DiamondRock Hospitality Co [DRH] Filings

10-Q 1 drh-20230930.htm 10-Q drh-20230930

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 September 30, 2023

☐ 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)

Maryland

20-1180098

(State of Incorporation)

(I.R.S. Employer Identification No.)

2 Bethesda Metro Center, Suite 1400,

Bethesda,

Maryland

20814

(Address of Principal Executive Offices)

(Zip Code)

(240) 744-1150

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	DRH	New York Stock Exchange
8.250% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share	DRH Pr A	New 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 filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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 209,627,197 shares of its $0.01 par value common stock outstanding as of November 3, 2023.

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INDEX



			Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			1

Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022			2

Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022			4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			7

Notes to the Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3. Quantitative and Qualitative Disclosures about Market Risk			39

Item 4. Controls and Procedures			39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			40

Item 1A. Risk Factors			40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40

Item 3. Defaults Upon Senior Securities			40

Item 4. Mine Safety Disclosures			40

Item 5. Other Information			40

Item 6. Exhibits			41

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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)


	September 30, 2023		December 31, 2022
ASSETS	(unaudited)
Property and equipment, net	$	2,765,646	$	2,748,476
Right-of-use assets	97,552		99,047

Restricted cash	42,503		39,614
Due from hotel managers	167,695		176,708
Prepaid and other assets	80,188		76,131
Cash and cash equivalents	102,737		67,564
Total assets	$	3,256,321	$	3,207,540
LIABILITIES AND EQUITY
Liabilities:
Mortgage and other debt, net of unamortized debt issuance costs	$	379,914	$	386,655
Unsecured term loans, net of unamortized debt issuance costs	799,337		799,138
Senior unsecured credit facility	—		—
Total debt	1,179,251		1,185,793

Lease liabilities	111,832		110,875
Due to hotel managers	122,746		123,682
Deferred rent	68,291		65,097
Unfavorable contract liabilities, net	59,825		61,069
Accounts payable and accrued expenses	48,940		43,120
Distributions declared and unpaid	6,380		12,946
Deferred income related to key money, net	8,457		8,780
Total liabilities	1,605,722		1,611,362
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 September 30, 2023 and December 31, 2022	48		48
Common stock, $0.01 par value; 400,000,000 shares authorized; 209,627,197 and 209,374,830 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	2,096		2,094
Additional paid-in capital	2,289,501		2,288,433
Accumulated other comprehensive income	3,802		—
Distributions in excess of earnings	(651,533)		(700,694)
Total stockholders’ equity	1,643,914		1,589,881
Noncontrolling interests	6,685		6,297
Total equity	1,650,599		1,596,178
Total liabilities and equity	$	3,256,321	$	3,207,540

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

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DIAMONDROCK HOSPITALITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,

	2023		2022		2023		2022
Revenues:
Rooms	$	186,334	$	184,994	$	544,325	$	510,189
Food and beverage	64,723		61,940		192,869		176,294
Other	25,463		21,274		74,126		59,965
Total revenues	276,520		268,208		811,320		746,448
Operating Expenses:
Rooms	45,773		43,899		131,092		120,374
Food and beverage	45,428		43,227		134,486		119,919
Other departmental and support expenses	65,952		62,271		193,365		170,328
Management fees	7,323		6,697		19,196		17,029
Franchise fees	8,913		8,709		26,393		23,212
Other property-level expenses	25,704		21,047		76,755		63,997
Depreciation and amortization	27,683		27,053		82,995		81,097
Impairment losses	—		—		941		2,843

Corporate expenses	7,526		7,516		23,677		22,275
Business interruption insurance income	(537)		—		(647)		(499)

Total operating expenses, net	233,765		220,419		688,253		620,575
Interest expense	15,973		9,072		48,712		22,866
Interest (income) and other (income) expense, net	(772)		152		(1,717)		1,044
Loss on early extinguishment of debt	—		9,698		—		9,698

Total other expenses, net	15,201		18,922		46,995		33,608
Income before income taxes	27,554		28,867		76,072		92,265
Income tax expense	(224)		(312)		(420)		(949)
Net income	27,330		28,555		75,652		91,316
Less: Net income attributable to noncontrolling interests	(58)		(99)		(259)		(315)
Net income attributable to the Company	27,272		28,456		75,393		91,001
Distributions to preferred stockholders	(2,454)		(2,454)		(7,362)		(7,362)
Net income attributable to common stockholders	$	24,818	$	26,002	$	68,031	$	83,639
Earnings per share:
Earnings per share available to common stockholders—basic	$	0.12	$	0.12	$	0.32	$	0.39
Earnings per share available to common stockholders—diluted	$	0.12	$	0.12	$	0.32	$	0.39

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

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DIAMONDROCK HOSPITALITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - (CONTINUED)

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,

	2023		2022		2023		2022
Comprehensive Income:
Net income	$	27,330	$	28,555	$	75,652	$	91,316
Other comprehensive income:
Unrealized gain on interest rate derivative instruments	150		—		3,533		—
Unrealized (loss) gain on Rabbi Trust assets	(178)		—		269		—
Comprehensive income	27,302		28,555		79,454		91,316
Comprehensive income attributable to noncontrolling interests	(89)		(99)		(272)		(315)
Comprehensive income attributable to the Company	$	27,213	$	28,456	$	79,182	$	91,001

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)

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	Preferred Stock			Common Stock
	Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Distributions in Excess of Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2022	4,760,000	$	48	209,374,830	$	2,094	$	2,288,433	—		$	(700,694)	$	1,589,881	$	6,297	$	1,596,178
Distributions on common stock/units ($0.03 per common share/unit)	—	—		—	—		—		—		(6,295)		(6,295)		(32)		(6,327)
Distributions on preferred stock ($0.5156 per preferred share)	—	—		—	—		—		—		(2,454)		(2,454)		—		(2,454)
Share-based compensation	—	—		804,541	—		1,827		—		—		1,827		140		1,967
Shares redeemed to satisfy withholdings on vested share based compensation	—	—		(333,779)	6		(3,029)		—		—		(3,023)		—		(3,023)

Common stock repurchased and retired	—	—		(56,400)	(2)		(407)		—		—		(409)		—		(409)
Other comprehensive income:
Unrealized loss on interest rate derivative instruments	—	—		—	—		—		(84)		—		(84)		—		(84)
Unrealized gain on Rabbi Trust assets	—	—		—	—		—		237		—		237		—		237
Net income	—	—		—	—		—		—		9,156		9,156		32		9,188
Balance at March 31, 2023	4,760,000	$	48	209,789,192	$	2,098	$	2,286,824	$	153	$	(700,287)	$	1,588,836	$	6,437	$	1,595,273
Distributions on common stock/units ($0.03 per common share/unit)	—	—		—	—		—		—		(6,287)		(6,287)		(32)		(6,319)
Distributions on preferred stock ($0.5156 per preferred share)	—	—		—	—		—		—		(2,454)		(2,454)		—		(2,454)
Share-based compensation	—	—		62,500	—		2,535		—		—		2,535		225		2,760

Common stock repurchased and retired	—	—		(262,054)	(3)		(2,011)		—		—		(2,014)		—		(2,014)

Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—	—		—		3,467		—		3,467		—		3,467
Unrealized gain on Rabbi Trust assets	—	—		—	—		—		210		—		210		—		210
Net income	—	—		—	—		—		—		38,965		38,965		169		39,134
Balance at June 30, 2023	4,760,000	$	48	209,589,638	$	2,095	$	2,287,348	$	3,830	$	(670,063)	$	1,623,258	$	6,799	$	1,630,057

Distributions on common stock/units ($0.03 per common share/unit)	—	—		—	—		—		—		(6,288)		(6,288)		(31)		(6,319)
Distributions on preferred stock ($0.5156 per preferred share)	—	—		—	—		—		—		(2,454)		(2,454)		—		(2,454)
Share-based compensation	—	—		—	—		1,788		—		—		1,788		225		2,013
Redemption of Operating Partnership units	—	—		37,559	1		365		—		—		366		(366)		—



Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—	—		—		150		—		150		—		150
Unrealized loss on Rabbi Trust assets	—	—		—	—		—		(178)		—		(178)		—		(178)
Net income	—	—		—	—		—				27,272		27,272		58		27,330
Balance at September 30, 2023	4,760,000	$	48	209,627,197	$	2,096	$	2,289,501	$	3,802	$	(651,533)	$	1,643,914	$	6,685	$	1,650,599

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DIAMONDROCK HOSPITALITY COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED

(in thousands, except share and per share amounts)

(unaudited)


	Preferred Stock			Common Stock
	Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Distributions in Excess of Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at December 31, 2021	4,760,000	$	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	—		951		—		—		951		209		1,160
Shares redeemed to satisfy withholdings on vested share based compensation	—	—		—	2		(812)		—		—		(810)		—		(810)


Net income	—	—		—	—		—		—		10,028		10,028		32		10,060
Balance at March 31, 2022	4,760,000	$	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, 2022	4,760,000	$	48	210,923,015	$	2,109	$	2,296,864	$	—	$	(723,294)	$	1,575,727	$	6,189	$	1,581,916
Distributions on common stock/units $0.03 per common share/unit)	—	—		—	—		—		—		(6,455)		(6,455)		(25)		(6,480)
Distributions on preferred stock ($0.5156 per preferred share)	—	—		—	—		—		—		(2,454)		(2,454)		—		(2,454)
Share-based compensation	—	—		—	—		1,839		—		—		1,839		86		1,925


Redemption of Operating Partnership units	—	—		21,502	—		163		—		—		163		(163)		—

Net income	—	—		—	—		—		—		28,456		28,456		99		28,555
Balance at September 30, 2022	4,760,000	$	48	210,944,517	$	2,109	$	2,298,866	$	—	$	(703,747)	$	1,597,276	$	6,186	$	1,603,462

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)


	Nine Months Ended September 30,
	2023		2022

Cash flows from operating activities:
Net income	$	75,652	$	91,316
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	82,995		81,097
Corporate asset depreciation as corporate expenses	150		167

Loss on early extinguishment of debt	—		9,698
Non-cash lease expense and other amortization	4,620		4,675


Non-cash interest rate swap fair value adjustment	2,033		(14,002)
Amortization of debt issuance costs	1,540		1,963
Impairment losses	941		2,843



Amortization of deferred income related to key money	(323)		(315)
Share-based compensation	6,740		5,852
Changes in assets and liabilities:
Prepaid expenses and other assets	(2,022)		(7,505)
Due to/from hotel managers	7,377		(24,585)
Accounts payable and accrued expenses	4,983		6,821
Net cash provided by operating activities	184,686		158,025
Cash flows from investing activities:
Capital expenditures	(67,449)		(44,588)

Acquisition of interest in land	(1,833)		—

Property acquisitions	(31,894)		(106,184)



Receipt of deferred key money	—		1,000
Net cash used in investing activities	(101,176)		(149,772)
Cash flows from financing activities:
Scheduled mortgage debt principal payments	(7,109)		(11,854)




Proceeds from senior unsecured term loan	—		800,000
Repayments of senior unsecured term loans	—		(400,000)
Draws on senior unsecured credit facility	—		110,000
Repayments of senior unsecured credit facility	—		(200,000)

Payment of financing costs	—		(13,846)

Distributions on common stock and units	(25,531)		(10)
Distributions on preferred stock	(7,362)		(7,362)
Repurchase of common stock	(2,423)		—

Shares redeemed to satisfy tax withholdings on vested share-based compensation	(3,023)		(828)
Net cash (used in) provided by financing activities	(45,448)		276,100
Net increase in cash, cash equivalents, and restricted cash	38,062		284,353
Cash, cash equivalents, and restricted cash at beginning of period	107,178		75,507
Cash, cash equivalents, and restricted cash at end of period	$	145,240	$	359,860

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:


	Nine Months Ended September 30,
	2023		2022
Cash paid for interest	$	44,706	$	34,214
Cash paid for income taxes, net	$	2,645	$	4,599



Non-cash investing and financing activities:
Unpaid dividends and distributions declared	$	6,380	$	6,489
Accrued capital expenditures	$	6,712	$	4,294



Redemption of Operating Partnership units for common stock	$	365	$	214

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:


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	102,737	$	67,564
Restricted cash	42,503		39,614
Total cash, cash equivalents and restricted cash	$	145,240	$	107,178

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., Hilton Worldwide, or IHG Hotels & Resorts). 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 September 30, 2023, we owned 36 hotels with 9,745 guest rooms.

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 owned 99.7% of the limited partnership units (“common OP units”) of our operating partnership as of September 30, 2023. The remaining 0.3% of the common OP units are held by third parties and executive officers of the Company. See Note 9 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 United States Generally Accepted Accounting Principles (“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, 2022, included in our Annual Report on Form 10-K filed on February 24, 2023.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not affect the Company's financial position, results of operations, or cash flows. An adjustment was made to the consolidated statements of operations and comprehensive income for the year ended December 31, 2022 to present other departmental and support expenses and other property-level expenses, which were previously reported in total as other hotel expenses.

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.

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Risks and Uncertainties

The state of the overall economy can significantly impact hotel operational performance and thus, impact our financial position. Currently, some of the most significant risks and uncertainties relate to the impact of rising inflation and increasing interest rates on the overall economy. 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.

Fair Value Measurements

In evaluating fair value, U.S. GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and a reporting entity’s own assumptions (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

•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 and comprehensive income.

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.

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. We maintain cash and cash equivalents balances in excess of insured limits with various financial institutions. This may subject us to significant concentrations of credit risk. We perform periodic evaluations of the credit quality of these financial institutions.

Revenue Recognition

Revenues from hotel operations are recognized when the goods or services are provided. Revenues consist of room sales,

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food and beverage sales, and other hotel department revenues, such as telephone, parking, spa 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 September 30, 2023 and December 31, 2022, we had a valuation allowance of $8.4 million and $11.0 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 and comprehensive income. 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 September 30, 2023 or December 31, 2022.

Intangible Assets and Liabilities

Intangible assets and liabilities recorded may include trade name, management or franchise agreement intangibles, right-to-manage 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.

Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income

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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

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 net income and other comprehensive income.

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. For derivative instruments for which we have not elected hedge accounting, changes in the fair value of derivatives are recorded each period and are included in interest expense in the consolidated statements of operations and comprehensive income. For derivative instruments for which we have elected hedge accounting treatment, unrealized gains and losses of hedging instruments are reported in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

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 9 for additional details. On the consolidated statements of operations and comprehensive income, 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

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 and comprehensive income.

Debt issuance costs related to our senior unsecured credit facility 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 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 and comprehensive income.

If a refinancing of our debt is considered an extinguishment, unamortized debt issuance costs are included in the gain or loss on extinguishment. All fees paid to or received from creditors are included in the gain or loss on extinguishment. Fees paid to third parties are capitalized as debt issuance costs. If a refinancing of our debt is considered a modification, the net debt issuance costs at the time of modification are amortized over the remaining life of the modified debt.

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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. If we purchase an underlying asset prior to the termination of the lease term, the right-of-use asset and related lease liability is reversed and the net gain or loss is recorded as part of the acquisition basis.

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 properties is not focused on property type (e.g. urban, suburban, or resort), brand, geographic location, or industry classification.

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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.

3. Property and Equipment

Property and equipment as of September 30, 2023 and December 31, 2022 consists of the following (in thousands):


	September 30, 2023		December 31, 2022
Land	$	590,661	$	577,861
Land improvements	7,994		7,994
Buildings and site improvements	2,865,198		2,798,654
Furniture, fixtures and equipment	557,145		525,901
Construction in progress	21,354		32,422
	4,042,352		3,942,832
Less: accumulated depreciation	(1,276,706)		(1,194,356)
	$	2,765,646	$	2,748,476

As of September 30, 2023 and December 31, 2022, we had accrued capital expenditures of $6.7 million and $8.0 million, respectively. During the nine months ended September 30, 2023, we recorded an impairment loss of $0.9 million related to the write-off of construction in progress that was determined not to be recoverable.

4. Acquisitions

2023 Acquisition

On August 1, 2023, we acquired the 117-room Chico Hot Springs Resort and an adjacent ranch located in Pray, Montana for $31.9 million, including prorations and transaction costs. The acquisition was funded with corporate cash.

2022 Acquisitions

On January 6, 2022, we acquired the 103-room Tranquility Bay Beachfront Resort located in Marathon, Florida, for $62.4 million, including prorations and transaction costs. The acquisition was funded with corporate cash. The acquisition includes income from 84 units owned by third parties that currently participate in the hotel's rental management program and the majority of the intervals in three units that are structured as vacation ownership. In March 2022, we entered into agreements to purchase four of the third-party owned units for $4.1 million in aggregate. In connection with the purchase agreements, we evaluated the recoverability of the right-to-manage intangible asset related to the long-term rental agreements ("RMAs"), and as a result, we recorded an impairment loss of $2.8 million. On March 23, 2022, we closed on the purchase of two of the four third-party owned units and on April 7, 2022, we closed on the purchase of the remaining two third-party owned units.

We recognized a $45.2 million right-to-manage intangible asset related to the RMAs that were purchased as part of the acquisition. We estimated the fair value of the right-to-manage intangible using a discounted cash flow model, which calculated

a present value of expected future cash flows over the remaining term of agreements, including expected renewal periods, with

a discount rate of 12% and reversion rate of 9.25%. The intangible asset will be amortized over a period of 40 years, which is our estimate of its useful life, inclusive of expected renewal periods. The remaining useful life of this intangible asset as of September 30, 2023 is approximately 38.3 years. As of September 30, 2023 and December 31, 2022, the intangible asset was $40.5 million and $41.3 million, net of accumulated amortization of $1.9 million and $1.1 million, respectively, and is recorded within prepaid and other assets on the accompanying consolidated balance sheet. Amortization expense for the three and nine months ended September 30, 2023 was $0.3 million and $0.8 million, respectively. Amortization expense for the three and nine months ended September 30, 2022 was $0.2 million and $0.8 million, respectively. Amortization expense is expected to be $1.1 million annually for the remaining useful life of the asset.

On April 1, 2022, we acquired the 96-room Kimpton Fort Lauderdale Beach Resort located in Fort Lauderdale, Florida for $35.6 million, including prorations and transaction costs. The acquisition was funded with corporate cash.

On November 21, 2022, we acquired the 40-room Lake Austin Spa Resort located in Austin, Texas for $75.8 million,

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including prorations and transaction costs. The acquisition was funded with corporate cash.

5. Debt

The following table sets forth information regarding the Company’s debt as of September 30, 2023 and December 31, 2022 (dollars in thousands):


			Principal Balance as of
Loan	Interest Rate as of September 30, 2023	Maturity Date	September 30, 2023		December 31, 2022




Courtyard New York Manhattan/Midtown East mortgage loan	4.40%	August 2024	$	74,808	$	76,153
Worthington Renaissance Fort Worth Hotel mortgage loan	3.66%	May 2025	74,210		75,625
Hotel Clio mortgage loan	4.33%	July 2025	56,443		57,469
Westin Boston Seaport District mortgage loan	4.36%	November 2025	175,164		178,487
Unamortized debt issuance costs			(711)		(1,079)
Total mortgage debt, net of unamortized debt issuance costs			379,914		386,655





Unsecured term loan	SOFR + 1.35%	January 2028	500,000		500,000
Unsecured term loan	SOFR + 1.35%	January 2025 (1)	300,000		300,000
Unamortized debt issuance costs			(663)		(862)
Unsecured term loans, net of unamortized debt issuance costs			799,337		799,138

Senior unsecured credit facility	SOFR + 1.40%	September 2026 (1)	—		—

Total debt, net of unamortized debt issuance costs			$	1,179,251	$	1,185,793
Weighted-Average Interest Rate (2)	5.07%

_______________________

(1)Maturity date may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.

(2)Weighted-average interest rate as of September 30, 2023 includes effect of interest rate swaps.

Mortgage Debt

We have incurred limited recourse, property specific mortgage debt secured by certain of our hotels. In the event of default, the lender may only foreclose on the secured assets; however, in the event of fraud, misapplication of funds or other customary recourse provisions, the lender may seek payment from us. As of September 30, 2023, four of our 36 hotels were secured by mortgage debt. We have one mortgage loan that matures within one year, which has a principal balance of $74.8 million as of September 30, 2023. We intend to repay this mortgage loan using cash flow from operations or available capacity on our senior unsecured credit facility, which is sufficient to meet the principal due within the next twelve months.

Our mortgage debt contains certain property specific covenants and restrictions, including minimum debt service coverage

ratios or debt yields that trigger “cash trap” provisions, as well as restrictions on incurring additional debt without lender consent. Such cash trap provisions are triggered when the hotel’s operating results fall below a certain debt service coverage ratio or debt yield. When these provisions are triggered, all of the excess cash flow generated by the hotel is deposited directly into cash management accounts for the benefit of our lenders until a specified debt service coverage ratio or debt yield is reached and maintained for a certain period of time. Such provisions do not provide the lender the right to accelerate repayment

of the underlying debt. As of December 31, 2022, we had $2.9 million held in cash traps, which is included within the restricted cash on the accompanying consolidated balance sheet. As of September 30, 2023, all cash traps had been released.

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Senior Unsecured Credit Facility and Unsecured Term Loans

We are party to a Sixth Amended and Restated Credit Agreement (the “Credit Agreement”) that provides us with a $400 million senior unsecured revolving credit facility and two term loan facilities in the aggregate amount of $800 million. The revolving credit facility matures on September 27, 2026, which we may extend for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. The term loan facilities consist of a $500 million term loan that matures on January 3, 2028 and a $300 million term loan that matures January 3, 2025. The maturity date of the $300 million term loan may be extended for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. We have the right to increase the aggregate amount of the facilities to $1.4 billion upon the satisfaction of certain standard conditions.

Interest is paid on the periodic advances on the revolving credit facility and amounts outstanding on the term loans at varying rates, based upon the adjusted Secured Overnight Financing Rate (“SOFR”), as defined in the Credit Agreement, plus an applicable margin. The applicable margin is based upon our leverage ratio, as follows:


Leverage Ratio	Applicable Margin for Revolving Loans	Applicable Margin for Term Loans
Less than 30%	1.40%	1.35%
Greater than or equal to 30% but less than 35%	1.45%	1.40%
Greater than or equal to 35% but less than 40%	1.50%	1.45%
Greater than or equal to 40% but less than 45%	1.60%	1.55%
Greater than or equal to 45% but less than 50%	1.80%	1.75%
Greater than or equal to 50% but less than 55%	1.95%	1.85%
Greater than or equal to 55%	2.25%	2.20%

The Credit Agreement contains various financial covenants. A summary of the most significant covenants is as follows:

Actual at

Covenant

September 30, 2023

Maximum leverage ratio (1)

60%

28.3%

Minimum fixed charge coverage ratio (2)

1.50x

3.08x

Secured recourse indebtedness

Less than 45% of Total Asset Value

11.0%

Unencumbered leverage ratio

60%

28.4%

Unencumbered implied debt service coverage ratio

1.20x

2.65x

_____________________________

(1)Leverage ratio is net indebtedness, as defined in the Credit Agreement, divided by total asset value, defined in the Credit Agreements as the value of our owned hotels based on hotel net operating income divided by a defined capitalization rate.

(2)Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the Credit Agreements as EBITDA less FF&E reserves, for the most recently ending 12 months, to fixed charges, which is defined in the Credit Agreement as interest expense, all regularly scheduled principal payments and payments on capitalized lease obligations, for the same most recently ending 12-month period.

The components of the Company's interest expense consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Mortgage debt interest	$	4,130	$	6,233	$	12,331	$	18,322
Unsecured term loan interest	11,019		4,104		31,867		11,568
Credit facility interest and unused fees	311		1,863		941		5,015
Amortization of debt issuance costs and debt premium	513		652		1,540		1,963
Interest rate swap mark-to-market	—		(3,780)		2,033		(14,002)
	$	15,973	$	9,072	$	48,712	$	22,866

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6. Derivatives

As of September 30, 2023 and December 31, 2022 the Company had the following derivatives that were designated as cash flow hedges of interest rate risk (in thousands):


									Fair Value of Assets (Liabilities)
Hedged Debt	Type	Fixed Rate		Index	Effective Date	Maturity Date	Notional Amount		September 30, 2023		December 31, 2022
Senior unsecured term loans	Swap (1)	2.21	%	SOFR	December 28, 2022	October 18, 2023	$	25,000	$	37	$	517
Senior unsecured term loans	Swap (1)	2.21	%	SOFR	December 28, 2022	October 18, 2023	$	25,000	37		515
Senior unsecured term loans	Swap (1)	1.63	%	SOFR	November 28, 2022	July 25, 2024	$	87,500	2,624		3,979
Senior unsecured term loans	Swap (1)	1.63	%	SOFR	November 28, 2022	July 25, 2024	$	87,500	2,621		3,976
Senior unsecured term loans	Swap	3.36	%	SOFR	March 1, 2023	January 1, 2028	$	75,000	2,892		—
Senior unsecured term loans	Swap	3.50	%	SOFR	March 1, 2023	January 1, 2027	$	75,000	2,277		—
									$	10,488	$	8,987

______________________

(1)Swap was designated as cash flow hedge as of April 1, 2023.

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our 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.

Derivative assets are included in prepaid expenses and other assets and derivative liabilities are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. The changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2023, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the variable-rate debt.

The fair value of our interest rate swaps is a Level 2 measurement under the fair value hierarchy. We estimate the fair value of the interest rate swap based on the interest rate yield curve and implied market volatility as inputs and adjusted for the counterparty's credit risk. We concluded the inputs for the credit risk valuation adjustment are Level 3 inputs; however these inputs are not significant to the fair value measurement in its entirety.

The table below details the location in the consolidated financial statements of the gains and losses recognized on derivative financial statements for the three and nine months ended September 30, 2023 and 2022 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
Effect of derivative instruments	Location in Statements of Operations and Comprehensive Income	2023		2022		2023		2022
Gain recognized in other comprehensive income	Unrealized loss on interest rate derivative instruments	$	150	$	—	$	3,533	$	—
Interest income for derivatives that were designated as cash flow hedges	Interest expense	$	(2,694)	$	—	$	(5,235)	$	—
Interest (income) expense for derivatives that were not designated as cash flow hedges	Interest expense	$	—	$	(3,972)	$	469	$	(12,615)

During the next twelve months, the Company estimates that $4.1 million will be reclassified from other comprehensive income as a decrease to interest expense.

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7. Fair Value Measurements

The fair value of certain financial assets and liabilities and other financial instruments as of September 30, 2023 and December 31, 2022, in thousands, is as follows:


	September 30, 2023				December 31, 2022
	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Debt	$	1,179,251	$	1,157,432	$	1,185,793	$	1,148,533

_______________

(1)The carrying amount of debt is net of unamortized debt issuance costs.

The fair value of our debt is a Level 2 measurement under the fair value hierarchy (see Note 2). We estimate the fair value of our debt by discounting the future cash flows of each instrument at estimated market rates.

The carrying amount of our other financial instruments approximate fair value due to the short-term nature of these financial instruments.

8. 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 one parking area as of September 30, 2023. 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 September 30, 2023, our operating leases have a weighted-average remaining lease term of 64 years and a weighted-average discount rate of 5.78%.

The components of operating lease expense, which is included in other hotel expenses in our consolidated statements of operations and comprehensive income, and cash paid for amounts included in the measurement of lease liabilities, are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	2,754	$	2,797	$	8,278	$	8,370
Variable lease payments	$	399	$	447	$	1,156	$	1,210
Cash paid for amounts included in the measurement of operating lease liabilities	$	981	$	1,011	$	2,942	$	2,990

Maturities of lease liabilities as of September 30, 2023 are as follows (in thousands):


Year Ending December 31,
2023 (excluding the nine months ended September 30, 2023)	$	982
2024	3,966
2025	4,026
2026	4,594
2027	4,737
Thereafter	752,819
Total lease payments	771,124
Less imputed interest	(659,292)
Total lease liabilities	$	111,832

On April 20, 2023, we acquired the fee simple interest in a land parcel underlying the parking structure at the Worthington Renaissance Fort Worth Hotel, which had been subject to a ground lease, for $1.8 million.

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9. Equity

Common Shares

We are authorized by our charter 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.

We maintain 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.

Our board of directors has authorized a share repurchase program pursuant to which we are authorized to repurchase up to $200.0 million of our common stock through February 28, 2025. The timing and actual number of shares repurchased will depend on a variety of factors, including price and general business and market conditions. The share repurchase program does not obligate us to acquire any particular amount of shares, and may be suspended or discontinued at any time at our discretion. During the nine months ended September 30, 2023, we repurchased 318,454 shares of common stock at an average price of $7.60 per share for a total purchase price of $2.4 million. During the year ended December 31, 2022, we repurchased 1.6 million shares of common stock at an average price of $7.81 per share for a total purchase price of $12.3 million. As of November 3, 2023, we have $185.3 million of authorized capacity remaining under the share repurchase program.

Preferred Shares

We are authorized by our charter 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 September 30, 2023 and December 31, 2022, there were 4,760,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock (“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, then valued 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 10 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 10 for additional disclosures related to LTIP units.

There were 723,166 and 719,542 common OP units held by unaffiliated third parties and executive officers of the Company as of September 30, 2023 and December 31, 2022, respectively. There were 314,137 and 98,050 unvested LTIP units outstanding as of September 30, 2023 and December 31, 2022, respectively.

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Dividends and Distributions

We have paid the following dividends to holders of our common stock and distributions to holders of common OP units and LTIP units during 2023 and through the date of this report:

Payment Date

Record Date

Dividend
per Share

January 12, 2023

December 30, 2022

0.06

April 12, 2023

March 31, 2023

0.03

July 12, 2023

June 30, 2023

0.03

October 12, 2023

September 29, 2023

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