumulated cost of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from the Company’s accounts and any resulting gain or loss is included in the statements of operations.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties, current or projected losses from operations, and an expectation that the property is more likely than not to be sold significantly before the end of its useful life. If present, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel, less costs to sell, exceed its carrying amount. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized.

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We will classify a hotel as held for sale in the period that we have made the decision to dispose of the hotel, a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash and no significant financing or other contingencies exist which could cause the transaction to not be completed in a timely manner. If these criteria are met, we will record an impairment loss if the fair value less costs to sell is lower than the carrying amount of the hotel and related assets and will cease recording depreciation expense. We will classify the assets and related liabilities as held for sale on the balance sheet.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

Revenues from hotel operations are recognized when the goods or services are provided. Revenues consist of room sales,
food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and resort fees. Rooms revenue is recognized over the length of stay that the hotel room is occupied by the customer. Food and beverage revenue is recognized at the point in time in which the goods and/or services are rendered to the customer, such as for restaurant dining services or banquet services. Other revenues are recognized at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and we assess whether we are the principal or agent in these arrangements. If we are the agent, revenue is recognized based upon the commission earned from the third party. If we are the principal, we recognize revenue based upon the gross sales price.

Advance deposits are recorded as liabilities when a customer or group of customers provides a deposit for a future stay or
banquet event at our hotels. Advance deposits are converted to revenue when the services are provided to the customer or when a customer with a noncancelable reservation fails to arrive for part or all of the reservation. Conversely, advance deposits are generally refundable upon guest cancellation of the related reservation within an established period of time prior to the reservation.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the 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 during the period in which 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 all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2022 and December 31, 2021, we had a valuation allowance of $13.7 million and $14.9 million, respectively, on our deferred tax assets.

We have elected to be treated as a real estate investment trust, or REIT, under the provisions of the Internal Revenue Code of 1986, as amended, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built-in gains” on sales of certain assets. Our taxable REIT subsidiaries will generally be subject to federal, state, local and/or foreign income taxes. In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, we lease each of our hotel properties to wholly owned taxable REIT subsidiaries.

We may recognize a tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. If a tax position does not meet the more-likely-than-not recognition threshold, despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the consolidated statements of operations. We recognize interest and penalties, as applicable, related to unrecognized tax benefits as a component of income tax expense. We recognize unrecognized tax benefits in the period that the uncertainty is eliminated by either affirmative agreement of the uncertain tax position by the applicable taxing authority, or by expiration of the applicable statute of limitation.

We had no accruals for tax uncertainties as of June 30, 2022 and December 31, 2021.
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Intangible Assets and Liabilities

Intangible assets and liabilities recorded may include management or franchise agreement intangibles and in-place lease intangibles assumed as part of the acquisition of certain hotels. We review the terms of agreements assumed in conjunction with the purchase of a hotel to determine if an intangible asset or liability exists. Intangible assets or liabilities are recorded at the acquisition date and amortized using the straight-line method over the expected useful life. We do not amortize intangible assets with indefinite useful lives, but we review these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. In connection with our acquisition of Tranquility Bay Beachfront Resort, we recognized a $45.2 million intangible asset related to the assumption of rental management agreements with third-party unit owners. See Note 9 for more information.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period plus other potentially dilutive securities such as stock grants. No adjustment is made for shares that are anti-dilutive during a period.

Share-based Compensation

We account for share-based employee compensation using the fair value based method of accounting. We record the cost of awards with service or market conditions based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Comprehensive Income

We do not have any comprehensive income other than net income. If we have any comprehensive income in future periods, such that a statement of comprehensive income would be necessary, such statement will be reported as one statement with the consolidated statement of operations.

Derivative Instruments

In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments, including interest rate swaps and caps, to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. We have not elected hedge accounting treatment for the changes in the fair value of derivatives. Changes in the fair value of derivatives are recorded each period and are included in interest expense in the consolidated statements of operations.

Noncontrolling Interests

The noncontrolling interest is the portion of equity in our consolidated operating partnership not attributable, directly or indirectly, to the Company. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. The noncontrolling interests are classified as permanent equity as we have the right to choose to settle each holder's redemption of the interest in either cash or delivery of shares of our common stock. See Note 5 for additional details. On the consolidated statements of operations, revenues, expenses and net income or loss from our less-than-wholly-owned operating partnership are reported within 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 stockholders’ equity, noncontrolling interests and total equity.

Restricted Cash

Restricted cash primarily consists of cash held in reserve for replacement of furniture and fixtures generally held by our hotel managers and cash held in escrow pursuant to lender requirements.

Debt Issuance Costs
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Financing costs are recorded at cost as a component of the debt carrying amount and consist of loan fees and other costs incurred in connection with the issuance of debt. Amortization of debt issuance costs is computed using a method that approximates the effective interest method over the remaining life of the debt and is included in interest expense in the accompanying consolidated statements of operations. Debt issuance costs related to our Revolving Credit Facility (defined in Note 8) are included within prepaid and other assets on the accompanying consolidated balance sheets. These debt issuance costs are amortized ratably over the term of the Revolving Credit Facility, regardless of whether there are any outstanding borrowings, and the amortization is included in interest expense in the accompanying consolidated statements of operations.

Due to/from Hotel Managers

The due from hotel managers consists of hotel level accounts receivable, periodic hotel operating distributions receivable from managers and prepaid and other assets held by the hotel managers on our behalf. The due to hotel managers represents liabilities incurred by the hotel on behalf of us in conjunction with the operation of our hotels which are legal obligations of the Company.

Key Money

Key money received in conjunction with entering into hotel management or franchise agreements or completing specific capital projects is deferred and amortized over the term of the hotel management agreement, the term of the franchise agreement, or other systematic and rational period, if appropriate. Key money is classified as deferred income in the accompanying consolidated balance sheets and amortized as an offset to management fees or franchise fees.

Leases

We determine if an arrangement is a lease or contains an embedded lease at inception. For agreements with both lease and nonlease components (e.g., common-area maintenance costs), we do not separate the nonlease components from the lease components, but account for these components as one. We determine the lease classification (operating or finance) at lease inception.

Right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. The discount rate used to determine the present value of the lease payments is our incremental borrowing rate as of the lease commencement date, as the implicit rate is not readily determinable. The right-of-use assets also include any initial direct costs and any lease payments made at or before the commencement date, and is reduced for any unrestricted incentives received at or before the commencement date.

Options to extend or terminate the lease are included in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Variable payments that are based on an index or a rate are included in the recognition of our right-of-use assets and lease liabilities using the index or rate at lease commencement; however, changes to these lease payments due to rate or index updates are recorded as rent expense in the period incurred. Contingent rentals based on a percentage of sales in excess of stipulated amounts are not included in the measurement of the lease liability and right-of-use asset but will be recognized as variable lease expense when they are incurred. Leases that contain provisions that increase the fixed minimum lease payments based on previously incurred variable lease payments related to performance will be remeasured, as these payments now represent an increase in the fixed minimum payments for the remainder of the lease term. However, leases with provisions that increase minimum lease payments based on changes in a reference index or rate (e.g. Consumer Price Index) will not be remeasured as such changes do not constitute a resolution of a contingency.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of our cash and cash equivalents. We maintain cash and cash equivalents with various financial institutions. We perform periodic evaluations of the relative credit standing of these financial institutions and limit the amount of credit exposure with any one institution.

Segment Reporting

Each one of our hotels is an operating segment. We evaluate each of our properties on an individual basis to assess performance, the level of capital expenditures, and acquisition or disposition transactions. Our evaluation of individual
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properties is not focused on property type (e.g. urban, suburban, or resort), brand, geographic location, or industry classification.

We aggregate our operating segments using the criteria established by U.S. GAAP, including the similarities of our product offering, types of customers and method of providing service. All of our properties react similarly to economic stimulus, such as business investment, changes in Gross Domestic Product, and changes in travel patterns. As such, all our operating segments meet the aggregation criteria, resulting in a single reportable segment represented by our consolidated financial results.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued Accounting Standard Update 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications to ease reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. ASU 2020-04 permits a contract with a modified reference rate to be accounted for as a continuation of the existing contract. We have not entered into any contract modifications yet as it directly relates to reference rate reform, but we anticipate undertaking such modifications in the future related to our variable rate debt and interest rate swaps indexed to LIBOR. The adoption of ASU 2020-04 is not expected to have a material impact on our consolidated financial statements.

3.Property and Equipment

Property and equipment as of June 30, 2022 and December 31, 2021 consists of the following (in thousands):
June 30, 2022December 31, 2021
Land$552,772 $546,800 
Land improvements7,994 7,994 
Buildings and site improvements2,736,932 2,667,024 
Furniture, fixtures and equipment511,297 501,505 
Construction in progress20,021 14,485 
 3,829,016 3,737,808 
Less: accumulated depreciation(1,139,957)(1,086,364)
 $2,689,059 $2,651,444 

As of June 30, 2022 and December 31, 2021, we had accrued capital expenditures of $8.7 million and $7.3 million, respectively.

4. Leases

We are subject to operating leases, the most significant of which are ground leases. We are the lessee to ground leases under eight of our hotels and two parking garages as of June 30, 2022. The lease liabilities for our operating leases assume the exercise of all available extension options, as we believe they are reasonably certain to be exercised. As of June 30, 2022, our operating leases have a weighted-average remaining lease term of 65 years and a weighted-average discount rate of 5.77%.

The components of operating lease expense, which is included in other hotel expenses in our consolidated statements of operations, and cash paid for amounts included in the measurement of lease liabilities, are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Operating lease cost$2,787 $2,774 $5,573 $5,534 
Variable lease payments$533 $124 $763 $165 
Cash paid for amounts included in the measurement of operating lease liabilities$994 $878 $1,979 $1,744 

Maturities of lease liabilities as of June 30, 2022 are as follows (in thousands):
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Year Ending December 31,
2022 (excluding the six months ended June 30, 2022)$1,998 
20234,033 
20244,012 
20254,072 
20264,640 
Thereafter759,838 
Total lease payments778,593 
Less imputed interest(668,885)
Total lease liabilities$109,708 

5. Equity

Common Shares

We are authorized to issue up to 400 million shares of common stock, $0.01 par value per share. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends out of assets legally available for the payment of dividends when authorized by our board of directors.

In August 2021, we implemented an “at-the-market” equity offering program (the “ATM Program”), pursuant to which we may issue and sell shares of our common stock from time to time, having an aggregate offering price of up to $200.0 million. We have not sold any shares under the ATM Program.

Preferred Shares

We are authorized to issue up to 10 million shares of preferred stock, $0.01 par value per share. Our board of directors is required to set for each class or series of preferred stock the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, and terms or conditions of redemption.

As of June 30, 2022 and December 31, 2021, there were 4,760,000 shares of Series A Preferred Stock issued and outstanding with a liquidation preference each of $25.00 per share. On or after August 31, 2025, the Series A Preferred Stock will be redeemable at the Company's option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date.

Operating Partnership Units

In connection with our acquisition of Cavallo Point in December 2018, we issued 796,684 common OP units to third parties, otherwise unaffiliated with the Company, at $11.76 per unit. Each common OP unit is redeemable at the option of the holder. Holders of common OP units have certain redemption rights, which enable them to cause our operating partnership to redeem their units in exchange for cash per unit equal to the market price of our common stock, at the time of redemption, or, at our option, for shares of our common stock on a one-for-one basis, subject to adjustment upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions.

Long-Term Incentive Partnership units (“LTIP units”), which are also referred to as profits interest units, may be issued to eligible participants under the 2016 Plan (as defined in Note 6 below) for the performance of services to or for the benefit of our operating partnership. LTIP units are a class of partnership unit in our operating partnership and will receive, whether vested or not, the same per-unit distributions as the outstanding common OP units, which equal per-share dividends on shares of our common stock. Initially, LTIP units have a capital account balance of zero, do not receive an allocation of operating income (loss), and do not have full parity with common OP units with respect to liquidating distributions. If such parity is reached, vested LTIP units are converted into an equal number of common OP units, and thereafter will possess all of the rights and interests of common OP units, including the right to exchange the common OP units for cash per unit equal to the market price of our common stock, at the time of redemption, or, at our option, for shares of our common stock on a one-for-one basis, subject to adjustment upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions. See Note 6 for additional disclosures related to LTIP units.

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There were 741,044 and 639,622 common OP units held by unaffiliated third parties and executive officers of the Company as of June 30, 2022 and December 31, 2021, respectively. There were 26,966 and 135,388 LTIP units outstanding as of June 30, 2022 and December 31, 2021, respectively. All vested LTIP units have reached economic parity with common OP units and have been converted into common OP units.

Dividends and Distributions

Our board of directors suspended our quarterly common dividend commencing with the first quarter dividend that would have been paid in April 2020 and did not resume quarterly common dividends through the quarter ended June 30, 2022. On August 2, 2022, our board of directors declared a quarterly common dividend of $0.03 per share to shareholders of record on September 30, 2022.

We have paid the following dividends to holders of our Series A Preferred Stock during 2022:
Payment DateRecord DateDividend
per Share
March 31, 2022March 18, 2022$0.515625 
June 30, 2022June 17, 2022$0.515625 

6. Stock Incentive Plans

We are authorized to issue up to 6,082,664 shares of our common stock under our 2016 Equity Incentive Plan (the “2016 Plan”), of which we have issued or committed to issue 4,959,309 shares as of June 30, 2022. In addition to these shares, additional shares of common stock may be issued from time to time in connection with the performance stock unit awards as further described below.

Restricted Stock Awards

Restricted stock awards issued to our officers and employees generally vest over a three to five year period from the date of grant based on continued employment. We measure compensation expense for the restricted stock awards based upon the fair market value of our common stock at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in corporate expenses in the accompanying consolidated statements of operations. A summary of our restricted stock awards from January 1, 2022 to June 30, 2022 is as follows:
Number of
Shares
Weighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 20221,443,295 $9.46 
Granted425,731 9.56 
Vested(265,965)9.54 
Forfeited(250,261)9.43 
Unvested balance at June 30, 20221,352,800 $9.48 

The total unvested share awards as of June 30, 2022 are expected to vest as follows: 8,202 shares during 2022, 378,709 shares during 2023, 439,379 shares during 2024, 255,232 shares during 2025, and 271,278 shares during 2026. As of June 30, 2022, the unrecognized compensation cost related to restricted stock awards was $9.6 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 32 months. We recorded $1.2 million and $1.0 million of compensation expense related to restricted stock awards for each of the three months ended June 30, 2022 and 2021, respectively. We recorded $2.0 million and $1.8 million of compensation expense related to restricted stock awards for each of the six months ended June 30, 2022 and 2021, respectively. The compensation expense recorded for the six months ended June 30, 2022 includes the reversal of $0.2 million of previously recognized compensation expense in connection with the resignation of our former Executive Vice President, Asset Manager and Chief Operating Officer, as well as other employees.
Performance Stock Units

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Performance stock units (“PSUs”) are restricted stock units that vest three years from the date of grant. Each executive officer is granted a target number of PSUs (the “PSU Target Award”). The actual number of shares of common stock issued to each executive officer is based on the Company's achievement of certain performance targets. Under this framework, 50% of the PSUs are based on relative total stockholder return and 50% on hotel market share improvement. The achievement of certain levels of total stockholder return relative to the total stockholder return of a peer group of publicly-traded lodging REITs is measured over a three-year performance period. There is no payout of shares of our common stock if our total stockholder return falls below the 30th percentile of the total stockholder returns of the peer group. The maximum number of shares of common stock issued to an executive officer is equal to 150% of the PSU Target Award and is earned if our total stockholder return is equal to or greater than the 75th percentile of the total stockholder returns of the peer group. The number of PSUs earned is limited to 100% of the PSU Target Award if the Company's total stockholder return is negative for the three-year performance period. The improvement in market share for each of our hotels is measured over a three-year performance period based on a report prepared for each hotel by STR Global, a well-recognized benchmarking service for the hospitality industry. There is no payout of shares of our common stock if the percentage of our hotels with market share improvements is less than 30%. The maximum number of shares of common stock issued to an executive officer is equal to 150% of the PSU Target Award and is earned if the percentage of our hotels with market share improvements is greater than or equal to 75%.

We measure compensation expense for the PSUs based upon the fair market value of the award at the grant date. Compensation expense is recognized on a straight-line basis over the three-year performance period and is included in corporate expenses in the accompanying consolidated statements of operations. The grant date fair value of the portion of the PSUs based on our relative total stockholder return is determined using a Monte Carlo simulation performed by a third-party valuation firm. The grant date fair value of the portion of the PSUs based on hotel market share improvement is the closing price of our common stock on the grant date.

On February 22, 2022, our board of directors granted 337,702 PSUs to our executive officers. The grant date fair value of the portion of the PSUs based on our relative total stockholder return was $9.84 using the assumptions of volatility of 71.4% and a risk-free rate of 1.74%. The grant date fair value of the portion of the PSUs based on hotel market share was $9.56, which was the closing stock price of our common stock on such date.

A summary of our PSUs from January 1, 2022 to June 30, 2022 is as follows:
Number of
Target Units
Weighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 2022969,240 $9.45 
Granted337,702 9.70 
Vested (1)
(269,224)10.14 
Forfeited(160,533)9.34 
Unvested balance at June 30, 2022877,185 $11.06 
______________________
(1)The number of shares of common stock earned for the PSUs vested in 2022 was equal to 100.0% of the PSU Target Award.

The total unvested PSUs as of June 30, 2022 are expected to vest as follows: 296,596 units during 2023, 294,445 units during 2024 and 286,144 units during 2025. The number of shares earned upon vesting is subject to the attainment of the performance goals described above. As of June 30, 2022, the unrecognized compensation cost related to the PSUs was $4.6 million and is expected to be recognized on a straight-line basis over a weighted average period of 25 months. We recorded $0.7 million and $0.8 million of compensation expense related to the PSUs for the three months ended June 30, 2022 and 2021, respectively. We recorded $0.9 million and $1.5 million of compensation expense related to the PSUs for the six months ended June 30, 2022 and 2021, respectively. The compensation expense recorded for the six months ended June 30, 2022 includes the reversal of $0.5 million of previously recognized compensation expense in connection with the resignation of our former Executive Vice President, Asset Management and Chief Operating Officer.

LTIP Units

LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while potentially allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under the 2016 Plan. At the time of award, LTIP units do not have full economic parity
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with common OP units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules.
A summary of our LTIP units from January 1, 2022 to June 30, 2022 is as follows:
Number of UnitsWeighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 2022135,388 $10.22 
Vested (1)
(108,422)10.38 
Unvested balance at June 30, 202226,966 $9.58 
______________________
(1)As of June 30, 2022, all vested LTIP units have achieved economic parity with common OP units and have been converted to common OP units.

The total remaining unvested LTIP units as of June 30, 2022 of 26,966 are expected to vest in 2023.

As of June 30, 2022, the unrecognized compensation cost related to LTIP unit awards was $0.2 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately eight months. We recorded $0.1 million and $0.3 million of compensation expense related to LTIP unit awards for the three months ended June 30, 2022 and 2021, respectively. We recorded $0.3 million and $0.6 million of compensation expense related to LTIP unit awards for the six months ended June 30, 2022 and 2021, respectively.

7. Earnings (Loss) Per Share

Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is calculated by dividing net income (loss) available to common stockholders that has been adjusted for dilutive securities, by the weighted-average number of common shares outstanding including dilutive securities.

Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested share-based compensation (participating securities) have been excluded, as applicable, from net income or loss available to common stockholders used in the basic and diluted EPS calculations.

The following is a reconciliation of the calculation of basic and diluted EPS (in thousands, except share and per share data):
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 Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Numerator:
Net income (loss) attributable to common stockholders$50,063 $(21,487)$57,637 $(194,788)
Dividends declared on unvested share-based compensation    
Net income (loss) available to common stockholders$50,063 $(21,487)$57,637 $(194,788)
Denominator:
Weighted-average number of common shares outstanding—basic212,834,222 211,966,308 212,663,838 211,819,758 
Effect of dilutive securities:
Unvested restricted common stock303,062  244,911  
Shares related to unvested PSUs383,422  370,425  
Weighted-average number of common shares outstanding—diluted213,520,706 211,966,308 213,279,174 211,819,758 
Earnings (loss) per share:
Earnings (loss) per share available to common stockholders—basic$0.24 $(0.10)$0.27 $(0.92)
Earnings (loss) per share available to common stockholders—diluted$0.23 $(0.10)$0.27 $(0.92)

For the three and six months ended June 30, 2021, 213,125 and 469,776 of unvested restricted common shares, respectively, were excluded from diluted weighted-average common shares outstanding, as their effect would be anti-dilutive. For the three months and six months ended June 30, 2021, 281,201 and 335,070 of unvested PSUs, respectively, were excluded from the diluted weighted-average common shares outstanding, as their effect would be anti-dilutive. There were no unvested restricted common shares or PSUs excluded from the diluted weighted-average common shares outstanding for the three and six months ended June 30, 2022.

The common OP units held by the noncontrolling interest holders have been excluded from the denominator of the diluted earnings (loss) per share calculation as there would be no effect on the amounts since the common OP units' share of income or loss would also be added or subtracted to derive net income (loss) available to common stockholders.

8. Debt

The following table sets forth information regarding the Company’s debt as of June 30, 2022 and December 31, 2021 (dollars in thousands):
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Principal Balance as of
LoanInterest Rate as of June 30, 2022Maturity DateJune 30, 2022December 31, 2021
Salt Lake City Marriott Downtown at City Creek mortgage loan
LIBOR + 3.25% (1)