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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 March 31, 2021

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 210,251,765 shares of its $0.01 par value common stock outstanding as of May 7, 2021.



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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)
March 31, 2021December 31, 2020
ASSETS(unaudited) 
Property and equipment, net$2,677,156 $2,817,356 
Right-of-use assets96,376 96,673 
Restricted cash24,120 23,050 
Due from hotel managers72,172 69,495 
Prepaid and other assets24,400 28,403 
Cash and cash equivalents99,827 111,796 
Total assets$2,994,051 $3,146,773 
LIABILITIES AND EQUITY  
Liabilities:  
Mortgage and other debt, net of unamortized debt issuance costs$591,544 $595,149 
Unsecured term loans, net of unamortized debt issuance costs398,126 398,550 
Senior unsecured credit facility100,000 55,000 
Total debt1,089,670 1,048,699 
Lease liabilities105,583 104,973 
Deferred rent57,492 56,344 
Due to hotel managers81,821 95,548 
Unfavorable contract liabilities, net64,381 64,796 
Accounts payable and accrued expenses39,052 46,542 
Deferred income related to key money, net10,847 10,946 
Total liabilities1,448,846 1,427,848 
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 March 31, 2021 and December 31, 2020
48 48 
Common stock, $0.01 par value; 400,000,000 shares authorized; 210,243,765 and 210,073,514 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
2,103 2,101 
Additional paid-in capital2,285,509 2,285,491 
Accumulated deficit(749,832)(576,531)
Total stockholders’ equity1,537,828 1,711,109 
Noncontrolling interests7,377 7,816 
Total equity1,545,205 1,718,925 
Total liabilities and equity$2,994,051 $3,146,773 

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

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
20212020
Revenues:  
Rooms$50,412 $111,801 
Food and beverage13,925 43,905 
Other8,600 14,289 
Total revenues72,937 169,995 
Operating Expenses:  
Rooms13,828 35,653 
Food and beverage11,561 31,087 
Management fees1,119 3,477 
Franchise fees2,447 5,796 
Other hotel expenses48,935 77,843 
Depreciation and amortization26,962 30,100 
Impairment losses122,552  
Corporate expenses7,159 5,557 
Total operating expenses, net234,563 189,513 
Interest and other (income) expense, net(156)399 
Interest expense8,484 21,218 
Total other expenses, net8,328 21,617 
Loss before income taxes(169,954)(41,135)
Income tax (expense) benefit(1,613)6,443 
Net loss(171,567)(34,692)
Less: Net loss attributable to noncontrolling interests720 133 
Net loss attributable to the Company(170,847)(34,559)
Distributions to preferred stockholders(2,454) 
Net loss attributable to common stockholders$(173,301)$(34,559)
Loss per share: 
Net loss per share available to common stockholders—basic$(0.82)$(0.17)
Net loss per share available to common stockholders—diluted$(0.82)$(0.17)





The accompanying notes are an integral part of these consolidated financial statements.
-2-


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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, 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 


Preferred StockCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
Balance at December 31, 2019  200,207,795 $2,002 $2,089,349 $(178,861)$1,912,490 $8,572 $1,921,062 
Share-based compensation— — 154,981 1 189 — 190 238 428 
Redemption of Operating Partnership units— — — — (15)— (15)(186)(201)
Common stock repurchased and retired— — (1,119,438)(11)(9,989)— (10,000)— (10,000)
Net loss— — — — — (34,559)(34,559)(133)(34,692)
Balance at March 31, 2020 $ 199,243,338 $1,992 $2,079,534 $(213,420)$1,868,106 $8,491 $1,876,597 











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)
Three Months Ended March 31,
20212020
Cash flows from operating activities:  
Net loss$(171,567)$(34,692)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization26,962 30,100 
Corporate asset depreciation as corporate expenses56 58 
Non-cash lease expense and other amortization1,672 1,750 
Non-cash interest rate swap fair value adjustment2,731 11,312 
Amortization of debt issuance costs611 453 
Impairment losses122,552  
Amortization of deferred income related to key money(99)(99)
Share-based compensation1,783 1,561 
Changes in assets and liabilities:
Prepaid expenses and other assets4,299 (207)
Due to/from hotel managers(15,188)15,821 
Accounts payable and accrued expenses(8,756)(15,794)
Net cash (used in) provided by operating activities(34,944)10,263 
Cash flows from investing activities:  
Capital expenditures for operating hotels(9,479)(19,617)
Capital expenditures for Frenchman's Reef reconstruction(2,477)(29,156)
Acquisition of interest in the land underlying the Kimpton Shorebreak Resort (1,585)
Proceeds from property insurance 10,663 
Net cash used in investing activities(11,956)(39,695)
Cash flows from financing activities:  
Scheduled mortgage debt principal payments(3,797)(3,457)
Draws on senior unsecured credit facility45,000 400,000 
Repayments of senior unsecured credit facility (75,000)
Payment of debt financing costs(1,149) 
Distributions on common stock and units(117)(25,557)
Distributions on preferred stock(2,454) 
Repurchase of common stock (10,000)
Redemption of Operating Partnership units (201)
Shares redeemed to satisfy tax withholdings on vested share-based compensation(1,482)(1,248)
Net cash provided by financing activities36,001 284,537 
Net (decrease) increase in cash, cash equivalents, and restricted cash(10,899)255,105 
Cash, cash equivalents, and restricted cash at beginning of period134,846 179,792 
Cash, cash equivalents, and restricted cash at end of period$123,947 $434,897 


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:
Three Months Ended March 31,
20212020
Cash paid for interest$10,476 $10,036 
Cash refunded for income taxes, net$(330)$(306)
Capitalized interest$ $1,006 
Non-cash investing and financing activities:
Unpaid dividends and distributions declared$21 $143 
Accrued capital expenditures$2,526 $3,896 

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:
March 31, 2021December 31, 2020
Cash and cash equivalents$99,827 $111,796 
Restricted cash24,120 23,050 
Total cash, cash equivalents and restricted cash$123,947 $134,846 





























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 key gateway cities 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 March 31, 2021, we owned 31 hotels with 10,103 guest rooms, located in the following markets: Atlanta, Georgia; Boston, Massachusetts (2); Burlington, Vermont; Charleston, South Carolina; Chicago, Illinois (2); Denver, Colorado (2); Fort Lauderdale, Florida; Fort Worth, Texas; Huntington Beach, California; Key West, Florida (2); New York, New York (4); 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); St. Thomas, U.S. Virgin Islands; and Vail, Colorado. Subsequent to March 31, 2021, we sold the Frenchman's Reef & Morning Star Marriott Beach Resort (“Frenchman's Reef”) located in St. Thomas, U.S. Virgin Islands. See Note 3 for further discussion of the sale. Frenchman's Reef has been closed since September 2017 as a result of damage caused by Hurricane Irma.

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 99.6% of the limited partnership units (“common OP units”) of our operating partnership. The remaining 0.4% 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.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus, or COVID-19, a global pandemic. The virus spread throughout the United States and globally. As a result of the pandemic, government mandates and health official recommendations, the overall demand for lodging has materially decreased. We suspended operations at 20 of our 30 previously operating hotels for a portion of 2020. For the three months ended March 31, 2021, four of our 30 previously operating hotels were closed for all or a portion of the quarter.

We have taken aggressive steps to mitigate the COVID-19 pandemic's operational and financial impacts on our business, as described in our consolidated financial statements contained within our Annual Report on Form 10-K filed on March 1, 2021. The COVID-19 pandemic has had a material adverse impact on our operations and financial results for the three months ended March 31, 2021. The severity and duration of the COVID-19 pandemic cannot be reasonably estimated at this time, but we expect it will continue to have a material adverse impact on our results of operations, financial position and cash flow in 2021.

Demand at our leisure-focused hotels has improved in the latter part of 2020 and the first quarter of 2021. Demand at our other hotels, however, remains at historically low levels. Several markets throughout the country experienced a resurgence of COVID-19 case counts during the recent winter months and reimplemented or strengthened closures, quarantines, and social distancing requirements. The availability and effectiveness of COVID-19 vaccines, as well as other public health and geopolitical factors, are likely to impact the timing, pace, and extent of a lodging demand recovery.

As of March 31, 2021, the Company had unrestricted cash of $99.8 million and $300.0 million of borrowing capacity on our senior unsecured credit facility.

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
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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 as of March 31, 2021, the results of our operations for the three months ended March 31, 2021 and 2020, the statements of equity for the three months ended March 31, 2021 and 2020, and the cash flows for the three months ended March 31, 2021 and 2020. 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, 2020, included in our Annual Report on Form 10-K filed on March 1, 2021.

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 is the potential length and severity of the ongoing COVID-19 pandemic. The COVID-19 pandemic has reduced travel and adversely affected the hospitality industry in general. We believe that the actual and threatened spread of COVID-19 globally or in the regions in which we operate, or the future widespread outbreak of infectious or contagious disease, has impeded and will continue to impede national and international travel in general compared to pre-pandemic levels. 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, and its impact on customer travel, including the duration of the outbreak, the continued spread and treatment of COVID-19, new information and developments that may emerge concerning the severity of COVID-19 and the actions of governments and individuals to contain COVID-19 or mitigate its impact, as well as the effect of any relaxation of current restrictions, among others. To the extent that travel activity in the U.S. continues to be materially and adversely affected by COVID-19, the overall business and financial results of the hospitality industry, as well as the business and financial results of the Company, would similarly continue to be materially and adversely impacted. See Note 1 for additional disclosures related to COVID-19 and its impact on the Company.

Going Concern

Under the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements are issued. In making our evaluation, we considered our financial position and liquidity sources, including forecasted future cash flows and our ability to meet contractual obligations that are due or may become due over the next 12 months. We determined that there is not substantial doubt about our ability to continue as a going concern over the next 12 months as of May 7, 2021.

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
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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. 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. As discussed in Note 3, we recorded impairment losses on The Lexington Hotel and Frenchman's Reef as of March 31, 2021.

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

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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 March 31, 2021 and December 31, 2020, we had a valuation allowance of $27.0 million and $25.6 million, respectively, on our deferred tax assets.

We have elected to be treated as a real estate investment trust (“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 a wholly owned subsidiary of Bloodstone TRS, Inc., our existing taxable REIT subsidiary, or TRS, except for Frenchman’s Reef, which is owned by a Virgin Islands corporation, which we have elected to be treated as a TRS, and Cavallo Point, The Lodge at the Golden Gate (“Cavallo Point”), which is leased to a wholly owned subsidiary of the Company, which we have elected to be treated as a TRS.

We had no accruals for tax uncertainties as of March 31, 2021 and December 31, 2020.

Intangible Assets and Liabilities

Intangible assets and liabilities are recorded on non-market contracts 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 the terms are favorable or unfavorable compared to an estimated market agreement at the acquisition date. Favorable contract assets or unfavorable contract liabilities are recorded at the acquisition date and amortized using the straight-line method over the term of the agreement. 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 (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

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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. 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 reserves 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. 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.

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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 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.


3.Property and Equipment

Property and equipment as of March 31, 2021 and December 31, 2020 consists of the following (in thousands):
March 31, 2021December 31, 2020
Land$583,349 $618,210 
Land improvements7,994 7,994 
Buildings and site improvements2,602,661 2,724,277 
Furniture, fixtures and equipment472,685 539,729 
Construction in progress20,660 37,481 
 3,687,349 3,927,691 
Less: accumulated depreciation(1,010,193)(1,110,335)
 $2,677,156 $2,817,356 

As of March 31, 2021 and December 31, 2020, we had accrued capital expenditures of $2.5 million and $3.9 million, respectively.

On March 24, 2021, we entered into an agreement to sell The Lexington Hotel to an unaffiliated third party for a contractual purchase price of $185.0 million. We anticipate the sale will close before the end of the third quarter of 2021. No assurance can be given, however, that we will successfully complete the sale. The hotel remains classified as held and used as of March 31, 2021, based on our assessment of the criteria for a hotel to be classified as held for sale (see Note 2). During the three months ended March 31, 2021, we evaluated the recoverability of the carrying amount of The Lexington Hotel as a result of our assessment in the first quarter of 2021 that it is more likely than not that the hotel will be sold significantly before the end
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of its previously estimated useful life. As a result, we recorded an impairment loss of $111.7 million to adjust the hotel's carrying amount to its estimated fair value. See Note 9 for further discussion about the determination of the hotel's fair value.

On April 30, 2021, we sold a wholly owned subsidiary of the Company that owns Frenchman's Reef to an unaffiliated third party pursuant to a share purchase agreement (the “Purchase Agreement”) dated April 27, 2021. Pursuant to the Purchase Agreement, the Company received $35.0 million in cash upon closing, as well as a participation right in the future profits of the hotel once certain return metrics are achieved. Although we expect the profit participation could be meaningful, there can be no assurance that the property will satisfy such return metrics. The Purchase Agreement is a recognized subsequent event in accordance with FASB ASC 855, Subsequent Events. As a result, we recorded an impairment loss of $10.8 million for the three months ended March 31, 2021 to adjust the hotel's carrying amount to the contractual consideration. The hotel was classified as held and used as of March 31, 2021, based on our assessment of the criteria for a hotel to be classified as held for sale (see Note 2).

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 one parking garage as of March 31, 2021. 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 March 31, 2021, our operating leases have a weighted-average remaining lease term of 66 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 March 31,
 20212020
Operating lease cost$2,760 $2,808 
Variable lease payments$41 $237 
Cash paid for amounts included in the measurement of operating lease liabilities$866 $807 

Maturities of lease liabilities are as follows (in thousands):
Year Ending December 31,As of March 31, 2021
2021 (excluding the three months ended March 31, 2021)$2,630 
20223,940 
20233,997 
20243,976 
20254,036 
Thereafter755,089 
Total lease payments773,668 
Less imputed interest(668,085)
Total lease liabilities$105,583 

The Salt Lake City Marriott Downtown at City Creek is subject to a ground lease. On April 1, 2021, we completed a transaction to extend the lease term by 50 years to December 31, 2106. In consideration for the extension, we transferred our 21.25% interest in the land to the majority ground lessors and provided a cash payment of $2.8 million.

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.

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We have 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 million. No shares were sold under the ATM Program during the three months ended March 31, 2021. As of May 7, 2021, shares of common stock having an aggregate offering price of up to $112.1 million remained available for sale under the ATM Program.

Preferred Shares

We are authorized to issue up to 10,000,000 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 March 31, 2021 and December 31, 2020, 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.

There were 963,612 and 855,191 common OP units held by unaffiliated third parties and executive officers of the Company as of March 31, 2021 and December 31, 2020, respectively. There were 135,388 and 243,809 LTIP units outstanding as of March 31, 2021 and December 31, 2020, 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 the quarterly common dividend commencing with the first quarter dividend that would have been paid in April 2020. The resumption in quarterly common dividends will be determined by our board of directors after considering our projected taxable income, obligations under our financing agreements, expected capital requirements, and risks affecting our business.

We have paid the following dividends to holders of our Series A Preferred Stock during 2021:
Payment DateRecord DateDividend
per Share
March 31, 2021March 18, 2021$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 4,396,976 shares as of March 31, 2021. In addition to these shares,
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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-year period from the date of the 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, 2021 to March 31, 2021 is as follows:
Number of
Shares
Weighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 2021557,273 $9.83 
Granted1,114,894 9.40 
Vested(236,288)9.93 
Unvested balance at March 31, 20211,435,879 $9.48 

In March 2021, our board of directors granted 691,490 restricted shares of common stock as special retention awards (the “Special Retention Awards”) for certain executives, including our named executive officers. The Special Retention Awards generally vest over a five-year period from the date of their grant based on continued employment. Vesting occurs on the following schedule:

0% for the first three years,
25% on the third anniversary of the grant,
25% on the fourth anniversary of the grant, and
50% on the fifth anniversary of the grant.

The total unvested share awards as of March 31, 2021 are expected to vest as follows: 8,202 shares during 2021, 424,416 shares during 2022, 458,585 shares during 2023, 285,103 shares during 2024, 129,788 shares during 2025 and 129,785 shares during 2026. As of March 31, 2021, the unrecognized compensation cost related to restricted stock awards was $13.0 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 44 months. We recorded $0.8 million and $0.7 million of compensation expense related to restricted stock awards for the three months ended March 31, 2021 and 2020, respectively.
Performance Stock Units

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%. For the PSUs granted on March 2, 2021, the improvement in market share for each of our hotels will be measured over a two-year performance period starting on January 1, 2022, which is when we anticipate most major hotels will be open within our competitive sets.

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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 March 2, 2021, our board of directors granted 347,981 PSUs to our executive officers. The grant date fair value of the portion of the PSUs based on our relative total stockholder return was $9.28 using the assumptions of volatility of 68.8% and a risk-free rate of 0.26%. The grant date fair value of the portion of the PSUs based on hotel market share was $9.40, which was the closing stock price of our common stock on such date.

A summary of our PSUs from January 1, 2021 to March 31, 2021 is as follows:
Number of
Target Units
Weighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 2021912,186 $9.63 
Granted347,981 9.34 
Vested (1)(290,927)9.90 
Unvested balance at March 31, 2021969,240 $9.45 
______________________
(1)The number of shares of common stock earned for the PSUs vested in 2021 was equal to 100.0% of the PSU Target Award.

The total unvested PSUs as of March 31, 2021 are expected to vest as follows: 269,224 units during 2022, 352,035 units during 2023 and 347,981 units during 2024. The number of shares earned upon vesting is subject to the attainment of the performance goals described above. As of March 31, 2021, the unrecognized compensation cost related to the PSUs was $6.0 million and is expected to be recognized on a straight-line basis over a weighted average period of 28 months. We recorded $0.7 million of compensation expense related to the PSUs for each of the three months ended March 31, 2021 and 2020.

LTIP Units

LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while 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 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, 2021 to March 31, 2021 is as follows:
Number of UnitsWeighted-
Average Grant
Date Fair
Value
Unvested balance at January 1, 2021243,809 $10.29 
Vested (1)(108,421)10.38 
Unvested balance at March 31, 2021135,388 $10.22 
______________________
(1)As of March 31, 2021, all vested LTIP units have achieved economic parity with common OP units and have been converted to common OP units.

The total unvested LTIP units as of March 31, 2021 are expected to vest as follows: 108,422 units during 2022 and 26,966 units during 2023. As of March 31, 2021, of the 325,264 LTIP units granted, 189,876 LTIP units have vested.

As of March 31, 2021, the unrecognized compensation cost related to LTIP unit awards was $1.3 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 19 months. We recorded $0.3 million and $0.2 million of compensation expense related to LTIP unit awards for the three months ended March 31, 2021 and 2020, respectively.
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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):
 Three Months Ended March 31,
20212020
Numerator:
Net loss attributable to common stockholders(173,301)$(34,559)
Dividends declared on unvested share-based compensation  
Net loss available to common stockholders$(173,301)$(34,559)
Denominator:
Weighted-average number of common shares outstanding—basic211,671,581 201,207,835 
Effect of dilutive securities:
Unvested restricted common stock  
Shares related to unvested PSUs  
Weighted-average number of common shares outstanding—diluted211,671,581 201,207,835 
Earnings (loss) per share:
Net loss per share available to common stockholders—basic$(0.82)$(0.17)
Net loss per share available to common stockholders—diluted$(0.82)$(0.17)

For the three months ended March 31, 2021 and 2020, 757,591 and 168,270 of unvested restricted common shares and 695,654 and 375,602 of unvested PSUs were excluded from diluted weighted-average common shares outstanding, as their effect would be anti-dilutive.

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 March 31, 2021 and December 31, 2020 (dollars in thousands):
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Principal Balance as of
LoanInterest Rate as of March 31, 2021Maturity DateMarch 31, 2021December 31, 2020
Salt Lake City Marriott Downtown at City Creek mortgage loan
LIBOR + 3.25% (1)
January 2022 (2)$46,800 $47,250 
Westin Washington, D.C. City Center mortgage loan3.99%January 202357,691 58,282 
The Lodge at Sonoma Renaissance Resort & Spa mortgage loan3.96%April 202326,144 26,268 
Westin San Diego Downtown mortgage loan3.94%April 202359,844 60,261 
Courtyard New York Manhattan/Midtown East mortgage loan4.40%August 202479,117 79,535 
Worthington Renaissance Fort Worth Hotel mortgage loan3.66%May 202578,770 79,214 
JW Marriott Denver at Cherry Creek mortgage loan4.33%July 202559,732 60,052 
Westin Boston Waterfront mortgage loan4.36%November 2025185,808 186,840 
Unamortized debt issuance costs(2,362)(2,553)
Total mortgage and other debt, net of unamortized debt issuance costs591,544 595,149 
Unsecured term loan
LIBOR + 2.40% (3)
October 202350,000 50,000 
Unsecured term loan
LIBOR + 2.40% (4)
July 2024350,000 350,000 
Unamortized debt issuance costs(1,874)(1,450)
Unsecured term loans, net of unamortized debt issuance costs398,126 398,550 
Senior unsecured credit facility
LIBOR + 2.55% (5)
July 2023 (6)100,000 55,000 
Total debt, net of unamortized debt issuance costs$1,089,670 $1,048,699 
Weighted-Average Interest Rate3.87% 
_______________________

(1)LIBOR is subject to a floor of 1.0%.
(2)The loan may be extended for an additional year upon satisfaction of certain conditions.
(3) We are party to an interest rate swap agreement that fixes LIBOR at 2.41% through October 2023.
(4) We are party to an interest rate swap agreement that fixes LIBOR at 1.70% through July 2024 for $175 million of the loan. LIBOR is subject to a floor of 0.25%.
(5) LIBOR is subject to a floor of 0.25%.
(6)    The credit facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.

Mortgage and Other 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 March 31, 2021, eight of our 31 hotels were secured by mortgage debt.

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 cash trap 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
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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 March 31, 2021, the debt service coverage ratios or debt yields for all of our mortgage loans with cash trap provisions were below the minimum thresholds such that the cash trap provision of each respective loan was triggered. We do not expect that such cash traps will affect our ability to satisfy our short-term liquidity requirements.

Senior Unsecured Credit Facility and Unsecured Term Loans

We are party to credit agreements (the “Credit Agreements”) that provide for a $400 million senior unsecured credit facility (the “Revolving Credit Facility”), which matures in July 2023, a $350 million unsecured term loan maturing in July 2024 (the “Facility Term Loan”) and a $50 million unsecured term loan maturing in October 2023 (the “2023 Term Loan”). The maturity date for the Revolving Credit Facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions. The interest rate on the Revolving Credit Facility is based upon LIBOR, plus an applicable margin based upon the Company’s leverage ratio. In addition to the interest payable on amounts outstanding under the Revolving Credit Facility, we are required to pay an amount equal to 0.20% of the unused portion of the Revolving Credit Facility if the average usage is greater than 50% or 0.30% of the unused portion of the Revolving Credit Facility if the average usage is less than or equal to 50%. As of March 31, 2021, we had $100.0 million in borrowings outstanding under the Revolving Credit Facility.

We incurred interest and unused fees on the Revolving Credit Facility of $0.7 million for each of the three months ended March 31, 2021 and 2020. We incurred interest on the unsecured term loans of $3.6 million and $3.2 million for the three months ended March 31, 2021 and 2020, respectively.

On June 9, 2020, we entered into amendments to the Credit Agreements (the “Amended Credit Agreements”). The Amended Credit Agreements waive the quarterly tested financial covenants from June 9, 2020 through the first quarter of 2021, unless we elect to terminate the waiver on an earlier date (such period between June 9, 2020 and the earlier of such date of termination and the end of the first quarter of 2021, the “Covenant Relief Period”).
During the Covenant Relief Period and until the date we have demonstrated compliance with the financial covenants for the fiscal quarter following the end of the Covenant Relief Period (the “Restriction Period”), (i) the Amended Credit Agreements require that the net cash proceeds from certain incurrences of indebtedness, equity issuances and asset dispositions will, subject to various exceptions, be applied as a mandatory prepayment of the amounts outstanding under the Amended Credit Agreements, (ii) the Amended Credit Agreements impose an additional covenant that we and our subsidiaries maintain minimum liquidity, defined as unrestricted cash plus available capacity on the Revolving Credit Facility, of at least $100.0 million, and (iii) the Amended Credit Agreements impose additional negative covenants that will limit our ability to incur additional indebtedness, pay dividends and distributions (except to the extent required to maintain REIT status), repurchase shares, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, in each case subject to various exceptions. During the Restriction Period, acquisitions of encumbered hotels are permitted, subject to a $300 million limitation, and acquisitions of unencumbered hotels are permitted subject to a partial repayment of the outstanding balance on the Revolving Credit Facility or funded with junior capital.
Following the end of the Covenant Relief Period, the Amended Credit Agreements modify certain financial covenants until January 1, 2022 or unless we elect to terminate the period on an earlier date (the “Ratio Adjustment Period”), as follows:

Maximum Leverage Ratio is increased from 60% to 65%;
Unencumbered Leverage Ratio is increased from 60% to 65%; and
Unencumbered Implied Debt Service Coverage Ratio may not be less than 1.00 to 1.00 for the first two testing periods in the Ratio Adjustment Period, not less than 1.10 to 1.00 for the third testing period in the Ratio Adjustment Period and not less than 1.20 to 1.00 for all testing periods thereafter.

During the Covenant Relief Period and until the earlier of (i) January 1, 2022 and (ii) the date on which we have demonstrated compliance with the financial covenants, without giving effect to the modifications imposed during the Ratio Adjustment Period for two consecutive quarters following the Covenant Relief Period, the equity interests of certain of our subsidiaries that own unencumbered properties are required to be pledged to secure the obligations owing under the Amended Credit Agreements.

During the Covenant Relief Period and the Ratio Adjustment Period, the Amended Credit Agreements also set the applicable interest rate to LIBOR plus a margin of 2.40% for the Revolving Credit Facility and LIBOR plus a margin of 2.35% for the Facility Term Loan and 2023 Term Loan. The Amended Credit Agreements also add a LIBOR floor of 0.25% to the
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variable interest rate calculation. On August 14, 2020, we entered into an additional amendment to the Amended Credit Agreements that permits us to pay preferred dividends up to $17.5 million annually.

On January 20, 2021, we entered into third amendments to the Amended Credit Agreements that provide for the following modifications:

Extends the Covenant Relief Period through the fourth quarter of 2021, unless we elect to terminate the period on an earlier date;
Extends the Ratio Adjustment Period until April 1, 2023, unless we elect to terminate the period on an earlier date, and further modifies certain financial covenants, as follows:
Maximum Leverage Ratio is increased from 60% to 65%;
Unencumbered Leverage Ratio is increased from 60% to 65%; and
Unencumbered Implied Debt Service Coverage Ratio may not be less than 1.00 to 1.00
Increases the applicable interest rate as follows: (i) for all revolving loans outstanding, LIBOR plus a margin of 2.55% per annum, and (ii) for all term loans outstanding, LIBOR plus a margin of 2.40% per annum;
Increases the minimum liquidity covenant to $125.0 million; and
Increases our ability to pay dividends on preferred stock up to $25.0 million annually.

9. Fair Value Measurements and Interest Rate Swaps

The fair value of certain financial assets and liabilities and other financial instruments as of March 31, 2021 and December 31, 2020, in thousands, is as follows:
March 31, 2021December 31, 2020
Carrying
Amount (1)
Fair ValueCarrying
Amount (1)
Fair Value
Debt$1,089,670 $1,103,030 $1,048,699 $1,078,900 
_______________
(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 Company's interest rate derivatives, which are not designated or accounted for as cash flow hedges, consisted of the following as of March 31, 2021 and December 31, 2020, in thousands:
Fair Value of Assets (Liabilities)
Hedged DebtTypeRate FixedIndexEffective DateMaturity DateNotional AmountMarch 31, 2021December 31, 2020
$50 million term loan
Swap2.41 %1-Month LIBORJanuary 7, 2019October 18, 2023$50,000 $(2,768)$(3,231)
$350 million term loan
Swap1.70 %1-Month LIBORJuly 25, 2019July 25, 2024$175,000 (7,118)(9,386)
$(9,886)$(12,617)

The fair values of the interest rate swap agreements are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets as of March 31, 2021 and December 31, 2020. 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 carrying amount of our other financial instruments approximate fair value due to the short-term nature of these financial instruments.

The following table presents the fair value of assets that are measured on a non-recurring basis (in thousands):

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Fair Value Measurements as of March 31, 2021
TotalLevel 1Level 2Level 3
Hotel properties$220,000 $ $220,000 $ 

During the three months ended March 31, 2021, we adjusted the carrying amount of The Lexington Hotel to its fair value of $185.0 million and recorded a related impairment loss of $111.7 million. Further, during the three months ended March 31, 2021, we adjusted the carrying amount of Frenchman's Reef to its fair value of $35.0 million and recorded a related impairment loss of $10.8 million. The fair values were determined based on the contractual sales prices pursuant to executed purchase and sale agreements. Contractual sales prices are considered observable inputs other than quoted prices (Level 2 measurements) in the fair value hierarchy.

10. Commitments and Contingencies

Litigation

We are subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of our hotels and Company matters. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on our financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings brought against the Company, however, is subject to significant uncertainties.

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

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. These forward-looking statements are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions, whether in the negative or affirmative. Forward-looking statements are based on management’s current expectations and assumptions and are not guarantees of future performance. Factors that may cause actual results to differ materially from current expectations include, but are not limited to, the risks discussed herein and the risk factors discussed from time to time in our periodic filings with the Securities and Exchange Commission, including in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 as updated by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Accordingly, there is no assurance that the Company’s expectations will be realized. Except as otherwise required by the federal securities laws, the Company disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this report to reflect events, circumstances or changes in expectations after the date of this report.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

negative developments in the economy, including, but not limited to, job loss or growth trends, a continued increase in unemployment or a decrease in corporate earnings and investment;
increased competition in the lodging industry and from alternative lodging channels or third party internet intermediaries in the markets in which we own properties;
failure to effectively execute our long-term business strategy and successfully identify and complete acquisitions and dispositions (including the proposed sale of The Lexington Hotel);
risks and uncertainties affecting hotel management, operations and renovations (including, without limitation, construction delays, increased construction costs, disruption in hotel operations and the risks associated with our management and franchise agreements);
risks associated with the availability and terms of financing and the use of debt to fund acquisitions and renovations or refinance existing indebtedness, including the impact of higher interest rates on the cost and/or availability of financing;
risks associated with our level of indebtedness and our ability to satisfy our obligations under our debt agreements;
risks associated with the lodging industry overall, including, without limitation, decreases in the frequency of travel and increases in operating costs;
risks and uncertainties associated with our obligations under our management agreements;
risks associated with the reopening of our hotels that suspended operations as a result of the novel coronavirus (COVID-19);
risks associated with natural disasters and other unforeseen catastrophic events, including the emergence of a pandemic or other widespread health emergency;
the adverse impact of COVID-19 on the U.S., regional and global economies, travel, the hospitality industry, and on our financial condition and results of operations and our hotels;
costs of compliance with government regulations, including, without limitation, the Americans with Disabilities Act;
potential liability for uninsured losses and environmental contamination;
risks associated with security breaches through cyber-attacks or otherwise, as well as other significant disruptions of our and our hotel managers’ information technologies and systems, which support our operations and those of our hotel managers;
risks associated with our potential failure to qualify as a REIT (as defined below) under the Internal Revenue Code of 1986, as amended (the “Code”);
possible adverse changes in tax and environmental laws; and
risks associated with our dependence on key personnel whose continued service is not guaranteed.

Overview

DiamondRock Hospitality Company is a lodging-focused Maryland corporation operating as a real estate investment trust (“REIT”). As of March 31, 2021, we owned a portfolio of 31 premium hotels and resorts that contain 10,103 guest rooms located in 21 different markets in North America and the U.S. Virgin Islands. Subsequent to March 31, 2021, we sold the Frenchman's Reef & Morning Star Marriott Beach Resort (“Frenchman's Reef”) located in St. Thomas, U.S. Virgin Islands. See
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Note 3 to the accompanying consolidated financial statements for further discussion of the sale. Frenchman's Reef has been closed since September 2017 as a result of damage caused by Hurricane Irma.

As an owner, rather than an operator, of lodging properties, we receive all of the operating profits or losses generated by our hotels after the payment of fees due to hotel managers and hotel brands, which are calculated based on the revenues and profitability of each hotel.

Our strategy is to apply aggressive asset management, prudent financial strategy, and disciplined capital allocation to high quality lodging properties in North American urban and resort markets with superior growth prospects and high barriers-to-entry. Our goal is to deliver long-term stockholder returns that exceed those generated by our peers through a combination of dividends and enduring capital appreciation.

Our primary business is to acquire, own, asset manage and renovate premium hotel properties in the United States. Our portfolio is concentrated in key gateway cities and destination resort locations. Each of our hotels is managed by a third party—either an independent operator or a brand operator, such as Marriott International, Inc.

We critically evaluate each of our hotels to ensure that we own a portfolio of hotels that conforms to our vision, supports our mission and corresponds with our strategy. On a regular basis, we analyze our portfolio to identify opportunities to invest capital in certain projects or market non-core assets for sale in order to increase our portfolio quality. We are committed to a conservative capital structure with prudent leverage. We regularly assess the availability and affordability of capital in order to maximize stockholder value and minimize enterprise risk. In addition, we are committed to following sound corporate governance practices and to being open and transparent in our communications with our stockholders.

Key Indicators of Financial Condition and Operating Performance

We use a variety of operating and other information to evaluate the financial condition and operating performance of our business. These key indicators include financial information that is prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), as well as other financial information that is not prepared in accordance with U.S. GAAP. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the performance of individual hotels, groups of hotels and/or our business as a whole. We periodically compare historical information to our internal budgets as well as industry-wide information. These key indicators include:

Occupancy percentage;

Average Daily Rate (or ADR);

Revenue per Available Room (or RevPAR);

Earnings Before Interest, Income Taxes, Depreciation and Amortization (or EBITDA), Earnings Before Interest, Income Taxes, Depreciation and Amortization for real estate (or EBITDAre), and Adjusted EBITDA; and

Funds From Operations (or FFO) and Adjusted FFO.

Occupancy, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR, which is calculated as the product of ADR and occupancy percentage, is an important statistic for monitoring operating performance at the individual hotel level and across our business as a whole. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a company-wide and regional basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 69% of our total revenues for the three months ended March 31, 2021 and is dictated by demand, as measured by occupancy percentage, pricing, as measured by ADR, and our available supply of hotel rooms.

Our ADR, occupancy percentage and RevPAR performance may be impacted by macroeconomic factors such as U.S. economic conditions generally, regional and local employment growth, personal income and corporate earnings, office vacancy rates and business relocation decisions, airport and other business and leisure travel, increased use of lodging alternatives, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, occupancy percentage and RevPAR performance is dependent on the continued success of our hotels' global brands.

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We also use EBITDA, EBITDAre, Adjusted EBITDA, FFO and Adjusted FFO as measures of the financial performance of our business. See “Non-GAAP Financial Measures.”

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus, or COVID-19, a global pandemic. The virus spread throughout the United States and globally. As a result of the pandemic, government mandates and health official recommendations, the overall demand for lodging has materially decreased. We suspended operations at 20 of our 30 previously operating hotels for a portion of 2020. For the three months ended March 31, 2021, four of our 30 previously operating hotels were closed for all or a portion of the quarter.

We have taken aggressive steps to mitigate the COVID-19 pandemic's operational and financial impacts on our business, as described in our consolidated financial statements contained within our Annual Report on Form 10-K filed on March 1, 2021. The COVID-19 pandemic has had a material adverse impact on our operations and financial results for the three months ended March 31, 2021. The severity and duration of the COVID-19 pandemic cannot be reasonably estimated at this time, but we expect it will continue to have a material adverse impact on our results of operations, financial position and cash flow in 2021.

The situation surrounding the COVID-19 pandemic remains fluid. Market demand for lodging at our hotels is closely correlated with reported infection levels near our hotel locations, consumer confidence, and guidance from health officials and federal, state, and local governments. Demand at our leisure-focused hotels has improved in the latter part of 2020 and the first quarter of 2021. Demand at our other hotels, however, remains at historically low levels. Several markets throughout the country experienced a resurgence of COVID-19 case counts during the recent winter months and reimplemented or strengthened closures, quarantines, and social distancing requirements. The availability and effectiveness of COVID-19 vaccines, as well as other public health and geopolitical factors, are likely to impact the timing, pace, and extent of a lodging demand recovery. As demand returns, we will continue to aggressively asset manage our hotels. We continue to carefully assess staffing needs, cleanliness and safety protocols, business mix, and other initiatives. We expect that the COVID-19 pandemic will decrease the pipeline of supply of new hotel rooms within the markets we operate, which will further stabilize RevPAR and profitability.

As of March 31, 2021, the Company had liquidity of $436.9 million, which includes unrestricted corporate cash of $99.8 million, $300.0 million of borrowing capacity on our senior unsecured credit facility, and unrestricted cash held at our hotels, which is included in due from hotel managers on our accompanying consolidated balance sheets.

Our Hotels

The following tables set forth certain operating information for the three months ended March 31, 2021 for each of our hotels. The table indicates the operating status of each hotel and the occupancy percentage, ADR and RevPAR for each hotel for the portion of the three months ended March 31, 2021 that it was open.
Hotels Open Throughout the Three Months Ended March 31, 2021
PropertyLocationNumber of
Rooms
Occupancy (%)ADR ($)RevPAR($)% Change
from 2020 RevPAR
Westin Boston Waterfront (1)
Boston, Massachusetts793 15.0 %$119.58 $17.91 (84.8)%
Salt Lake City Marriott Downtown at City CreekSalt Lake City, Utah510 30.5 %108.20 33.00 (62.4)%
Worthington Renaissance Fort Worth HotelFort Worth, Texas504 34.9 %136.41 47.54 (57.7)%
Westin San Diego DowntownSan Diego, California436 22.0 %141.50 31.06 (75.3)%
Westin Fort Lauderdale Beach ResortFort Lauderdale, Florida433 55.9 %255.18 142.74 (35.9)%
Westin Washington, D.C. City CenterWashington, D.C.410 8.8 %150.94 13.23 (88.6)%
Hilton Boston Downtown/Faneuil Hall (1)
Boston, Massachusetts403 21.2 %106.46 22.60 (82.1)%
Vail Marriott Mountain Resort (1)
Vail, Colorado344 73.6 %373.06 274.74 (7.0)%
Courtyard New York Manhattan/Midtown EastNew York, New York321