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Dynamic quotes 
OFFON

DIAMONDROCK HOSPITALITY COMPANY

(DRH)
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DIAMONDROCK HOSPITALITY CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2021 | 02:20pm EST
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, an 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;
•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 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 maintain our qualification 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 September 30, 2021,
we owned a portfolio of 31 premium hotels and resorts that contain 9,133 guest
rooms located in 22 different markets in North America.

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.
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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 71% of our total revenues for the nine months ended September 30,
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.

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
                                      -23-
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recommendations, the overall demand for lodging materially decreased. We
suspended operations at 20 of our 30 previously operating hotels for a portion
of 2020. For a portion of the nine months ended September 30, 2021, four of our
previously operating hotels were closed. As of September 30, 2021, and for the
three months then ended, all of our owned hotels were open.

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 and nine months ended
September 30, 2021. The COVID-19 pandemic showed signs of moderating in the
first half of 2021, however, given the emergence of variant strains, case counts
increased in the third quarter of 2021. Currently, case counts are declining,
however, the severity and duration of the pandemic cannot be reasonably
estimated at this time. We expect the COVID-19 pandemic will continue to have a
material adverse impact on our results of operations, financial position and
cash flow in the fourth quarter of 2021.

Demand at our leisure-focused hotels improved in the latter part of 2020 and
into the third 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 certain periods in 2021 and
reimplemented or strengthened closures, quarantines, and social distancing
requirements. The effectiveness and wide distribution of COVID-19 vaccines, as
well as other public health and geopolitical factors, have generally reduced
COVID-19 case counts. We believe that these factors, coupled with improved
global distribution of the vaccine and the potential approval of vaccines for
children and booster shots for the general population, are likely to positively
impact the timing, pace, and extent of a lodging demand recovery. The emergence
of new variant strains of COVID-19, however, has the potential to slow or
reverse these positive trends in the fourth quarter of 2021 and beyond. We will
continue to aggressively asset manage our hotels and carefully assess staffing
needs, cleanliness and safety protocols, business mix, and other initiatives. We
expect that the COVID-19 pandemic has decreased the pipeline of supply of new
hotel rooms within the markets we operate, which would further stabilize RevPAR
and profitability.

Our Hotels

The following tables set forth certain operating information for the nine months
ended September 30, 2021 for each of our hotels owned during the period. The
table indicates the operating status of each hotel and the occupancy percentage,
ADR and RevPAR for each hotel for the portion that it was open during the nine
months ended September 30, 2021.
Hotels Open for the Company's Period of Ownership during the Nine Months Ended September 30, 2021
                                                                                                                                                                                              % Change
                                                                                                          Number of                                                                          from 2020
Property                                         Location                                                   Rooms             Occupancy (%)             ADR ($)           RevPAR($)            RevPAR
Westin Boston Seaport District
(1)                                     Boston, Massachusetts                                               793                         38.6  %       $ 180.87          $    69.80               70.4  %
Salt Lake City Marriott Downtown
at City Creek                           Salt Lake City, Utah                                                510                         43.3  %         141.35               61.25               68.3  %
Worthington Renaissance Fort
Worth Hotel                             Fort Worth, Texas                                                   504                         51.2  %         148.82               76.19               49.1  %
Westin San Diego Downtown               San Diego, California                                               436                         51.3  %         157.46               80.71               17.6  %
Westin Fort Lauderdale Beach
Resort                                  Fort Lauderdale, Florida                                            433                         60.2  %         236.88              142.53               48.3  %
Westin Washington, D.C. City
Center                                  Washington, D.C.                                                    410                         25.8  %         139.24               35.88              (16.9) %
Hilton Boston Downtown/Faneuil
Hall (1)                                Boston, Massachusetts                                               403                         52.9  %         193.40              102.27              114.9  %
Vail Marriott Mountain Resort (1)       Vail, Colorado                                                      344                         46.0  %         317.33              145.93               16.8  %
Courtyard New York
Manhattan/Midtown East                  New York, New York                                                  321                         75.4  %         171.24              129.17               35.1  %
Atlanta Marriott Alpharetta             Atlanta, Georgia                                                    318                         45.3  %         109.44               49.60               35.1  %
The Gwen Hotel (1)                      Chicago, Illinois                                                   311                         48.7  %         244.80              119.29              118.7  %
Bethesda Marriott Suites                Bethesda, Maryland                                                  272                         30.6  %         111.73               34.20               (3.9) %
Hilton Burlington Lake Champlain
(1)                                     Burlington, Vermont                                                 258                         59.4  %         230.48              136.85              344.3  %
Hotel Palomar Phoenix (1)               Phoenix, Arizona                                                    242                         55.6  %         158.13               87.86               30.1  %
Bourbon Orleans Hotel (2)               New Orleans, Louisiana                                              218                         55.9  %         189.19              105.73              N/A


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JW Marriott Denver Cherry
Creek (1)                            Denver, Colorado                                                                             199                  61.9  %         256.72               158.94                   111.9    %
Barbary Beach House Key West
(1)                                  Key West, Florida                                                                            186                  85.2  %         384.06               327.16                   173.7    %
The Lodge at Sonoma Resort (1)       Sonoma, California                                                                           182                  56.7  %         345.68               195.99                   172.4    %
Courtyard Denver Downtown (1)        Denver, Colorado                                                                             177                  59.5  %         152.90                91.05                   136.7    %
Renaissance Charleston               Charleston, South
Historic District Hotel              Carolina                                                                                     167                  79.2  %         299.52               237.18                   174.7    %
                                     Huntington Beach,
Kimpton Shorebreak Resort            California                                                                                   157                  66.0  %         322.91               213.24                    64.3    %
Cavallo Point, The Lodge at
the Golden Gate (1)                  Sausalito, California                                                                        142                  41.3  %         634.83               262.11                   129.6    %
Havana Cabana Key West (1)           Key West, Florida                                                                            106                  91.1  %         284.07               258.91                   110.3    %
Hotel Emblem San Francisco (1)       San Francisco, California                                                                     96                  38.3  %         152.78                58.49                    (8.9)   %
L'Auberge de Sedona                  Sedona, Arizona                                                                               88                  80.9  %         855.47               692.17                   100.1    %
The Landing Lake Tahoe Resort        South Lake Tahoe,
& Spa (1)                            California                                                                                    82                  50.0  %         486.70               243.57                    24.2    %
Orchards Inn Sedona (1)              Sedona, Arizona                                                                               70                  69.9  %         287.73               201.15                   120.5    %
Henderson Park Inn (3)               Destin, Florida                                                                               37                  91.9  %         630.12               579.30                    16.6    %
TOTAL/WEIGHTED AVERAGE FOR
OPEN HOTELS                                                                                                                     7,462                  51.9  %         233.68               121.24                    74.2    %

Hotels Closed for a Portion of the Company's Period of Ownership during the Nine Months Ended September 30, 2021

                                                                                                                             Number of                                                                           % Change
Property                                     Location                  Date of Closure           Date of Reopening             Rooms            Occupancy (%)          ADR ($)           RevPAR ($)          from 2020 RevPAR
Chicago Marriott Downtown                                                                             9/1/2020
Magnificent Mile (1)                 Chicago, Illinois                4/10/2020 1/3/2021             4/15/2021                  1,200                  25.1  %       $ 194.21          $     48.76                    99.7    %
The Lexington Hotel (1) (4)          New York, New York                   3/29/2020                      -                        725                     -  %              -                    -                  (100.0)   %
Hilton Garden Inn New
York/Times Square Central (1)        New York, New York                  
3/29/2020                   5/3/2021                    282                  44.2  %         169.24                74.86                    89.7    %
Courtyard New York
Manhattan/Fifth Avenue (1)           New York, New York                   3/27/2020                   6/1/2021                    189                  40.9  %         181.14                74.06                    75.6    %
TOTAL/WEIGHTED AVERAGE FOR
CLOSED HOTELS                                                                                                                   2,396                  24.9  %         186.02                46.31                    24.0    %

TOTAL/WEIGHTED AVERAGE                                                                                                          9,858                  46.0  %       $ 228.06          $    104.93                    67.7    %



____________________
(1)Operations were suspended for a portion of the nine months ended September
30, 2020.
(2)The operating statistics reflect our ownership period from July 29, 2021 to
September 30, 2021. The hotel was closed during the comparable period in 2020.
(3)The operating statistics reflect our ownership period from July 30, 2021 to
September 30, 2021.
(4)The hotel was sold on June 30, 2021. The operating statistics reflect the
period from January 1, 2021 to June 30, 2021.

Results of Operations


The comparability of our results of operations for the three and nine months
ended September 30, 2021 to the three and nine months ended September 30, 2020
has been impacted by the effects of the COVID-19 pandemic. Our results of
operations for the three and nine months ended September 30, 2020 were impacted
by the advent of the COVID-19 pandemic and corresponding government mandates and
health official recommendations. Our results of operations for the three and
nine months ended September 30, 2021 have improved relative to the three and
nine months ended September 30, 2020 as government mandates eased, vaccines were
distributed, and travel increased. We expect the comparability of our results of
operations in future periods to past periods in 2020 and 2021 will be similarly
impacted by the effects of COVID-19.

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020


In response to the COVID-19 pandemic, operations were suspended at 20 of our
hotels for a portion of the three months ended September 30, 2020. As of
September 30, 2021, and for the three months then ended, all of our owned hotels
were open.

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Revenue. Revenue consists primarily of the room, food and beverage and other operating revenues from our hotels, as follows (dollars in millions):

                                   Three Months Ended September 30,
                                           2021                        2020       % Change
     Rooms                $            128.7                         $ 33.2        287.7  %
     Food and beverage                  36.5                            9.6        280.2  %
     Other                              14.3                            7.3         95.9  %
     Total revenues       $            179.5                         $ 50.1        258.3  %



Our total revenues increased $129.4 million from $50.1 million for the three
months ended September 30, 2020 to $179.5 million for the three months ended
September 30, 2021.

The following are key hotel operating statistics for the three months ended
September 30, 2021 and 2020. The 2020 amounts reflect the period in 2020
comparable to our ownership period in 2021 for our dispositions of Frenchman's
Reef and The Lexington Hotel and the acquisitions of the Bourbon Orleans Hotel
and Henderson Park Inn.
                                 Three Months Ended September 30,
                                2021                             2020         % Change
          Occupancy %               65.1   %                      19.9  %       45.2  %
          ADR            $        237.41                      $ 206.76          14.8  %
          RevPAR         $        154.54                      $  41.21         275.0  %


Food and beverage revenues increased $26.9 million from $9.6 million for the three months ended September 30, 2020 to $36.5 million for the three months ended September 30, 2021.

Other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, increased by $7.0 million.

Hotel operating expenses. The operating expenses consisted of the following (dollars in millions):

                                                    Three Months Ended 

September 30,

                                                        2021                 2020                 % Change
Rooms departmental expenses                        $       32.4          $     11.8                     174.6  %
Food and beverage departmental expenses                    27.0                10.0                     170.0
Other departmental expenses                                 3.8                 1.6                     137.5
General and administrative                                 16.3                 7.3                     123.3
Utilities                                                   5.4                 4.2                      28.6
Repairs and maintenance                                     8.5                 5.3                      60.4
Sales and marketing                                        11.7                 4.7                     148.9
Franchise fees                                              6.0                 1.8                     233.3
Base management fees                                        3.0                (0.8)                   (475.0)
Incentive management fees                                   0.1                   -                     100.0
Property taxes                                             11.2                14.9                     (24.8)
Other fixed charges                                         6.2                 4.5                      37.8
Severance costs                                               -                 7.4                    (100.0)
Professional fees and pre-opening costs related to
Frenchman's Reef                                            0.3                 0.6                     (50.0)
Lease expense                                               3.0                 2.8                       7.1

Total hotel operating expenses                     $      134.9          $     76.1                      77.3  %



Our hotel operating expenses increased $58.8 million from $76.1 million for the
three months ended September 30, 2020 to $134.9 million for the three months
ended September 30, 2021. For the three months ended September 30, 2020, we
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accrued $7.4 million of severance costs at our properties as a result of the
COVID-19 pandemic. Additionally, in connection with the change in hotel manager
of the Renaissance Charleston Historic District Hotel, we recognized $1.4
million
of accelerated amortization of the unfavorable management agreement liability
during the three months ended September 30, 2020, which reduced base management
fees.

Depreciation and amortization. Depreciation and amortization is recorded on our
hotel buildings over 40 years for the periods subsequent to acquisition.
Depreciable lives of hotel furniture, fixtures and equipment are estimated as
the time period between the acquisition date and the date that the hotel
furniture, fixtures and equipment will be replaced. Our depreciation and
amortization expense decreased $3.0 million, or 10.4%, from the three months
ended September 30, 2020.

Corporate expenses. Corporate expenses principally consist of employee-related
costs, including base payroll, bonus, restricted stock and severance. Corporate
expenses also include corporate operating costs, professional fees and
directors' fees. Our corporate expenses increased $1.0 million, or 13.7%, from
$7.3 million for the three months ended September 30, 2020 to $8.3 million for
the three months ended September 30, 2021 primarily due to increases in
employee-related compensation and other employee-related expenses.

Interest expense. Our interest expense was $10.1 million and $10.8 million for the three months ended September 30, 2021 and 2020, respectively, and was comprised of the following (in millions):

                                                     Three Months Ended September 30,
                                                             2021                   2020
Mortgage debt interest                          $            6.3                  $  6.5
Unsecured term loan interest                                 3.8            

3.7

Credit facility interest and unused fees                     0.3            

1.1

Amortization of debt issuance costs and debt
premium                                                      0.6            

0.5


Interest rate swap mark-to-market and net
settlements                                                 (0.9)                   (1.0)
                                                $           10.1                  $ 10.8



The decrease in interest expense is primarily related to a decrease in interest
incurred on the credit facility, which had no outstanding borrowings for the
three months ended September 30, 2021.

Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020


In response to the COVID-19 pandemic, operations were suspended at four of our
hotels for a portion of the nine months ended September 30, 2021. Operations
were suspended at 20 of our hotels for a portion of the nine months ended
September 30, 2020.

Revenue. Revenue consists primarily of the room, food and beverage and other operating revenues from our hotels, as follows (dollars in millions):

                                    Nine Months Ended September 30,
                                           2021                      2020        % Change
      Rooms                $           266.1                       $ 158.1         68.3  %
      Food and beverage                 76.1                          56.5         34.7  %
      Other                             35.0                          25.8         35.7  %
      Total revenues       $           377.2                       $ 240.4         56.9  %


Our total revenues increased $136.8 million from $240.4 million for the nine months ended September 30, 2020 to $377.2 million for the nine months ended September 30, 2021.


The following are key hotel operating statistics for the nine months ended
September 30, 2021 and 2020. The 2020 amounts reflect the period in 2020
comparable to our ownership period in 2021 for our dispositions of Frenchman's
Reef and The Lexington Hotel and the acquisitions of the Bourbon Orleans Hotel
and Henderson Park Inn.
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                                 Nine Months Ended September 30,
                                2021                            2020         % Change
          Occupancy %               46.0   %                     29.8  %       16.2  %
          ADR            $        228.06                     $ 210.33           8.4  %
          RevPAR         $        104.93                     $  62.58          67.7  %



Food and beverage revenues increased $19.6 million from $56.5 million for the
nine months ended September 30, 2020 to $76.1 million for the nine months ended
September 30, 2021.

Other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, increased by $9.2 million.


Hotel operating expenses. The operating expenses consisted of the following
(dollars in millions):
                                                       Nine Months Ended September 30,
                                                           2021                   2020                 % Change
Rooms departmental expenses                        $            67.7          $     54.6                      24.0  %
Food and beverage departmental expenses                         58.1                45.8                      26.9
Other departmental expenses                                      8.3                 6.1                      36.1
General and administrative                                      39.2                38.7                       1.3
Utilities                                                       13.7                12.0                      14.2
Repairs and maintenance                                         21.0                17.7                      18.6
Sales and marketing                                             25.5                23.3                       9.4
Franchise fees                                                  12.2                 8.4                      45.2
Base management fees                                             6.3                 2.6                     142.3
Incentive management fees                                        0.2                   -                     100.0
Property taxes                                                  36.3                44.0                     (17.5)
Other fixed charges                                             13.3                13.2                       0.8
Severance costs                                                 (0.2)                7.8                    (102.6)
Professional fees and pre-opening costs related to
Frenchman's Reef                                                 1.4                 0.4                     250.0
Lease expense                                                    8.7                 8.6                       1.2

Total hotel operating expenses                     $           311.7          $    283.2                      10.1  %



Our hotel operating expenses increased $28.5 million from $283.2 million for the
nine months ended September 30, 2020 to $311.7 million for the nine months ended
September 30, 2021. For the nine months ended September 30, 2020, we
recognized $7.8 million of severance costs at our properties as a result of the
COVID-19 pandemic. Additionally, in connection with the change in hotel manager
of the Renaissance Charleston Historic District Hotel, we recognized $1.4
million
of accelerated amortization of the unfavorable management agreement liability
during the nine months ended September 30, 2020, which reduced base management
fees.

Depreciation and amortization. Depreciation and amortization is recorded on our
hotel buildings over 40 years for the periods subsequent to acquisition.
Depreciable lives of hotel furniture, fixtures and equipment are estimated as
the time period between the acquisition date and the date that the hotel
furniture, fixtures and equipment will be replaced. Our depreciation and
amortization expense decreased $10.2 million, or 11.7%, from the nine months
ended September 30, 2020.

Impairment losses. We recorded impairment losses of $11.5 million during the
nine months ended September 30, 2021 related to Frenchman's Reef, which was sold
on April 30, 2021. We recorded impairment losses of $115.2 million during the
nine months ended September 30, 2021 related to The Lexington Hotel, which was
sold on June 30, 2021. No impairment losses were recorded during the nine months
ended September 30, 2020.

Corporate expenses. Corporate expenses principally consist of employee-related
costs, including base payroll, bonus, restricted stock and severance. Corporate
expenses also include corporate operating costs, professional fees and
directors' fees. Our corporate expenses increased $4.1 million, or 20.8%, from
$19.7 million for the nine months ended September 30, 2020 to
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$23.8 million for the nine months ended September 30, 2021 primarily due to increases in employee-related compensation and other employee-related expenses.

Interest expense. Our interest expense was $29.2 million and $43.7 million for the nine months ended September 30, 2021 and 2020, respectively, and was comprised of the following (in millions):

                                                      Nine Months Ended September 30,
                                                             2021                   2020
 Mortgage debt interest                          $           18.7                 $ 19.5
 Unsecured term loan interest                                11.1           

9.8

 Credit facility interest and unused fees                     2.0           

3.6

Amortization of debt issuance costs and debt

 premium                                                      1.9           

1.6

 Capitalized interest                                           -           

(2.1)

Interest rate swap mark-to-market and net

 settlements                                                 (4.5)                  11.3
                                                 $           29.2                 $ 43.7


The decrease in interest expense is primarily related to the mark-to-market of our interest rate swaps, partially offset by the cessation of interest capitalization due to the pause on the reconstruction of Frenchman's Reef.

Liquidity and Capital Resources


Our short-term liquidity requirements consist primarily of funds necessary to
pay our scheduled debt service and operating expenses and capital expenditures
directly associated with our hotels. We have suspended our quarterly common
stock dividend. We currently expect that our existing cash balances and
available capacity on our senior unsecured credit facility will be sufficient to
meet our short-term liquidity requirements.

Some of our mortgage debt agreements contain "cash trap" provisions that are
triggered when the hotel's operating results fall below a certain debt service
coverage ratio. 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 is reached and maintained for a certain period of time. Such provisions do
not allow the lender the right to accelerate repayment of the underlying debt.
As of September 30, 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.

Our long-term liquidity requirements consist primarily of funds necessary to pay
for the costs of acquiring additional hotels, renovations, and other capital
expenditures that need to be made periodically to our hotels, scheduled debt
payments, debt maturities, redemption of limited operating partnership units
("common OP units") and making distributions to our common and preferred
stockholders. We expect to meet our long-term liquidity requirements through
various sources of capital, including cash provided by operations, borrowings,
issuances of additional equity, including common OP units, and/or debt
securities and proceeds from property dispositions. Our ability to incur
additional debt is dependent upon a number of factors, including the state of
the credit markets, our degree of leverage, the value of our unencumbered assets
and borrowing restrictions imposed by existing lenders. Our ability to raise
capital through the issuance of additional equity and/or debt securities is also
dependent on a number of factors including the current state of the capital
markets, investor sentiment and intended use of proceeds. We may need to raise
additional capital if we identify acquisition opportunities that meet our
investment objectives and require liquidity in excess of existing cash balances.
Our ability to raise funds through the issuance of equity securities depends on,
among other things, general market conditions for hotel companies and REITs and
market perceptions about the Company.

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 for $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. On June 30, 2021, we sold The Lexington Hotel for $185.3 million.

On July 29, 2021, we acquired the 218-room Bourbon Orleans Hotel located in the
New Orleans, Louisiana, for net consideration of $90.1 million, including
prorations. On July 30, 2021, we acquired the 37-room Henderson Park Inn located
in Destin, Florida, for net consideration of $26.4 million, including
prorations.
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Our Financing Strategy

Since our formation in 2004, we have been committed to a conservative capital
structure with prudent leverage. Our outstanding debt consists of fixed interest
rate mortgage debt, unsecured term loans and borrowings on our senior unsecured
credit facility. We have a preference to maintain a significant portion of our
portfolio as unencumbered assets in order to provide balance sheet flexibility.
We expect that our strategy will enable us to maintain a balance sheet with an
appropriate amount of debt throughout all phases of the lodging cycle. We
believe that it is prudent to reduce the inherent risk of highly cyclical
lodging fundamentals through a low leveraged capital structure.

We prefer a relatively simple but efficient capital structure. We generally
structure our hotel acquisitions to be straightforward and to fit within our
capital structure; however, we will consider a more complex transaction, such as
the issuance of common OP units in connection with the acquisition of Cavallo
Point, The Lodge at the Golden Gate, if we believe that the projected returns to
our stockholders will significantly exceed the returns that would otherwise be
available.

We believe that we maintain a reasonable amount of debt. As of September 30,
2021, we had $1.0 billion of debt outstanding with a weighted average interest
rate of 3.97% and a weighted average maturity date of approximately 2.8 years.
We have one near-term mortgage debt maturity and 23 of our 31 hotels
unencumbered by mortgage debt. We remain committed to our core strategy of
prudent leverage.

Information about our financing activities is available in Note 8 to the
accompanying consolidated financial statements. Further information is available
in Note 1 to the accompanying consolidated financial statements for measures
taken in response to the impact of COVID-19.

ATM Program


In August 2021, our board of directors approved an "at-the-market" equity
offering program (the "Current 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 Current ATM
Program. Prior to the implementation of the Current ATM Program, we had a $200.0
million ATM program (the "Prior ATM Program"), which is no longer active. No
shares under the Prior ATM Program were sold during the three and nine months
ended September 30, 2021.
Preferred Shares

In 2020, we issued a total of 4,760,000 shares of Series A Preferred Stock with
a liquidation preference of $25.00 per share, for net proceeds of
$114.5 million. 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.

Short-Term Borrowings

Other than borrowings under our senior unsecured credit facility, discussed below, we do not utilize short-term borrowings to meet liquidity requirements.

Senior Unsecured Credit Facility and Unsecured Term Loans


We are party to a $400 million senior unsecured credit facility expiring in July
2023, a $350 million unsecured term loan maturing in July 2024 and a $50 million
unsecured term loan maturing in October 2023. The maturity date for the senior
unsecured credit facility may be extended for an additional year upon the
payment of applicable fees and the satisfaction of certain customary conditions.
On June 9, 2020, we executed amendments (the "First Amendments") to the credit
agreements (the "Credit Agreements") for our $400 million senior unsecured
credit facility and $400 million of unsecured term loans. The First Amendments
provided for a waiver of the quarterly tested financial covenants beginning with
the second quarter of 2020 through the first quarter of 2021 and certain other
modifications to the covenants thereafter through the fourth quarter of 2021.

On August 14, 2020, we entered into additional amendments (the "Second
Amendments") that permit us to pay dividends on preferred stock up to $17.5
million annually. On January 20, 2021, we executed additional amendments (the
"Third Amendments" and together with the First Amendments and Second Amendments,
the "Credit Agreement Amendments") to the Credit Agreements to extend the
existing waiver of the quarterly tested financial covenants through the fourth
quarter of 2021, unless terminated early at our option. The Third Amendments
also extend the modification of certain financial covenants, once
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quarterly testing resumes, through the first quarter of 2023. As of September 30, 2021, we had no borrowings outstanding under our senior unsecured credit facility.

Additional information about the Amended Credit Agreements, including the restrictions imposed by the Amended Credit Agreements and their impacts on our liquidity, sources of capital, and ability to incur additional debt, can be found in Note 8 to the accompanying consolidated financial statements.

Sources and Uses of Cash


Our principal sources of cash are net cash flow from hotel operations, sales of
common and preferred stock, debt financings and proceeds from hotel
dispositions. Our principal uses of cash are acquisitions of hotel properties,
debt service and maturities, share repurchases, capital expenditures, operating
costs, corporate expenses, and distributions to holders of common stock, common
units and preferred stock. As of September 30, 2021, we had $66.5 million of
unrestricted cash, $31.3 million of restricted cash and no outstanding
borrowings on our senior unsecured credit facility.

Our net cash used in operations was $22.3 million for the nine months ended
September 30, 2021. Our cash from operations generally consists of the net cash
flow from hotel operations, offset by cash paid for corporate expenses and other
working capital changes.

Our net cash provided by investing activities was $61.8 million for the nine
months ended September 30, 2021, which consisted of $213.8 million of net
proceeds from the sale of Frenchman's Reef and The Lexington Hotel, offset by
$116.5 million paid for the acquisitions of the Bourbon Orleans Hotel and
Henderson Park Inn, $30.1 million of capital expenditures at our operating
hotels, $2.7 million of capital expenditures at Frenchman's Reef and
$2.8 million paid to extend the Salt Lake City Marriott Downtown at City Creek
ground lease.

Our net cash used in financing activities was $76.5 million for the nine months
ended September 30, 2021, which consisted of net repayments of $55.0 million on
our senior unsecured credit facility, $7.4 million of distributions paid to
holders of preferred stock, $11.4 million of scheduled mortgage debt principal
payments, $1.2 million paid for financing costs for the Amended Credit
Agreements, and $1.6 million paid to repurchase shares for the payment of tax
withholding obligations and for accrued dividends upon the vesting of restricted
stock.

We currently anticipate our significant sources of cash for the fourth quarter
of 2021 will be the net cash flow from hotel operations as the lodging
disruptions from COVID-19 subside. We expect our estimated uses of cash for the
fourth quarter of 2021 will be scheduled debt service payments, capital
expenditures, potential funding of hotel working capital requirements,
distributions to preferred stockholders, corporate expenses and potential hotel
acquisitions.

Dividend Policy

We intend to distribute to our stockholders dividends at least equal to our REIT
taxable income to avoid paying corporate income tax and excise tax on our
earnings (other than the earnings of our TRS, which are all subject to tax at
regular corporate rates) and to qualify for the tax benefits afforded to REITs
under the Code. In order to qualify as a REIT under the Code, we generally must
make distributions to our stockholders each year in an amount equal to at least:

•90% of our REIT taxable income determined without regard to the dividends paid
deduction and excluding net capital gains, plus
•90% of the excess of our net income from foreclosure property over the tax
imposed on such income by the Code, minus
•any excess non-cash income.

The timing and frequency of distributions will be authorized by our board of
directors and declared by us based upon a variety of factors, including our
financial performance, restrictions under applicable law and our current and
future loan agreements, our debt service requirements, our capital expenditure
requirements, the requirements for qualification as a REIT under the Code and
other factors that our board of directors may deem relevant from time to time.

Our board of directors suspended our quarterly common dividend commencing with
the first quarter dividend that would have been paid in April 2020. The payment
of future dividends, including a quarterly common dividend, 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.

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We have paid the following dividends per share to holders of our Series A Preferred Stock during 2021, and through the date of this report:

                                                                   Dividend
                 Payment Date                Record Date          per Share
                 March 31, 2021             March 18, 2021       $ 0.515625
                 June 30, 2021              June 18, 2021        $ 0.515625
                 September 30, 2021       September 17, 2021     $ 0.515625


Capital Expenditures


The management and franchise agreements for each of our hotels provide for the
establishment of separate property improvement funds to cover, among other
things, the cost of replacing and repairing furniture, fixtures and equipment at
our hotels and other routine capital expenditures. Contributions to the property
improvement fund are calculated as a percentage of hotel revenues. In addition,
we may be required to pay for the cost of certain additional improvements that
are not permitted to be funded from the property improvement fund under the
applicable management or franchise agreement. As of September 30, 2021, we have
set aside $20.7 million for capital projects in property improvement funds,
which are included in restricted cash.

In response to the COVID-19 pandemic, we canceled or deferred a significant
portion of the planned capital improvements at our operating hotels and paused
the rebuild of Frenchman's Reef. In 2021, we expect to spend approximately $55
million on necessary capital improvements and a select few transformational
projects with attractive returns on investment. Significant projects in 2021
include the following:

•The Lodge at Sonoma Resort: We completed an upgrade renovation to reposition
and rebrand the hotel to an Autograph Collection Hotel in the second quarter of
2021. The renovation includes a new Michael Mina restaurant.
•Vail Marriott Mountain Resort: We plan to complete the final phase of a
multi-year renovation to rebrand the hotel as The Hythe Vail, a Luxury
Collection Hotel in the fourth quarter of 2021.
•JW Marriott Denver Cherry Creek: We plan to complete the renovations in the
second half of 2021 to rebrand the hotel as Hotel Clio, a Luxury Collection
Hotel at the start of 2022.
•Margaritaville Beach House Key West: We plan to invest $3 million to convert
the Barbary Beach House Key West to the Margaritaville Beach Resort Key West in
the fall of 2021.

We invested approximately $30.1 million in capital improvements at our operating
hotels during the nine months ended September 30, 2021. We spent approximately
$2.7 million on the rebuild of Frenchman's Reef during the nine months ended
September 30, 2021 and have no further obligations to fund any additional
amounts related to the rebuild following the sale of the property on April 30,
2021. Currently, the United States is experiencing both supply chain disruptions
and significant price increases for certain construction materials. The supply
chain disruptions are the result of substantial backlogs of container ships
seeking to unload cargo at major ports, with delays caused or exacerbated by
port and trucking labor shortages, railway logistics issues and a shortage of
warehouse space in close proximity to the affected ports. We have not been
significantly impacted by these backlogs to date; however, if not resolved,
these backlogs and related logistics issues could result in material delays and
increased costs for our planned capital improvements.

Contractual Obligations


There have been no material changes, outside of the ordinary course of business,
as of September 30, 2021, to contractual obligations specified in the table of
contractual obligations included in our Annual Report on Form 10-K for the year
ended December 31, 2020, other than as follows. 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. The extension of the ground lease term increases our operating lease
payments contractually due by approximately $6.6 million.

Off-Balance Sheet Arrangements


Our off-balance sheet arrangements as of September 30, 2021 included
construction contract commitments of approximately $26.3 million for capital
expenditures at our properties. Our contracts contain clauses that allow us to
cancel all or some portion of the work. If cancellation of a contract occurred,
our commitment would be any costs incurred up to the cancellation date, in
addition to any costs associated with the discharge of the contract.

Non-GAAP Financial Measures

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We use the following non-GAAP financial measures that we believe are useful to
investors as key measures of our operating performance: EBITDA, EBITDAre,
Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered
in isolation or as a substitute for measures of performance in accordance with
U.S. GAAP. EBITDA, EBITDAre, Adjusted EBITDA, FFO and Adjusted FFO, as
calculated by us, may not be comparable to other companies that do not define
such terms exactly as the Company.

Use and Limitations of Non-GAAP Financial Measures


Our management and Board of Directors use EBITDA, EBITDAre, Adjusted EBITDA, FFO
and Adjusted FFO to evaluate the performance of our hotels and to facilitate
comparisons between us and other lodging REITs, hotel owners who are not REITs
and other capital intensive companies. The use of these non-GAAP financial
measures has certain limitations. These non-GAAP financial measures as presented
by us, may not be comparable to non-GAAP financial measures as calculated by
other real estate companies. These measures do not reflect certain expenses or
expenditures that we incurred and will incur, such as depreciation, interest and
capital expenditures. We compensate for these limitations by separately
considering the impact of these excluded items to the extent they are material
to operating decisions or assessments of our operating performance. Our
reconciliations to the most comparable U.S. GAAP financial measures, and our
consolidated statements of operations and cash flows, include interest expense,
capital expenditures, and other excluded items, all of which should be
considered when evaluating our performance, as well as the usefulness of our
non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction
with results presented in accordance with U.S. GAAP. They should not be
considered as alternatives to operating profit, cash flow from operations, or
any other operating performance measure prescribed by U.S. GAAP. These non-GAAP
financial measures reflect additional ways of viewing our operations that we
believe, when viewed with our U.S. GAAP results and the reconciliations to the
corresponding U.S. GAAP financial measures, provide a more complete
understanding of factors and trends affecting our business than could be
obtained absent this disclosure. We strongly encourage investors to review our
financial information in its entirety and not to rely on a single financial
measure.

EBITDA, EBITDAre and FFO


EBITDA represents net income (calculated in accordance with U.S. GAAP)
excluding: (1) interest expense; (2) provision for income taxes, including
income taxes applicable to sale of assets; and (3) depreciation and
amortization. The Company computes EBITDAre in accordance with the National
Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined
in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation
and Amortization for Real Estate." EBITDAre represents net income (calculated in
accordance with U.S. GAAP) adjusted for: (1) interest expense; (2) provision for
income taxes, including income taxes applicable to sale of assets;
(3) depreciation and amortization; (4) gains or losses on the disposition of
depreciated property, including gains or losses on change of control; (5)
impairment write-downs of depreciated property and of investments in
unconsolidated affiliates caused by a decrease in value of depreciated property
in the affiliate; and (6) adjustments to reflect the entity's share of EBITDAre
of unconsolidated affiliates.

We believe EBITDA and EBITDAre are useful to an investor in evaluating our
operating performance because they help investors evaluate and compare the
results of our operations from period to period by removing the impact of our
capital structure (primarily interest expense) and our asset base (primarily
depreciation and amortization, and in the case of EBITDAre, impairment and gains
or losses on dispositions of depreciated property) from our operating results.
In addition, covenants included in our debt agreements use EBITDA as a measure
of financial compliance. We also use EBITDA and EBITDAre as measures in
determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by the Nareit,
which defines FFO as net income determined in accordance with U.S. GAAP,
excluding gains or losses from sales of properties and impairment losses, plus
real estate related depreciation and amortization. The Company believes that the
presentation of FFO provides useful information to investors regarding its
operating performance because it is a measure of the Company's operations
without regard to specified non-cash items, such as real estate related
depreciation and amortization and gains or losses on the sale of assets. The
Company also uses FFO as one measure in assessing its operating results.

Adjustments to EBITDAre and FFO


We adjust EBITDAre and FFO when evaluating our performance because we believe
that the exclusion of certain additional items described below provides useful
supplemental information to investors regarding our ongoing operating
performance and that the presentation of Adjusted EBITDA and Adjusted FFO, when
combined with U.S. GAAP net income,
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EBITDAre and FFO, is beneficial to an investor's complete understanding of our
consolidated operating performance. We adjust EBITDAre and FFO for the following
items:

•Non-Cash Lease Expense and Other Amortization: We exclude the non-cash expense
incurred from the straight line recognition of expense from our ground leases
and other contractual obligations and the non-cash amortization of our favorable
and unfavorable contracts, originally recorded in conjunction with certain hotel
acquisitions. We exclude these non-cash items because they do not reflect the
actual cash amounts due to the respective lessors in the current period and they
are of lesser significance in evaluating our actual performance for that period.
•Cumulative Effect of a Change in Accounting Principle: The Financial Accounting
Standards Board promulgates new accounting standards that require or permit the
consolidated statement of operations to reflect the cumulative effect of a
change in accounting principle. We exclude the effect of these adjustments,
which include the accounting impact from prior periods, because they do not
reflect the Company's actual underlying performance for the current period.
•Gains or Losses from Early Extinguishment of Debt: We exclude the effect of
gains or losses recorded on the early extinguishment of debt because these gains
or losses result from transaction activity related to the Company's capital
structure that we believe are not indicative of the ongoing operating
performance of the Company or our hotels.
•Hotel Acquisition Costs: We exclude hotel acquisition costs expensed during the
period because we believe these transaction costs are not reflective of the
ongoing performance of the Company or our hotels.
•Severance Costs: We exclude corporate severance costs, or reversals thereof,
incurred with the termination of corporate-level employees and severance costs
incurred at our hotels related to lease terminations or structured severance
programs because we believe these costs do not reflect the ongoing performance
of the Company or our hotels.
•Hotel Manager Transition Items: We exclude the transition items associated with
a change in hotel manager because we believe these items do not reflect the
ongoing performance of the Company or our hotels.
•Other Items: From time to time we incur costs or realize gains that we consider
outside the ordinary course of business and that we do not believe reflect the
ongoing performance of the Company or our hotels. Such items may include, but
are not limited to the following: pre-opening costs incurred with newly
developed hotels; lease preparation costs incurred to prepare vacant space for
marketing; management or franchise contract termination fees; gains or losses
from legal settlements; costs incurred related to natural disasters; and gains
on property insurance claim settlements, other than income related to business
interruption insurance.

In addition, to derive Adjusted FFO we exclude any unrealized fair value adjustments to interest rate swaps. We exclude these non-cash amounts because they do not reflect the underlying performance of the Company.

The following table is a reconciliation of our U.S. GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA (in thousands):

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

                                           2021                    2020                   2021                    2020
Net loss                            $         (1,771)         $   (79,635)         $       (192,457)         $  (187,714)
Interest expense                              10,052               10,818                    29,246               43,665
Income tax expense (benefit)                   2,371                7,205                     1,433               (5,853)
Real estate related depreciation
and amortization                              25,555               28,514                    77,209               87,397
EBITDA                                        36,207              (33,098)                  (84,569)             (62,505)
Impairment losses                                  -                    -                   126,697                    -

EBITDAre                                      36,207              (33,098)                   42,128              (62,505)
Non-cash lease expense and other
amortization                                   1,664                1,715                     5,007                5,172

Professional fees and pre-opening
costs related to Frenchman's Reef
(1)                                              335                  593                     1,388                  418
Hotel manager transition items                   523               (1,021)                      651                 (460)
Severance costs (2)                                -                7,367                      (216)               7,760
Uninsured costs related to natural
disasters (3)                                    187                    -                       187                    -

Adjusted EBITDA                     $         38,916          $   (24,444)         $         49,145          $   (49,615)


____________________

(1) Represents pre-opening costs and professional fees related to the reopening of

Frenchman's Reef, as well as legal and other costs incurred at Frenchman's Reef

as a result of Hurricane Irma that are not covered by insurance.

(2) Consists of severance costs incurred with the elimination of positions at our

hotels, which are classified within other hotel expenses on the consolidated

statement of operations.

(3) Represents costs incurred at the Bourbon Orleans Hotel as a result of Hurricane

         Ida that have not been or are not expected
         to be recovered by insurance.


The following table is a reconciliation of our U.S. GAAP net income to FFO and Adjusted FFO (in thousands):

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

                                            2021                    2020                   2021                 2020
Net loss                             $         (1,771)         $   (79,635)               (192,457)         $ (187,714)
Real estate related depreciation and
amortization                                   25,555               28,514                  77,209              87,397
Impairment losses, net of tax                  (2,215)                   -                 127,282                   -

FFO                                            21,569              (51,121)                 12,034            (100,317)
Distributions to preferred
stockholders                                   (2,454)                (845)                 (7,362)               (845)
FFO available to common stock and
unit holders                                   19,115              (51,966)                  4,672            (101,162)
Non-cash lease expense and other
amortization                                    1,664                1,715                   5,007               5,172

Professional fees and pre-opening
costs related to Frenchman's Reef
(1)                                               335                  593                   1,388                 418
Hotel manager transition items                    523               (1,021)                    651                (460)

Severance costs (2)                                 -                7,367                    (216)              7,760

Uninsured costs related to natural
disasters (3)                                     187                    -                     187                   -
Fair value adjustments to interest
rate swaps                                       (919)                (983)                 (4,488)             11,329

Adjusted FFO available to common
stock and unit holders               $         20,905          $   (44,295)   $ -    $       7,201          $  (76,943)


____________________
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(1) Represents pre-opening costs and professional fees related to the reopening of

Frenchman's Reef, as well as legal and other costs incurred at Frenchman's Reef

as a result of Hurricane Irma that are not covered by insurance.

(2) Consists of severance costs incurred with the elimination of positions at our

hotels, which are classified within other hotel expenses on the consolidated

statement of operations.

(3) Represents costs incurred at the Bourbon Orleans Hotel as a result of Hurricane

         Ida that have not been or are not expected
         to be recovered by insurance.


Critical Accounting Policies


Our unaudited consolidated financial statements include the accounts of
DiamondRock Hospitality Company and all consolidated subsidiaries. The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of our financial statements and the reported
amounts of revenues and expenses during the reporting period. While we do not
believe the reported amounts would be materially different, application of these
policies involves the exercise of judgment and the use of assumptions as to
future uncertainties and, as a result, actual results could differ materially
from these estimates. We evaluate our estimates and judgments, including those
related to the impairment of long-lived assets, on an ongoing basis. We base our
estimates on experience and on various assumptions that are believed to be
reasonable under the circumstances. All of our significant accounting policies
are disclosed in the notes to our consolidated financial statements. All of our
significant accounting policies, including certain critical accounting policies,
are disclosed in our Annual Report on Form 10-K for the year ended December 31,
2020. The following represent certain critical accounting policies that require
us to exercise our business judgment or make significant estimates:

Investment in Hotels
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. Property and
equipment purchased after the hotel acquisition date is recorded at cost.

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally five to 40 years for buildings, land
improvements and building improvements and one to 10 years for furniture,
fixtures and equipment. Identifiable intangible assets are typically related to
contracts, including ground lease agreements and hotel management agreements,
which are recorded at fair value. Above-market and below-market contract values
are based on the present value of the difference between contractual amounts to
be paid pursuant to the contracts acquired and our estimate of the fair market
contract rates for corresponding contracts. Contracts acquired that are at
market do not have significant value. We enter into a hotel management agreement
at the time of acquisition and such agreements are generally based on market
terms. Intangible assets are amortized using the straight-line method over the
remaining non-cancelable term of the related agreements. In making estimates of
fair values for purposes of allocating purchase price, we may utilize a number
of sources that may be obtained in connection with the acquisition or financing
of a property and other market data. Management also considers information
obtained about each property as a result of its pre-acquisition due diligence in
estimating the fair value of the tangible and intangible assets acquired.

We review our investments in hotels 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 us to perform a review
include, but are not limited to, adverse changes in the demand for lodging at
our 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 previously estimated useful life. If such events or circumstances are
identified, management performs an analysis to compare the estimated
undiscounted future cash flows from operations and the net proceeds from the
ultimate disposition of a hotel to the carrying amount of the asset. 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 hotels'
estimated fair value is recorded and an impairment loss is recognized. The fair
value is determined through various valuation techniques, including discounted
cash flow models with estimated discount and terminal capitalization rates,
comparable market transactions, third-party appraisals, the net sales proceeds
from pending offers, or from transactions that closed subsequent to the end of
the reporting period.

Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily
to reflect the effects of inflation. However, competitive pressures or other
factors may limit the ability of our management companies to raise room rates.
Inflation may
                                      -36-
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also affect our expenses and cost of capital improvements, including, without
limitation, by increasing the costs of labor, employee-related benefits, food,
commodities and other materials, taxes, property and casualty insurance and
utilities.

Seasonality


The periods during which our hotels experience higher revenues vary from
property to property, depending principally upon location and the customer base
served. Accordingly, we expect some seasonality in our business. Volatility in
our financial performance from the seasonality of the lodging industry could
adversely affect our financial condition and results of operations.

New Accounting Pronouncements Not Yet Implemented

None.

                                      -37-
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