UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2016~~2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-32514

DIAMONDROCK HOSPITALITY COMPANY

(Exact Name of Registrant as Specified in Its Charter)



Maryland		20-1180098
(State of Incorporation)		(I.R.S. Employer Identification No.)

32 Bethesda Metro Center, Suite ~~1500,~~1400, Bethesda, Maryland		20814
(Address of Principal Executive Offices)		(Zip Code)

(240) 744-1150

(Registrant’s telephone number, including area code)

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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The registrant had ~~200,315,646~~200,305,232 shares of its $0.01 par value common stock outstanding as of November ~~8, 2016.~~7, 2017.

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INDEX




	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016	1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2016~~2017 and ~~2015~~2016	2

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2016~~2017 and ~~2015~~2016	3

Notes to the Condensed Consolidated Financial Statements	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1617

Item 3. Quantitative and Qualitative Disclosures about Market Risk	2931

Item 4. Controls and Procedures	3031

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	3132

Item 1A. Risk Factors	3132

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3132

Item 3. Defaults Upon Senior Securities	3132

Item 4. Mine Safety Disclosures	3132

Item 5. Other Information	3132

Item 6. Exhibits	3234

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PART I. FINANCIAL INFORMATION


Item I.	Financial Statements

DIAMONDROCK HOSPITALITY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
ASSETS
Property and equipment, net	$	2,642,034		$	2,882,176		$	2,688,214		$	2,646,676
Restricted cash	47,661			59,339			42,317			46,069
Due from hotel managers	87,019			86,698			98,292			77,928
Favorable lease assets, net	18,076			23,955			26,795			18,013
Prepaid and other assets	47,693			46,758			77,694			37,682
Cash and cash equivalents	235,965			213,584			166,619			243,095
Total assets	$	3,078,448		$	3,312,510		$	3,099,931		$	3,069,463
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage debt, net of unamortized debt issuance costs	$	823,626		$	1,169,749		$	642,768		$	821,167
Term loan, net of unamortized debt issuance costs	99,336			—
Senior unsecured credit facility	—			—
Term loans, net of unamortized debt issuance costs							298,037			99,372
Total debt	922,962			1,169,749			940,805			920,539

Deferred income related to key money, net	20,776			23,568			17,028			20,067
Unfavorable contract liabilities, net	73,123			74,657			71,212			72,646
Deferred ground rent	79,027			70,153			85,047			80,509
Due to hotel managers	55,350			65,350			70,972			58,294
Dividends declared and unpaid	23,586			25,599			25,627			25,567
Accounts payable and accrued expenses	59,247			58,829			56,618			55,054
Total liabilities	1,234,071			1,487,905			1,267,309			1,232,676
Stockholders’ Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding	—			—			—			—
Common stock, $0.01 par value; 400,000,000 shares authorized; 200,796,110 and 200,741,777 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	2,008			2,007
Common stock, $0.01 par value; 400,000,000 shares authorized; 200,305,232 and 200,200,902 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively							2,003			2,002
Additional paid-in capital	2,059,638			2,056,878			2,059,919			2,055,365
Accumulated deficit	(217,269		)	(234,280		)	(229,300		)	(220,580		)
Total stockholders’ equity	1,844,377			1,824,605			1,832,622			1,836,787
Total liabilities and stockholders’ equity	$	3,078,448		$	3,312,510		$	3,099,931		$	3,069,463

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

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DIAMONDROCK HOSPITALITY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


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

	2016			2015			2016			2015			2017			2016			2017			2016
Revenues:
Rooms	$	163,158		$	178,529		$	498,714		$	504,729		$	167,990		$	163,158		$	483,305		$	498,714
Food and beverage	44,069			47,256			151,850			155,662			42,651			44,069			140,191			151,850
Other	13,012			12,717			39,373			36,801			12,845			13,012			39,472			39,373
Total revenues	220,239			238,502			689,937			697,192			223,486			220,239			662,968			689,937
Operating Expenses:
Rooms	39,766			42,415			121,737			122,872			41,945			39,766			120,411			121,737
Food and beverage	29,103			32,143			97,718			103,044			30,794			29,103			93,324			97,718
Management fees	7,655			7,562			23,036			22,665			5,356			7,655			18,317			23,036
Other hotel expenses	74,123			83,358			232,576			237,410			77,769			74,123			228,036			232,576
Depreciation and amortization	23,605			25,107			73,731			75,018			25,083			23,605			75,031			73,731
Impairment losses	—			—			—			10,461			2,357			—			2,357			—
Hotel acquisition costs	—			453			—			945			(245		)	—			2,028			—
Corporate expenses	4,684			6,048			17,420			17,790			6,109			4,684			19,199			17,420
Total operating expenses, net	178,936			197,086			566,218			590,205			189,168			178,936			558,703			566,218
Operating profit	41,303			41,416			123,719			106,987			34,318			41,303			104,265			123,719
Interest and other income, net	(333		)	(126		)	(451		)	(480		)	(372		)	(333		)	(923		)	(451		)
Interest expense	9,504			12,907			32,242			38,963			9,692			9,504			28,790			32,242
Loss on early extinguishment of debt													—			—			274			—
Gain on sale of hotel properties	(2,198		)	—			(10,319		)	—			—			(2,198		)	—			(10,319		)
Total other expenses, net	6,973			12,781			21,472			38,483			9,320			6,973			28,141			21,472
Income before income taxes	34,330			28,635			102,247			68,504			24,998			34,330			76,124			102,247
Income tax expense	(4,393		)	(4,171		)	(11,357		)	(8,576		)	(3,375		)	(4,393		)	(9,019		)	(11,357		)
Net income	$	29,937		$	24,464		$	90,890		$	59,928		$	21,623		$	29,937		$	67,105		$	90,890
Earnings per share:
Basic earnings per share	$	0.15		$	0.12		$	0.45		$	0.30		$	0.11		$	0.15		$	0.33		$	0.45
Diluted earnings per share	$	0.15		$	0.12		$	0.45		$	0.30		$	0.11		$	0.15		$	0.33		$	0.45

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

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DIAMONDROCK HOSPITALITY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016

Cash flows from operating activities:
Net income	$	90,890		$	59,928		$	67,105		$	90,890
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	73,731			75,018			75,031			73,731
Corporate asset depreciation as corporate expenses	49			63			56			49
Gain on sale of hotel properties	(10,319		)	—			—			(10,319		)
Loss on early extinguishment of debt							274			—
Non-cash ground rent	4,230			4,454			4,756			4,230
Amortization of debt issuance costs and debt premium	1,760			1,715
Amortization of debt issuance costs							1,489			1,760
Impairment losses	—			10,461			42,264			—
Estimated recovery of impairment losses from insurance							(39,907		)	—
Amortization of favorable and unfavorable contracts, net	(1,434		)	(1,134		)	(1,434		)	(1,434		)
Amortization of deferred income related to key money	(2,143		)	(839		)	(3,040		)	(2,143		)
Stock-based compensation	4,015			4,403			4,769			4,015
Changes in assets and liabilities:
Prepaid expenses and other assets	(735		)	(4,445		)	(560		)	(735		)
Restricted cash	21			13,338			2,039			21
Due to/from hotel managers	(13,092		)	(12,441		)	(11,369		)	(13,092		)
Accounts payable and accrued expenses	5,572			7,300			7,975			5,572
Net cash provided by operating activities	152,545			157,821			149,448			152,545
Cash flows from investing activities:
Hotel capital expenditures	(78,652		)	(46,141		)	(77,479		)	(78,652		)
Hotel acquisitions	—			(150,400		)	(93,795		)	—
Net proceeds from sale of hotel properties	183,494			—			—			183,494
Change in restricted cash	3,083			5,737			2,371			3,083
Net cash provided by (used in) investing activities	107,925			(190,804		)
Net cash (used in) provided by investing activities							(168,903		)	107,925
Cash flows from financing activities:
Scheduled mortgage debt principal payments	(8,384		)	(10,075		)	(9,094		)	(8,384		)
Proceeds from sale of common stock, net	—			7,796
Proceeds from mortgage debt	—			150,000
Repayments of mortgage debt	(249,793		)	(146,876		)	(170,368		)	(249,793		)
Proceeds from senior unsecured term loan	100,000			—			200,000			100,000
Draws on senior unsecured credit facility	75,000			135,000			—			75,000
Repayments of senior unsecured credit facility	(75,000		)	(110,000		)	—			(75,000		)
Purchase of interest rate cap	—			(325		)
Payment of financing costs	(2,765		)	(1,182		)	(1,579		)	(2,765		)
Payment of cash dividends	(75,635		)	(71,008		)	(75,451		)	(75,635		)
Repurchase of common stock	(1,512		)	(2,735		)	(529		)	(1,512		)
Net cash used in financing activities	(238,089		)	(49,405		)	(57,021		)	(238,089		)
Net increase (decrease) in cash and cash equivalents	22,381			(82,388		)
Net (decrease) increase in cash and cash equivalents							(76,476		)	22,381
Cash and cash equivalents, beginning of period	213,584			144,365			243,095			213,584
Cash and cash equivalents, end of period	$	235,965		$	61,977		$	166,619		$	235,965

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

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DIAMONDROCK HOSPITALITY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2016		2015
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	31,856	$	36,326	$	27,183	$	31,856
Cash paid for income taxes	$	1,621	$	798	$	2,688	$	1,621
Non-cash Investing and Financing Activities:
Unpaid dividends	$	23,586	$	25,479	$	25,627	$	23,586
Buyer assumption of mortgage debt on sale of hotel included in sale proceeds	$	89,486	$	—	$	—	$	89,486

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

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DIAMONDROCK HOSPITALITY COMPANY

Notes to the Condensed 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, which are based on the revenues and profitability of the hotels.

As of September 30, ~~2016~~2017, we owned 2628 hotels with ~~9,461~~9,630 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); Salt Lake City, Utah; San Diego, California; San Francisco, California; Sedona, Arizona (2); Sonoma, California; Washington D.C. (2); St. Thomas, U.S. Virgin Islands; and Vail, Colorado.

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 currently owns, either directly or indirectly, all of the limited partnership units of our operating partnership.


2.	Summary of Significant Accounting Policies

Basis of Presentation

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed 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, ~~2015~~2016, included in our Annual Report on Form 10-K filed on February ~~29, 2016~~27, 2017.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of September 30, ~~2016~~2017, and the results of our operations for the three and nine months ended September 30, ~~2016~~2017 and ~~2015~~2016, and cash flows for the nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016. Interim results are not necessarily indicative of full-year performance because of the impact of seasonal and short-term variations.

Our financial statements include all of the accounts of the Company and its subsidiaries in accordance with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation. If the Company determines that it has an interest in a variable interest entity within the meaning of the ~~FASB ASC~~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.

~~Certain amounts in~~ Our operating partnership meets the ~~2015 financial statements have been reclassified to conform with~~criteria of a variable interest entity. The Company is the ~~2016 presentation.~~primary beneficiary and, accordingly, we consolidate our operating partnership.

Property and Equipment

Investments in hotel properties, land, land improvements, building and furniture, fixtures and equipment and identifiable intangible assets are recorded at fair value upon acquisition. 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 isare 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 15 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.

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We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value 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 due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, 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 value. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized.

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

Revenue Recognition

Revenues from operations of the hotels 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.

Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus other potentially dilutive securities such as equity awards or shares issuable in the event of conversion of operating partnership units. No adjustment is made for shares that are anti-dilutive during a period.

Stock-based Compensation

We account for stock-based employee compensation using the fair value based method of accounting. We record the cost of stock-based awards based on the grant-date fair value of the award. The vesting of the awards issued to officers and employees is based on either continued employment (time-based) or based on continued employment and the relative total shareholder returns of the Company or improvement in market share of the Company's hotels (performance-based). The cost of time-based awards and performance-based awards is recognized over the period during which an employee is required to provide service in exchange for the award, adjusted for forfeitures.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings during the period in which the new rate is enacted.

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 (the "Code"), 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 primary taxable REIT subsidiary, or TRS, except for the Frenchman’s Reef & Morning Star Marriott Beach Resort, which is owned by a Virgin Islands corporation, which we have elected to be treated as a TRS, and the L'Auberge de Sedona and Orchards Inn Sedona, which are each leased to a wholly owned subsidiary of the Company, which we have elected to be treated as a TRS.

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We had no accruals for tax uncertainties as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016.

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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 quality and reliability of inputs used to determine fair value, which are then classified and disclosed in one of the three categories. The three levels are as follows:

•Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

•Level 2 - Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical

or similar assets in markets that are not active and model-derived valuations whose inputs are observable

•Level 3 - Model-derived valuations with unobservable inputs

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 lease 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.

Accounting for Impacts of Natural Disasters

Assets destroyed or damaged as a result of natural disasters or other involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved. Income resulting from business interruption insurance is not recognized until all contingencies related to the insurance recoveries are resolved.

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.

Recently Issued Accounting Pronouncements

In ~~August 2016,~~January 2017, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or business combinations. As a result of the standard, we anticipate that the majority of our hotel acquisitions will be considered asset purchases as opposed to business combinations. However, the determination will be made on a transaction-by-transaction basis and we do not expect the determination to materially change the recognition of the assets and liabilities acquired. This standard will be applied on a prospective basis and, therefore, it does not affect the accounting for any of our previous transactions. This standard will be effective for annual periods beginning after December 15, 2017, although early adoption is permitted.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This standard will be effective for annual periods beginning after December 15, 2017, although early adoption is permitted. We do not anticipate that this guidance will have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which ~~is intended~~clarifies and provides specific guidance on eight cash flow classification issues with an objective to reduce the current diversity in ~~practice as to how certain transactions are classified in the statement of cash flows.~~practice. This standard will be effective for annual periods beginning after December

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15, 2017, although early adoption is permitted. We ~~are evaluating the effect of ASU No. 2016-15~~do not anticipate that this guidance will have a material impact on our consolidated financial ~~statements and related disclosures.~~statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. This standard requires companies to record all of the tax effects related to share-based payments through the income statement, allows companies to elect an accounting policy to either estimate the share based award forfeitures (and expense) or account for forfeitures (and expense) as they occur, and allows companies to withhold up to the maximum individual statutory tax rate the shares upon settlement of an award without causing the award to be classified as a liability. This guidance is effective for annual periods beginning after December 15, ~~2016, although early adoption is permitted.~~2016. We ~~are evaluating the effect of~~adopted ASU No. 2016-09 effective January 1, 2017 and it did not have a material impact on our ~~consolidated~~ financial ~~statements and related disclosures.~~position, results of operations or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee's accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The primary impact of the new standard will be to the treatment of our ground leases, which represent a majority of all of our operating lease payments. We are evaluating the effect of ASU 2016-02 on our consolidated financial statements and related disclosures.

~~In September 2015, the FASB issued ASU No. 2015-16,~~ ~~Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments~~, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. We adopted ASU No. 2015-16 effective January 1, 2016 and it did not have an impact on our financial position, results of operations or cash flows.

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~~In April 2015, the FASB issued ASU No. 2015-03,~~ ~~Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. We adopted ASU No. 2015-03 effective January 1, 2016 and present all debt issuance costs, other than issuance costs related to our senior unsecured credit facility, as a direct deduction from the carrying value of the debt liability. Adoption of this standard was applied retrospectively for all periods presented, affecting only the presentation of our balance sheet. The adoption of ASU 2015-03 did not have a material impact on our financial position and had no impact on our results of operations or cash flows.

~~In February 2015, the FASB issued ASU 2015-02,~~ ~~Consolidation (Topic 810): Amendments to the Consolidation Analysis~~, which changes the way reporting enterprises evaluate the consolidation of limited partnerships, variable interests and similar entities. We adopted ASU No. 2015-02 effective January 1, 2016 and concluded that our operating partnership now meets the criteria of a variable interest entity. The Company is the primary beneficiary and, accordingly, we continue to consolidate our operating partnership. The Company’s sole significant asset is its investment in its operating partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of its operating partnership. In addition, all of the Company's debt is an obligation of its operating partnership.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which affects virtually all aspects of an entity’s revenue recognition. The new standard sets forth five prescribed steps to determine the timing and amount of revenue to be recognized to appropriately depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effectiveness of ASU No. 2014-09 to reporting periods beginning after December 15, 2017 and permitted early application for annual reporting periods beginning after December 15, 2016. ~~We do not believe~~By working in conjunction with our hotel operators, we have substantially completed our evaluation of the effect that ASU No. 2014-09 will have ~~a material impact~~ on ~~the~~ our consolidated financial ~~statements and related disclosures.~~statements. Because of the short-term, day-to-day nature of our hotel revenues, we have determined that the pattern of revenue recognition will not change significantly. Furthermore, we do not expect the standard to significantly impact the recognition of or accounting for real estate sales to third parties, since we primarily dispose of real estate in exchange for cash with few contingencies.We will adopt the new standard on its effective date of January 1, 2018 under the cumulative effect transition method.


3.	Property and Equipment

Property and equipment as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016 consists of the following (in thousands):


	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
Land	$	553,769		$	578,338		$	602,879		$	553,769
Land improvements	7,994			7,994			7,994			7,994
Buildings	2,337,446			2,538,719
Buildings and site improvements							2,404,426			2,355,871
Furniture, fixtures and equipment	424,393			458,577			424,669			428,991
Construction in progress	29,905			25,016			13,459			35,253
	3,353,507			3,608,644			3,453,427			3,381,878
Less: accumulated depreciation	(711,473		)	(726,468		)	(765,213		)	(735,202		)
	$	2,642,034		$	2,882,176		$	2,688,214		$	2,646,676

As of September 30, ~~2016~~2017, we determined the carrying value of $1.8 million of construction in progress was not recoverable and we recorded a corresponding $1.8 million charge within impairment losses for the three and nine months ended September 30, 2017.

As of September 30, 2017 and December 31, ~~2015,~~2016, we had accrued capital expenditures of ~~$6.7~~$4.4 million and ~~$11.6~~$10.8 million,, respectively.

Natural Disaster Impact

During September 2017, several of our hotels were impacted by the effects of Hurricanes Irma and Maria. Frenchman's Reef & Morning Star Marriott Beach Resort (“Frenchman's Reef”) located in St. Thomas, U.S. Virgin Islands sustained significant

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damage and is currently closed. We expect that Frenchman's Reef will remain closed through the end of 2018. The Inn at Key West and Sheraton Suites Key West located in Key West, Florida and the Westin Fort Lauderdale Beach Resort located in Fort Lauderdale, Florida were impacted by the effects of Hurricane Irma. Each of our Florida hotels closed in advance of the storm in order to comply with mandatory evacuation orders. The Westin Fort Lauderdale Beach Resort and Sheraton Suites Key West sustained minimal damage and reopened shortly after the storm, while the Inn at Key West sustained more substantial damage and remains closed. We expect the Inn at Key West to remain closed through the end of the first quarter of 2018.

We maintain property, casualty, flood, and business interruption insurance for each of our hotels with coverage up to $361 million for each covered event, subject to certain deductibles and sublimits. While it is expected that insurance proceeds will be sufficient to cover all or a substantial portion of the remediation costs and business interruption at these hotels, no determination has been made as to the total amount or timing of those payments.

As of September 30, 2017, we recognized a $40.5 million impairment loss for property damage, which consists of $85.6 million of property and equipment and $45.1 million of corresponding accumulated depreciation. We recorded a reduction to the impairment loss and a corresponding receivable of $39.9 million for the insurance proceeds that we believe are probable of receipt. The remaining impairment loss of $0.6 million relates to property damage at the Sheraton Suites Key West that does not exceed the insurance deductible. The receivable for insurance proceeds is included in prepaid and other assets on the accompanying condensed consolidated balance sheet. We believe these amounts to be recoverable by considering various factors, including discussions with our insurance providers, consideration of their financial strength, and review of our insurance provisions and limits. All of these amounts have been recorded based on preliminary estimates of the damage and corresponding insurance recovery. We will finalize the recorded amounts upon completion of our assessment in the fourth quarter of 2017.

4. Favorable Lease Assets

In connection with the acquisition of certain hotels, we have recognized intangible assets for favorable ~~ground leases and tenant~~ leases. Our favorable lease assets, net of accumulated amortization of ~~$2.3~~$2.6 million and ~~$2.6~~$2.3 million as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016, respectively, consist of the following (in thousands):

September 30, 2016 December 31, 2015
Westin Boston Waterfront Hotel Ground Lease $ 17,914
$ 18,076
Hilton Minneapolis Ground Lease —
5,685
Lexington Hotel New York Tenant Leases 162
186
Hilton Boston Downtown Tenant Leases —
8
$ 18,076
$ 23,955

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	September 30, 2017		December 31, 2016
Westin Boston Waterfront Hotel Ground Lease	$	17,698	$	17,859
Orchards Inn Sedona Annex Sublease	8,967		—
Lexington Hotel New York Tenant Leases	130		154
	$	26,795	$	18,013

Favorable lease assets are recorded at the acquisition date and are generally amortized using the straight-line method over the remaining non-cancelable term of the lease agreement. We recorded $0.1 million of amortization expense for each of the three months ended September 30, ~~2016~~2017 and ~~2015.~~2016. We recorded ~~$0.2~~$0.3 million and ~~$0.4~~$0.2 million, respectively, of amortization expense for each of the nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016.

~~On June 30, 2016, we sold the Hilton Minneapolis (see Note 9).~~ In connection with our acquisition of the ~~sale,~~Orchards Inn Sedona on February 28, 2017, we ~~wrote off~~recorded a $9.1 million favorable lease asset. We determined the value using a discounted cash flow of the favorable ~~ground~~difference between the contractual lease ~~asset, which is included in~~payments and estimated market rents. The market rents were estimated by a third-party valuation firm and the ~~gain on sale~~discount rate was estimated using a risk adjusted rate of ~~hotel properties on the accompanying condensed consolidated statements~~return. See Note 9 for further discussion of ~~operations for the nine months ended September 30, 2016.~~this favorable lease asset.

5. Capital Stock

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.

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. We have not sold any shares ~~in 2016~~of our common stock during 2017 and there is $128.3 million remaining under the ATM program.

~~Share Repurchase Program~~

Our board of directors has approved a share repurchase program ~~in November 2015~~ authorizing us to repurchase up to $150 million in shares of our common stock. Repurchases under this program are made in open market or privately negotiated transactions as permitted by federal securities laws and other legal requirements. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing, manner, price and actual number of shares repurchased depends on a variety of factors including stock price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The share repurchase program may be suspended or terminated at any time without prior notice.

~~During the three months ended September 30, 2016, we~~ We have not repurchased ~~92,600~~any shares of our common stock ~~at an average price of $8.90 per share for a total purchase price of $0.8 million. Subsequent to September 30, 2016~~during 2017 and through November 8, 2016, we repurchased an additional 516,162 shares of our common stock at an average price of $8.92 per share for a total purchase price of $4.6 million. We retired all repurchased shares on their respective settlement dates. As of November 8, 2016, we have ~~$144.6~~$143.5 million of ~~authorized~~ capacity remaining under our share repurchase program.

Dividends

We have paid the following dividends to holders of our common stock during ~~2016~~2017 as follows:

Payment Date Record Date
Dividend
per Share
January 12, 2016
December 31, 2015
$ 0.125
April 12, 2016
March 31, 2016
$ 0.125
July 12, 2016 June 30, 2016 $ 0.125
October 12, 2016 September 30, 2016 $ 0.125



Payment Date	Record Date	Dividend per Share
January 12, 2017	December 30, 2016	$	0.125
April 12, 2017	March 31, 2017	$	0.125
July 12, 2017	June 30, 2017	$	0.125
October 12, 2017	September 30, 2017	$	0.125

Preferred Shares

We are authorized to issue up to 10 million shares of preferred stock, $0.01 par value per share. Our board of directors is required to set for each class or series of preferred stock the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, and terms or conditions of redemption. As of September 30, ~~2016~~2017 and December 31, ~~2015~~2016, there were no shares of preferred stock outstanding.

Operating Partnership Units

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Holders of operating partnership units have certain redemption rights, which would 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. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or our stockholders. As of September 30, ~~2016~~2017 and December 31, ~~2015~~2016, there were no operating partnership units held by unaffiliated third parties.

6. Stock Incentive Plans

~~On February 17, 2016,~~We are authorized to issue up to 6,082,664 shares of our ~~board of directors adopted the~~common stock under our 2016 Equity Incentive Plan (the ~~“2016 Plan”~~"2016 Plan")., of which we have issued or committed to issue 447,089 shares as of September 30, 2017. In addition to these shares, additional shares of common stock could be issued in connection with the performance stock unit awards as further described

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below. The 2016 Plan ~~was approved by our stockholders on May 3, 2016 and~~ replaced the 2004 Stock Option and Incentive Plan, as amended (the "2004 Plan")~~, which was scheduled to expire on April 26, 2017.~~. We no longer make share grants and issuances under the 2004 Plan, although awards previously made under the 2004 Plan that are outstanding will remain in effect in accordance with the terms of that plan and the applicable award agreements. ~~Under the 2016 Plan, we are authorized to issue up to 6,082,664 shares of our common stock. We have issued or committed to issue 53,574 shares under the 2016 Plan as of~~ ~~September 30, 2016~~.

Restricted Stock Awards

Restricted stock awards issued to our officers and employees generally vest over a 3three-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 condensed consolidated statements of operations. A summary of our restricted stock awards from January 1, ~~2016~~2017 to September 30, ~~2016~~2017 is as follows:


	Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
Unvested balance at January 1, 2016	474,567		$	12.72
Unvested balance at January 1, 2017					567,540		$	10.62
Granted	451,739		8.91		324,502		11.19
Vested	(241,698	)	11.83		(244,411	)	11.29
Forfeited	(122,121	)	10.12		(16,669	)	10.80
Unvested balance at September 30, 2016	562,487		$	10.61
Unvested balance at September 30, 2017					630,962		$	10.66

The remaining share awards are expected to vest as follows: ~~245,907 shares during 2017, 187,977~~287,148 shares during 2018, ~~117,379~~227,699 shares during 2019, and ~~11,224~~116,115 during 2020. As of September 30, ~~2016~~,2017, the unrecognized compensation cost related to restricted stock awards was ~~$4.4~~$4.9 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 24 months. We recorded ~~$0.5~~$0.8 million and ~~$0.7~~$0.5 million, respectively, of compensation expense related to restricted stock awards for the three months ended September 30, ~~2016~~2017 and ~~2015.~~2016. We recorded $2.3 million and $2.1 million, respectively, of compensation expense related to restricted stock awards for the nine ~~month periods ended September 30, 2016 and 2015.~~

~~The compensation expense recorded for the three and nine~~ months ended September 30, 2016 includes the reversal of $0.2 million of previously recognized compensation expense resulting from the forfeiture of restricted stock awards related to the resignation of our former Executive Vice President2017 and ~~Chief Operating Officer.~~2016.

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”). For the PSUs issued in 2014 and 2015 and vesting in 2017 and 2018, respectively, the actual number of shares of common stock issued to each executive officer is subject to the achievement of certain levels of total stockholder return relative to the total stockholder return of a peer group of publicly traded lodging REITs over a three-year performance period. There will be 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. For the PSUs issued in 2016 and vesting in 2019, the calculation of total stockholder return relative to the total stockholder return of a peer group over a three-year performance period remained in effect for 75% of the number of PSUs to be earned in the performance period. The remaining 25% is determined based on achieving improvement in market share for each of our hotels over the three-year performance period.

~~Table~~ For the PSUs issued in 2017 and vesting in 2020, the calculation of ~~Contents~~

total stockholder return relative to the total stockholder return of a peer group over a three-year performance period applies to 50% of the number of PSUs to be earned in the performance period. The remaining 50% is determined based on achieving improvement in market share for each of our hotels over the three-year performance period.

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 condensed 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 improvement in market share for each of our hotels is the closing price of our common stock on the grant date.

On February ~~26, 2016,~~27, 2017, our board of directors granted ~~310,398~~266,009 PSUs to our executive officers. The grant date fair value of the portion of the PSUs based on our relative total stockholder return was ~~$8.42~~$10.89 using the assumptions of volatility of ~~24.3%~~26.7% and a risk-free rate of ~~0.93%~~1.46%. The grant date fair value of the portion of the PSUs based on hotel market share ~~$8.91.~~was $11.20, the closing stock price of our common stock on such date.

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A summary of our PSUs from January 1, ~~2016~~2017 to September 30, ~~2016~~2017 is as follows:


	Number of Target Units		Weighted- Average Grant Date Fair Value		Number of Target Units		Weighted- Average Grant Date Fair Value
Unvested balance at January 1, 2016	676,359		$	11.41
Unvested balance at January 1, 2017					686,684		$	10.65
Granted	310,398		8.54		266,009		11.04
Additional units from dividends	29,131		9.42		24,703		11.21
Vested (1)	(242,096	)	9.85		(200,374	)	12.15
Forfeited	(96,301	)	10.75
Unvested balance at September 30, 2016	677,491		$	10.66
Unvested balance at September 30, 2017					777,022		$	10.41

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(1)	~~The number~~There was no payout of shares of our common stock ~~earned~~ for PSUs that vested on February 27, 2017, as our total stockholder return fell below the ~~PSUs vested in 2016 was equal to 89.5%~~30th percentile of the ~~PSU Target Award.~~total stockholder returns of the peer group over the three-year performance period.

The remaining target units are expected to vest as follows: ~~195,525 units during 2017, 204,010~~213,772 units during 2018, ~~and 277,956~~291,257 units during ~~2019.~~2019 and 271,993 units during 2020. The number of shares earned upon vesting is subject to the attainment of the performance goals described above. As of September 30, ~~2016~~2017, the unrecognized compensation cost related to the PSUs was ~~$3.3~~$3.8 million and is expected to be recognized on a straight-line basis over a weighted average period of 2324 months. We recorded $0.6 million and $0.1 million, ~~and $0.6 million~~respectively, of compensation expense related to the PSUs for the three months ended September 30, ~~2016~~2017 and ~~2015, respectively.~~2016. We recorded $1.8 million and $1.4 million, ~~and $1.7 million~~respectively, of compensation expense related to the PSUs for the nine months ended September 30, ~~2016~~2017 and ~~2015, respectively.~~2016.

The compensation expense recorded for the three and nine months ended September 30, 2016 includes the reversal of $0.4 million of previously recognized compensation expense resulting from the forfeiture of PSUs related to the resignation of our former Executive Vice President and Chief Operating Officer.

~~Director Stock Grants~~

On May 11, 2016, we issued (i) 44,645 shares of common stock and (ii) 8,929 deferred stock units to our board of directors having an aggregate value of $510,000, based on the closing stock price for our common stock on such day. The shares of common stock and the deferred stock units issued to our board of directors vest immediately upon issuance.

7. Earnings Per Share

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

The following is a reconciliation of the calculation of basic and diluted earnings per share (in thousands, except share and per share data):

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	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Numerator:
Net income	$	29,937	$	24,464	$	90,890	$	59,928	$	21,623	$	29,937	$	67,105	$	90,890
Denominator:
Weighted-average number of common shares outstanding—basic	201,297,846		200,852,072		201,188,563		200,776,641		200,834,910		201,297,846		200,767,104		201,188,563
Effect of dilutive securities:
Unvested restricted common stock	58,115		99,873		—		130,349		173,557		58,115		170,612		—
Unexercised stock appreciation rights	—		—		—		1,387
Shares related to unvested PSUs	383,643		215,714		383,643		215,714		415,933		383,643		415,933		383,643
Weighted-average number of common shares outstanding—diluted	201,739,604		201,167,659		201,572,206		201,124,091		201,424,400		201,739,604		201,353,649		201,572,206
Earnings per share:
Basic earnings per share	$	0.15	$	0.12	$	0.45	$	0.30	$	0.11	$	0.15	$	0.33	$	0.45
Diluted earnings per share	$	0.15	$	0.12	$	0.45	$	0.30	$	0.11	$	0.15	$	0.33	$	0.45

We did not include unexercised stock appreciation rights of 20,770 for the three and nine months ended September 30, 2017 and 2016 as they would be anti-dilutive. We did not include the effect of unvested restricted common stock in the calculation of the diluted weighted-average number of common shares outstanding for the nine months ended September 30, 2016 as it would be anti-dilutive.

8. Debt

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The following table sets forth information regarding the Company’s debt as of September 30, ~~2016~~2017 and December 31, 2016 (dollars in thousands):


								Principal Balance as of
Property	Principal Balance			Interest Rate	Maturity Date	Interest Rate	Maturity Date	September 30, 2017			December 31, 2016
Lexington Hotel New York	$	170,368		LIBOR + 2.25% (1)	October 2017 (2)	LIBOR + 2.25%	October 2017 (1)	$	—		$	170,368
Salt Lake City Marriott Downtown	58,719			4.25%	November 2020	4.25%	November 2020	57,122			58,331
Westin Washington D.C. City Center	66,623			3.99%	January 2023	3.99%	January 2023	65,346			66,848
The Lodge at Sonoma, a Renaissance Resort & Spa	29,044			3.96%	April 2023	3.96%	April 2023	28,432			28,896
Westin San Diego	67,341			3.94%	April 2023	3.94%	April 2023	65,220			66,276
Courtyard Manhattan / Midtown East	85,790			4.40%	August 2024	4.40%	August 2024	84,421			85,451
Renaissance Worthington	85,000			3.66%	May 2025	3.66%	May 2025	84,504			85,000
JW Marriott Denver at Cherry Creek	64,839			4.33%	July 2025	4.33%	July 2025	63,790			64,579
Boston Westin	202,309			4.36%	November 2025	4.36%	November 2025	198,922			201,470
Unamortized debt issuance costs	(6,407		)					(4,989		)	(6,052		)
Total mortgage debt, net of unamortized debt issuance costs	823,626							642,768			821,167

Senior unsecured term loan	100,000			LIBOR + 1.45% (3)	May 2021
Unsecured term loan						LIBOR + 1.45% (2)	May 2021	100,000			100,000
Unsecured term loan						LIBOR + 1.45% (3)	April 2022	200,000			—
Unamortized debt issuance costs	(664		)					(1,963		)	(628		)
Senior unsecured term loan, net of unamortized debt issuance costs	99,336
Unsecured term loan, net of unamortized debt issuance costs								298,037			99,372

Senior unsecured credit facility	—			LIBOR + 1.50%	May 2020 (4)	LIBOR + 1.50%	May 2020 (4)	—			—

Total debt, net of unamortized debt issuance costs	$	922,962						$	940,805		$	920,539
Weighted-Average Interest Rate				3.72%		3.75%

_______________________

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(1)	The ~~interest rate as of September 30, 2016~~mortgage loan was ~~2.77%.~~repaid on April 26, 2017.

(2)

The ~~loan may be extended for~~ ~~two~~ additional one-year terms subject to the satisfaction of certain conditions, including a debt yield based on trailing 12-month hotel cash flows equal to or greater than 13% at the time the first extension option is exercised, and the payment of an extension fee. Asinterest rate as of September 30, ~~2016, the debt yield~~2017 was ~~approximately 5.7%~~2.68%.


(3)	The interest rate as of September 30, ~~2016~~2017 was ~~1.97%~~2.69%.


(4)	The credit facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.

Mortgage Debt

We have incurred limited recourse, property specific mortgage debt secured by certain of our hotels. In the event of default, the lender may only foreclose on the secured assets; however, in the event of fraud, misapplication of funds or other customary recourse provisions, the lender may seek payment from us. As of September 30, ~~2016~~2017, ~~nine~~eight of our 2628 hotels were secured by mortgage debt.

Our mortgage debt contains certain property specific covenants and restrictions, including minimum debt service coverage ratios that trigger “cash trap” provisions as well as restrictions on incurring additional debt without lender consent. ~~During the quarter ended September 30, 2016, the cash trap provision was triggered on the mortgage loan secured by the Lexington Hotel New York.~~ As of September 30, ~~2016,~~2017, we were in compliance with the financial covenants of our mortgage debt.

On ~~January 11, 2016,~~April 26, 2017, we repaid the mortgage loan secured by the ~~Chicago Marriott Downtown Magnificent Mile.~~Lexington Hotel New York with proceeds from a new unsecured term loan, which is discussed further below. The mortgage loan had an outstanding principal balance of ~~$201.7~~$170.4 million ~~with interest~~ at ~~a fixed rate of 5.98%.~~

~~On May 11, 2016, we repaid the mortgage loan secured by the Courtyard Manhattan Fifth Avenue. The loan had an outstanding principal balance of $48.1 million with interest at a fixed rate of 6.48%.~~

~~On June 30, 2016, in connection with the sale of the Hilton Minneapolis, the buyer assumed $89.5 million of mortgage debt secured by the hotel. The loan had a fixed interest rate of 5.46%.~~repayment.

Senior Unsecured Credit Facility

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We are party to a senior unsecured credit ~~facility. On May 3, 2016, we amended and restated the~~ facility ~~to increase the~~with a capacity ~~from $200 million~~up to $300 ~~million, decrease the pricing and extend the~~million. The maturity date tois May ~~2020. The maturity date~~2020 and may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions. The facility also includes an accordion feature to expand up to $600 million, subject to lender consent. The interest rate on the facility is based upon LIBOR, plus an applicable ~~margin.~~

~~The applicable~~ margin is based upon the Company’s leverage ratio, as follows:



Leverage Ratio	Applicable Margin
Less than or equal to 35%	1.50	%
Greater than 35% but less than or equal to 45%	1.65	%
Greater than 45% but less than or equal to 50%	1.80	%
Greater than 50% but less than or equal to 55%	2.00	%
Greater than 55%	2.25	%

In addition to the interest payable on amounts outstanding under the facility, we were required to pay an amount equal to ~~(x)~~ 0.20% of the unused portion of the facility if the average usage of the facility was greater than 50% or ~~(y)~~ 0.30% of the unused portion of the facility if the average usage of the facility was less than or equal to 50%.

The facility also contains various corporate financial covenants. A summary of the most restrictive covenants is as follows:

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Actual at

Covenant

September 30, 2016

Covenant

September 30, 2017

Maximum leverage ratio (1)

60%

22.1%

60%

24.4%

Minimum fixed charge coverage ratio (2)

1.50x

4.32x

1.50x

4.46x

Minimum tangible net worth (3)

$1.91 billion

$2.54 billion

$1.91 billion

$2.57 billion

Secured recourse indebtedness

Less than 45% of Total Asset Value

27.6%

Less than 45% of Total Asset Value

21.2%

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


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


(3)	Tangible net worth, as defined in the credit agreement, is (i) total gross book value of all assets, exclusive of depreciation and amortization, less intangible assets, total indebtedness, and all other liabilities, plus (ii) 75% of net proceeds from future equity issuances.

As of September 30, ~~2016,~~2017, we had no borrowings outstanding under the facility and the Company's leverage ratio was ~~22.1%~~24.4%. Accordingly, interest on our borrowings under the facility, if any, will be based on LIBOR plus 150 basis points for the following quarter. We incurred interest and unused credit facility fees on the facility of $0.2 million and ~~$0.4~~$0.2 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively. We incurred interest and unused credit facility fees on the facility of ~~$1.1~~$0.7 million and ~~$0.8~~$1.1 million for the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively.

~~Senior Unsecured Term Loan~~

Unsecured Term Loans

We are party to a five-year $100 million unsecured term loan. On ~~May 3, 2016,~~April 26, 2017, we closed on a new five-year ~~$100~~$200 million unsecured term loan. A portion of the proceeds from the new term loan was used to repay the $170.4 million mortgage loan secured by the Lexington Hotel New York.

The financial covenants of the term loans are consistent with the covenants on our senior unsecured ~~term loan.~~credit facility, which are described above. The interest rate on each of the term ~~loan~~loans is based on a pricing grid ranging from 145 to 220 basis points over LIBOR, based on the Company’s leverage ratio. The financial covenants of the term loan are identical to the covenants on our senior unsecured credit facility, which are described above. The total proceeds from the term loan were used to repay a portion of the $75 million in borrowings then outstanding under our senior unsecured credit facility and to repay the $48.1 million mortgage loan secured by the Courtyard Manhattan Fifth Avenue.

~~The applicable margin is based upon the Company’s leverage ratio,~~ as follows:



Leverage Ratio	Applicable Margin
Less than or equal to 35%	1.45	%
Greater than 35% but less than or equal to 45%	1.60	%
Greater than 45% but less than or equal to 50%	1.75	%
Greater than 50% but less than or equal to 55%	1.95	%
Greater than 55%	2.20	%

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As of September 30, ~~2016,~~2017, the Company's leverage ratio was ~~22.1%~~24.4%. Accordingly, interest on our borrowings under the term ~~loan~~loans will be based on LIBOR plus 145 basis points for the following quarter. We incurred interest on the ~~facility~~term loans of $2.1 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively. We incurred interest on the term loans of $4.2 million and $0.8 million or the nine months ended September 30, 2017 and 2016, respectively.

9. Acquisitions

On February 28, 2017, we acquired the 88-room L'Auberge de Sedona and the 70-room Orchards Inn Sedona, each located in Sedona, Arizona, for a total contractual purchase price of $97 million. The acquisition was funded with corporate cash. The hotels are managed by IMH Financial Corporation pursuant to a new management agreement with an initial term of five years, which is terminable at our discretion beginning December 31, 2017. The management agreement provides for a base management fee of 2.45% of gross revenues in 2017, 2.70% of gross revenues in 2018, and 3.0% of gross revenues in 2019 and through the end of the term. The management agreement also provides for an incentive management fee of 12% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement in 2017, increasing to 15% by 2020.

We lease the buildings and sublease the underlying land containing 28 of the 70 rooms at the Orchards Inn Sedona, which expires in 2070, including all extension options. We reviewed the terms of the annex sublease in conjunction with the hotel acquisition accounting and concluded that the terms are favorable to us compared with a typical current market lease. As a result, we recorded a $9.1 million favorable lease asset that will be amortized through 2070.

The following table summarizes the fair value of the assets acquired and liabilities assumed in our acquisitions (in thousands):



	L'Auberge de Sedona			Orchards Inn Sedona
Land	$	39,384		$	9,726
Building and improvements	22,204			10,180
Furnitures, fixtures and equipment	4,376			1,982
Total fixed assets	65,964			21,888
Favorable lease asset	—			9,065
Other assets and liabilities, net	(2,710		)	(412		)
Total	$	63,254		$	30,541

Acquired properties are included in our results of operations from the date of acquisition. The following unaudited pro forma financial information presents our results of operations (in thousands, except per share data) as if the hotels were acquired on January 1, 2016. The comparable information is not necessarily indicative of the results that actually would have occurred nor does it indicate future operating results.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues	$	223,486	$	227,110	$	666,389	$	710,039
Net income	$	21,623	$	30,455	$	66,830	$	92,800
Earnings per share:
Basic earnings per share	$	0.11	$	0.15	$	0.33	$	0.46
Diluted earnings per share	$	0.11	$	0.15	$	0.33	$	0.46

For the three and nine months ended September 30, ~~2016, respectively.~~

~~9. Dispositions~~

On June 8, 2016, we sold the 485-room Orlando Airport Marriott to an unaffiliated third party for a contractual sales price of $63 million. We received net proceeds of approximately $65.4 million from the transaction, which included credit for the hotel's capital replacement reserve. We recognized a pre-tax gain on sale of the hotel of approximately $3.4 million.

On June 30, 2016, we sold the 821-room Hilton Minneapolis to an unaffiliated third party for a contractual sales price of $140 million. The buyer assumed the $89.5 million mortgage loan secured by the hotel. We received net proceeds of approximately $54.8 million from the transaction, which included credit for the hotel's working capital. We recognized a pre-tax gain on sale of the hotel of approximately $4.9 million.

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On July 7, 2016, we sold the 169-room Hilton Garden Inn Chelsea/New York City to an unaffiliated third party for a contractual sales price of $65.0 million. We received net proceeds of approximately $63.3 million from the transaction. We recognized a pre-tax gain on sale of the hotel of approximately $2.0 million.

~~Our~~2017, our condensed consolidated statements of operations include $7.2 million and $20.0 million of revenues, respectively, and $0.6 million and $3.8 million of net income, respectively, related to the ~~following pre-tax income (loss), inclusive~~operations of the ~~gain on sale, from the hotel properties sold during the nine months ended September 30, 2016 (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Orlando Airport Marriott $ (25 ) $ (448 ) $ 7,899
$ 1,808
Hilton Minneapolis 174
1,844
4,840
(202 )
Hilton Garden Inn Chelsea/New York City 2,025
1,232
3,087
2,015
Total pre-tax income $ 2,174
$ 2,628
$ 15,826
$ 3,621
L'Auberge de Sedona and Orchards Inn Sedona.

10. Fair Value of Financial Instruments

The fair value of certain financial assets and liabilities and other financial instruments as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016, in thousands, is as follows:

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September 30, 2016 December 31, 2015

Carrying
Amount (1)
Fair Value
Carrying
Amount (1)
Fair Value
Debt $ 922,962
$ 918,134
$ 1,169,749
$ 1,152,351



	September 30, 2017				December 31, 2016
	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Debt	$	940,805	$	951,552	$	920,539	$	906,156

_______________


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

The fair value of our mortgage debt is a Level 2 measurement under the fair value hierarchy (see Note 2). We estimate the fair value of our mortgage debt by discounting the future cash flows of each instrument at estimated market rates. The carrying value of our other financial instruments approximate fair value due to the short-term nature of these financial instruments.

11. Relationships with Managers

In August 2017, we terminated the management agreement with Marriott International, Inc. ("Marriott") for the Courtyard Manhattan/Midtown East. In connection with the termination of Marriott, we recognized $1.9 million of accelerated amortization of key money, which is included in management fees on the accompanying consolidated statements of operations for the three and nine months ended September 30, 2017. We entered into a new 10-year management agreement with HEI Hotels & Resorts to operate the hotel and a 25-year franchise agreement with Marriott to continue the hotel's Courtyard brand affiliation. The management agreement provides for a base management fee of 1.5% of gross revenues in 2017 and 1.75% of gross revenues thereafter. The management agreement also provides for an incentive management fee of 15% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement. Total incentive management fees are capped at 1% of gross revenues. The employees of the hotel are now represented by a labor union and subject to a collective bargaining agreement. The franchise agreement provides for a franchise fee of 6% of gross room sales.

In October 2017, we terminated the management agreement with Joie de Vivre Hotels for the Hotel Rex, located in San Francisco, California. We entered into a ten-year management agreement with Viceroy Hotels & Resorts to operate the hotel. The management agreement provides for a base management fee of 2.75% of gross revenues. The management agreement also provides for an incentive management fee of 15% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement. Total incentive management fees are capped at 1.0% of gross revenues. The management agreement provides for one five-year extension of the term at the manager's discretion.

Frenchman's Reef sustained significant hurricane damage during September 2017. Under the terms of the management agreement, either party may terminate the management agreement in the event that the catastrophic damage is 30% or more of the replacement cost. We estimate the catastrophic damage exceeds 30% of replacement cost. We are currently evaluating our options with respect to the resort and have not made a decision on whether to terminate the management agreement.

12. 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.

Other Matters

InAs previously reported, in February 2016, the Company was notified by the franchisor of one of its hotels that as a result of low guest satisfaction scores, the Company iswas in default under the franchise agreement for that hotel. The Company iscontinues to proactively ~~working~~work with the franchisor and the manager of the hotel ~~to develop~~ and ~~execute~~has developed and executed a plan aimed to improve guest satisfaction scores. To date, the guest satisfaction ~~scores. While~~scores have improved so that the Company is no longer in default under the franchise agreement. However, if the guest satisfaction scores were to decrease again, the franchisor ~~has reserved~~may again notify the Company that it is in default under the franchise agreement and that the franchisor is reserving all of its rights under the franchise agreement, including the right to terminate the franchise agreement in the ~~future, no action to terminate the franchise agreement has been taken by the franchisor. In addition, the lender that holds the mortgage on this hotel received notice~~future.

Table of the foregoing. The lender has provided written notice to the Company that although it has the right to call an event of default under the loan agreement after a notice and cure period has elapsed, the lender is not doing so but reserves all of its rights under the loan agreement. Contents

While the Company ~~is working~~continues to work diligently with the franchisor and manager to ~~develop an action plan to resolve~~maintain the ~~matter,~~guest satisfaction scores at a level such that the Company does not fall back into default, no assurance can be given that the Company will be successful. If the Company is not successful, the franchisor may seek to terminate the franchise agreement and ~~the lender may seek to declare an event of default under the loan agreement,~~assert a claim it is owed a termination fee, including a payment for liquidated damages, which could result in a material adverse effect on the Company's business, financial condition or results of operation.

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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 our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as updated by our Quarterly Reports on Form 10-Q. Accordingly, there is no assurance that the Company’s expectations will be ~~realized.~~realized, including as it relates to the estimated cost and duration of renovation or restoration projects and estimated insurance recoveries. 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.

Overview

DiamondRock Hospitality Company is a lodging-focused Maryland corporation operating as a real estate investment trust (“REIT”). As of September 30, ~~2016,~~2017, we owned a portfolio of 2628 premium hotels and resorts that contain ~~9,461~~9,630 guest rooms located in 1718 different markets in North America and the U.S. Virgin Islands. As an owner, rather than an operator, of lodging properties, we receive all of the operating profits or losses generated by ~~the~~our hotels after the payment of fees due to hotel managers, which are calculated based on the revenues and profitability of each hotel.

Our vision is to be a highly professional public lodging REIT that delivers long-term returns for our stockholders which exceed long-term returns generated by our peers. Our goal is to deliver long-term stockholder returns through a combination of dividends and enduring capital appreciation. Our strategy is to utilize disciplined capital allocation, focus on high quality lodging properties in North American markets with superior growth prospects and high barriers-to-entry, aggressively asset manage those hotels, and employ conservative amounts of leverage.

Our primary business is to acquire, own, asset manage and renovate full-service 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 and a substantial number of our hotels are operated under a brand owned by ~~one of the leading global lodging brand companies, including~~ Marriott International, Inc. ~~and~~or Hilton Worldwide.

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. ~~GAAP,~~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) and Adjusted EBITDA; and

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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 ~~72%~~73% of our total revenues for the nine months ended September 30, ~~2016~~2017 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, Adjusted EBITDA, FFO and Adjusted FFO as measures of the financial performance of our business. See “Non-GAAP Financial Measures.”

Our Hotels

The following table sets forth certain operating information for the nine months ended September 30, ~~2016~~2017 for each of our hotels.

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Property	Location	Number of Rooms	Occupancy (%)		ADR($)		RevPAR($)		% Change from 2015 RevPAR (1)		Location	Number of Rooms	Occupancy (%)		ADR($)		RevPAR($)		% Change from 2016 RevPAR (1)
Chicago Marriott Downtown	Chicago, Illinois	1,200	69.4	%	$	219.65	$	152.52	(7.8	)%	Chicago, Illinois	1,200	73.1	%	$	218.14	$	159.44	4.5	%
Hilton Minneapolis (2)	Minneapolis, Minnesota	821	69.8	%	149.38		104.32		(2.1	)%
Westin Boston Waterfront Hotel	Boston, Massachusetts	793	82.0	%	242.15		198.46		2.4	%	Boston, Massachusetts	793	79.1	%	254.66		201.37		1.5	%
Lexington Hotel New York	New York, New York	725	90.3	%	230.77		208.44		(6.0	)%	New York, New York	725	92.1	%	231.36		213.14		2.3	%
Salt Lake City Marriott Downtown	Salt Lake City, Utah	510	71.0	%	161.18		114.44		(1.9	)%	Salt Lake City, Utah	510	79.3	%	167.03		132.49		15.8	%
Renaissance Worthington	Fort Worth, Texas	504	64.1	%	180.21		115.59		(9.3	)%	Fort Worth, Texas	504	75.4	%	182.09		137.36		18.8	%
Frenchman’s Reef & Morning Star Marriott Beach Resort	St. Thomas, U.S. Virgin Islands	502	86.5	%	257.46		222.74		1.8	%
Orlando Airport Marriott (3)	Orlando, Florida	485	86.8	%	129.43		112.29		3.2	%
Frenchman’s Reef & Morning Star Marriott Beach Resort (2)											St. Thomas, U.S. Virgin Islands	502	87.8	%	282.62		248.11		11.4	%
Westin San Diego	San Diego, California	436	86.4	%	189.79		163.95		1.4	%	San Diego, California	436	86.9	%	198.46		172.39		5.1	%
Westin Fort Lauderdale Beach Resort	Fort Lauderdale, Florida	432	92.1	%	196.63		181.03		15.1	%	Fort Lauderdale, Florida	432	86.9	%	192.20		167.03		(7.7	)%
Westin Washington, D.C. City Center	Washington, D.C.	410	85.9	%	222.66		191.30		7.1	%	Washington, D.C.	410	86.6	%	223.17		193.29		1.0	%
Hilton Boston Downtown	Boston, Massachusetts	403	87.8	%	282.76		248.16		1.9	%	Boston, Massachusetts	403	86.3	%	290.62		250.76		1.1	%
Vail Marriott Mountain Resort & Spa	Vail, Colorado	344	73.4	%	271.71		199.34		6.2	%	Vail, Colorado	344	75.0	%	282.34		211.68		6.2	%
Marriott Atlanta Alpharetta	Atlanta, Georgia	318	73.7	%	174.58		128.67		4.7	%	Atlanta, Georgia	318	76.3	%	168.15		128.27		(0.3	)%
Courtyard Manhattan/Midtown East	New York, New York	321	91.9	%	251.17		230.80		(1.2	)%	New York, New York	321	90.1	%	243.41		219.26		(5.0	)%
The Gwen Chicago	Chicago, Illinois	300	76.8	%	208.80		160.33		(2.6	)%	Chicago, Illinois	311	73.0	%	219.29		160.17		(0.1	)%
Hilton Garden Inn Times Square Central	New York, New York	282	96.4	%	234.74		226.36		(3.7	)%	New York, New York	282	97.0	%	227.06		220.20		(2.7	)%
Bethesda Marriott Suites	Bethesda, Maryland	272	71.4	%	170.48		121.78		7.2	%	Bethesda, Maryland	272	75.6	%	170.12		128.53		5.5	%
Hilton Burlington	Burlington, Vermont	258	81.4	%	180.39		146.82		7.7	%	Burlington, Vermont	258	81.5	%	180.10		146.86		—	%
JW Marriott Denver at Cherry Creek	Denver, Colorado	196	81.9	%	270.10		221.10		0.6	%	Denver, Colorado	196	81.1	%	262.32		212.70		(3.8	)%
Courtyard Manhattan/Fifth Avenue	New York, New York	189	88.2	%	250.14		220.50		(5.0	)%	New York, New York	189	89.1	%	249.08		221.86		0.6	%
Sheraton Suites Key West	Key West, Florida	184	88.2	%	260.24		229.56		(2.4	)%	Key West, Florida	184	89.5	%	256.78		229.77		0.1	%
The Lodge at Sonoma, a Renaissance Resort & Spa	Sonoma, California	182	81.4	%	294.85		240.07		3.6	%	Sonoma, California	182	65.1	%	326.04		212.12		(11.6	)%
Courtyard Denver Downtown	Denver, Colorado	177	82.9	%	203.60		168.86		2.1	%	Denver, Colorado	177	81.0	%	207.87		168.46		(0.2	)%
Hilton Garden Inn Chelsea/New York City (4)	New York, New York	169	98.1	%	201.66		197.74		3.5	%
Renaissance Charleston	Charleston, South Carolina	166	90.9	%	223.06		202.75		2.4	%	Charleston, South Carolina	166	79.1	%	245.39		194.10		(4.3	)%
Shorebreak Hotel	Huntington Beach, California	157	81.3	%	232.01		188.73		(0.3	)%	Huntington Beach, California	157	76.3	%	244.28		186.38		(1.2	)%
Inn at Key West	Key West, Florida	106	87.1	%	208.16		181.22		(9.6	)%
Inn at Key West (2)											Key West, Florida	106	82.1	%	197.20		161.91		(10.7	)%
Hotel Rex	San Francisco, California	94	83.9	%	238.58		200.28		(1.5	)%	San Francisco, California	94	83.9	%	224.87		188.64		(5.8	)%
TOTAL/WEIGHTED AVERAGE (1)		10,936	80.7	%	$	217.54	$	175.58	(0.2	)%
L'Auberge de Sedona (3)											Sedona, Arizona	88	76.8	%	551.56		423.72		19.3	%
Orchards Inn Sedona (3)											Sedona, Arizona	70	84.1	%	231.35		194.50		12.1	%
TOTAL/WEIGHTED AVERAGE												9,630	81.5	%	$	228.67	$	186.46	1.9	%

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(1) The percentage change from ~~2015~~2016 RevPAR reflects the comparable period in ~~2015~~2016 to our ~~2016~~2017 ownership period for our ~~2015 acquisitions (Shorebreak Hotel and Sheraton Suites Key West) and our 2016 dispositions (Orlando Airport Marriott, Hilton Minneapolis and Hilton Garden Inn Chelsea/New York City).~~2017 acquisitions.

(2) The hotel temporarily closed on September 6, 2017 due to Hurricane Irma. The percentage change from 2016 RevPAR reflects the comparable period in 2016 to the period in which the hotel was ~~sold~~open from January 1, 2017 to September 5, 2017.

(3) The hotel was acquired on ~~June 30, 2016.~~February 28, 2017. The operating statistics reflect the period from ~~January 1, 2016~~February 28, 2017 to ~~June 29, 2016.~~

~~(3) The hotel was sold on June 8, 2016. The operating statistics reflect the period from January 1, 2016 to June 7, 2016.~~

~~(4) The hotel was sold on July 7, 2016. The operating statistics reflect the period from January 1, 2016 to July 6, 2016.~~September 30, 2017.

~~Highlights~~Update on on Impact from Natural Disasters

~~Mortgage Loan Repayments.~~Frenchman's Reef & Morning Star Marriott Beach Resort. ~~On January 11, 2016, we repaid~~The hotel sustained significant hurricane damage during September 2017. The hotel closed on September 6, 2017 and is currently expected to remain closed through the ~~$201.7 million mortgage loan secured by the Chicago Marriott Downtown. On May 11, 2016, we repaid the $48.1 million mortgage loan secured by the Courtyard Manhattan Fifth Avenue.~~end of 2018.

~~Amended Credit Facility~~The Inn at Key West. The hotel sustained substantial wind and ~~New Term Loan.~~ On May 3, 2016, we amended and restated our senior unsecured credit facility to increase the capacity to $300 million, decrease the pricing and extend the maturity date to May 2020. Also on May 3, 2016, wewater-related damage from Hurricane Irma. The hotel closed on September 6, 2017 to comply with a ~~new five-year $100 million senior unsecured term loan.~~mandatory evacuation order and is currently expected to remain closed through the end of the first quarter of 2018.

Sheraton Suites Key West. The hotel sustained minimal wind and water-related damage from Hurricane Irma. The hotel closed on September 6, 2017 to comply with a mandatory evacuation order and re-opened on September 16, 2017.

~~Hotel Dispositions.~~ Westin Fort Lauderdale Beach Resort.~~In June 2016, we sold the 485-room Orlando Airport Marriott for~~ The hotel experienced minimal water intrusion from Hurricane Irma. The hotel closed on September 7, 2017 to comply with a ~~contractual sales price of $63 million~~mandatory evacuation order and ~~the Hilton Minneapolis for a contractual sales price of $140 million. In July 2016, we sold the 169-room Hilton Garden Inn Chelsea/New York City for a contractual sales price of $65 million.~~re-opened on September 12, 2017.

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The Lodge at Sonoma Renaissance Resort & Spa. The hotel was impacted by smoke infiltration during the recent wildfires and was closed from October 10, 2017 through October 19, 2017. The smoke infiltration has been remediated and the hotel re-opened on October 20, 2017.

Results of Operations

Comparison of the Three Months Ended September 30, ~~2016~~2017 to the Three Months Ended September 30, ~~2015~~2016

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,						Three Months Ended September 30,
	2016		2015		% Change		2017		2016		% Change
Rooms	$	163.2	$	178.5	(8.6	)%	$	168.0	$	163.2	2.9	%
Food and beverage	44.0		47.3		(7.0	)%	42.7		44.0		(3.0	)%
Other	13.0		12.7		2.4	%	12.8		13.0		(1.5	)%
Total revenues	$	220.2	$	238.5	(7.7	)%	$	223.5	$	220.2	1.5	%

Our total revenues ~~decreased $18.3~~increased $3.3 million from ~~$238.5 million for the three months ended~~ ~~September 30, 2015~~ to $220.2 million for the three months ended September 30, 2016 to $223.5 million for the three months ended September 30, 2017. This ~~decrease~~increase includes amounts that are not comparable quarter-over-quarter as follows:

•~~$5.5 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.~~

•~~$14.9 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.~~

•~~$3.6 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.~~

~~Excluding these non-comparable amounts our total revenues increased $5.7 million, or 2.7%.~~

~~The following are key hotel operating statistics for the three months ended~~ ~~September 30, 2016~~ ~~and~~ ~~2015. The 2015 amounts reflect the period in 2015 comparable to our ownership period in 2016 for the Orlando Airport Marriott, Hilton Minneapolis, and Hilton Garden Inn Chelsea/New York City.~~

Three Months Ended September 30,
2016 2015 % Change
Occupancy % 84.1 % 83.5 % 0.6 percentage points
ADR $ 223.34
$ 223.35
0.0 %
RevPAR $ 187.87
$ 186.51
0.7 %

~~The increase in room revenue is a result of a 3.7% increase in group business and a 21.7% increase in the contract segment, partially offset by a 2.8% decrease in the business transient segment.~~

~~Food and beverage revenues decreased $3.3 million from the three months ended~~ ~~September 30, 2015, which includes amounts that are not comparable quarter-over-quarter as follows:~~

•~~$1.8 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.~~

•~~$5.0 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.~~

•$0.1 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.

•$5.2 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$2.0 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding these non-comparable amounts our total revenues decreased $3.8 million, or 1.7%.

The following are key hotel operating statistics for the three months ended September 30, 2017 and 2016. The 2016 amounts reflect the period in 2016 comparable to our ownership period in 2017 for the L'Auberge de Sedona and Orchards Inn Sedona and exclude the hotels sold in 2016.



	Three Months Ended September 30,
	2017			2016			% Change
Occupancy %	85.4		%	84.0		%	1.4 percentage points
ADR	$	227.75		$	224.91		1.3	%
RevPAR	$	194.42		$	188.88		2.9	%

Excluding non-comparable amounts from our acquisitions and dispositions, the increase in room revenue is a result of an 8.0% increase in the business transient segment and a 2.5% increase in the group segment, partially offset by a 32.6% decrease in the contract segment and a 5.1% decrease in the leisure transient segment.

Food and beverage revenues decreased $1.3 million from the three months ended September 30, 2016, which includes amounts that are not comparable quarter-over-quarter as follows:

•$1.7 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$0.9 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding these non-comparable amounts, food and beverage revenues ~~increased $3.6~~decreased $3.9 million, or ~~8.9%~~9.0%, primarily ~~driven by an increase~~due to a decrease in banquet ~~revenue.~~and catering revenues.

~~Other~~Excluding non-comparable amounts from our acquisitions and dispositions, other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, ~~increased~~decreased by ~~$0.3~~$0.9 million, ~~driven~~ primarily ~~by higher resort fees~~due to a decrease in tenant lease income and ~~attrition and cancellation fees.~~parking revenue.

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

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	Three Months Ended September 30,						Three Months Ended September 30,
	2016		2015		% Change (B)/W		2017		2016		% Change (B)/W
Rooms departmental expenses	$	39.8	$	42.4	(6.1	)%	$	41.9	$	39.8	5.3	%
Food and beverage departmental expenses	29.1		32.1		(9.3	)	30.8		29.1		5.8
Other departmental expenses	3.0		4.4		(31.8	)	3.1		3.0		3.3
General and administrative	17.7		18.8		(5.9	)	19.2		17.7		8.5
Utilities	6.7		7.2		(6.9	)	6.5		6.7		(3.0	)
Repairs and maintenance	8.6		9.4		(8.5	)	8.8		8.6		2.3
Sales and marketing	14.8		16.3		(9.2	)	15.2		14.8		2.7
Franchise fees	5.5		5.9		(6.8	)	6.2		5.5		12.7
Base management fees	5.4		5.9		(8.5	)	3.4		5.4		(37.0	)
Incentive management fees	2.3		1.7		35.3		2.0		2.3		(13.0	)
Property taxes	12.3		13.5		(8.9	)	13.1		12.3		6.5
Other fixed charges	2.8		3.3		(15.2	)	3.2		2.8		14.3
Hotel pre-opening costs	—		0.8		(100.0	)
Ground rent—Contractual	1.0		2.4		(58.3	)	1.0		1.0		—
Ground rent—Non-cash	1.6		1.4		14.3		1.5		1.6		(6.3	)
Total hotel operating expenses	$	150.6	$	165.5	(9.0	)%	$	155.9	$	150.6	3.5	%

Our hotel operating expenses ~~decreased $14.9~~increased $5.3 million from ~~$165.5 million for the three months ended September 30, 2015 to~~ $150.6 million for the three months ended September 30, ~~2016.~~2016 to $155.9 million for the three months ended September 30, 2017. The increase in hotel operating expenses includes amounts that are not comparable quarter-over-quarter as follows:

•$~~4.6 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.~~

•~~$10.5 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.~~

•~~$2.2~~0.1 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.

•$4.3 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$1.5 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding the non-comparable amounts, hotel operating expenses ~~increased $2.4~~decreased $0.4 million, or ~~1.6%~~0.3%, from the three months ended September 30, ~~2015.~~2016.

In connection with the change in hotel manager of the Courtyard Manhattan/Midtown East, we recognized $1.9 million of accelerated amortization of key money during the three months ended September 30, 2017. This amortization reduced base management fees during the three months ended September 30, 2017.

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~~increased $1.5 million, or ~~6.0%~~6.3%, from the three months ended September 30, ~~2015.~~2016.

Impairment losses. We recorded impairment losses totaling $2.4 million for the three months ended September 30, 2017. The loss is comprised of $1.8 million from the write-off of construction in progress that was determined not to be recoverable and $0.6 million from the write-off of property and equipment damaged during Hurricane Irma in September 2017.

Hotel acquisition costs.~~We incurred $0.5 million of hotel acquisition costs during~~ During the three months ended September 30, ~~2015.~~2017, we recorded a refund of $0.2 million of transfer taxes related to the acquisition of the Hotel Rex.

Corporate expenses. Corporate expenses principally consist of employee-related costs, including base payroll, bonus and restricted stock. Corporate expenses also include corporate operating costs, professional fees and directors’ fees. Our corporate expenses ~~decreased $1.3~~increased $1.4 million, from ~~$6.0~~$4.7 million for the three months ended September 30, 2016 to $6.1 million for the three months ended September 30, ~~2015~~2017. The increase is primarily due to ~~$4.7 million for the three months ended September 30, 2016. The decrease includes~~ the reversal of $0.7 million of previously recognized compensation expense resulting from the forfeiture of equity awards related to the resignation of our former Executive Vice President and Chief Operating ~~Officer. The remaining decrease is primarily due to lower employee-related costs~~Officer during the three months ended September 30, 2016 and ~~lower legal fees.~~an increase in other employee compensation during the three months ended September 30, 2017.

Interest expense. Our interest expense was ~~$9.5~~$9.7 million and ~~$12.9~~$9.5 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and comprises the following (in millions):

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	Three Months Ended September 30,				Three Months Ended September 30,
	2016		2015		2017		2016
Mortgage debt interest	$	8.2	$	11.9	$	6.9	$	8.2
Term loan interest	0.5		—		2.1		0.5
Credit facility interest and unused fees	0.3		0.4		0.2		0.3
Amortization of deferred financing costs and debt premium	0.5		0.5		0.5		0.5
Interest rate cap fair value adjustment	0.0		0.1
	$	9.5	$	12.9	$	9.7	$	9.5

The decrease in mortgage debt interest expense related to the repayment of the mortgage loan secured by the Lexington Hotel, which was prepaid on April 26, 2017. The increase in term loan interest expense is primarily related to ~~refinancing a portion of~~the interest expense on our ~~total debt at lower interest rates. The weighted-average interest rate for our debt decreased from 4.50% as of September 30, 2015 to 3.72% as of September 30, 2016.~~$200 million unsecured term loan entered into in April 2017.

Income taxes. We recorded income tax expense of $3.4 million for the three months ended September 30, 2017 and an income tax expense of $4.4 million for the three months ended September 30, ~~2016 and $4.2 million~~2016. The income tax expense for the three months ended September 30, ~~2015.~~2017 includes $3.4 million of income tax expense on the $8.4 million pre-tax income of our taxable REIT subsidiaries ("TRS"), $0.1 million of state franchise taxes, offset by $0.1 million of income tax benefit incurred on the $1.5 million pre-tax loss of the TRS that owns Frenchman's Reef. The income tax expense for the three months ended September 30, 2016 includes $4.3 million of income tax expense incurred on the $10.5 million pre-tax income of our ~~taxable REIT subsidiary, or~~ TRS, ~~and $0.1 million of state franchise taxes. We incurred~~ less than $0.1 million of income tax expense ~~on the TRS that owns Frenchman's Reef for the three months ended September 30, 2016. The income tax expense for the three months ended September 30, 2015 includes $4.4 million of income tax expense~~ incurred on the ~~$11.0~~$0.1 million pre-tax income ~~of our TRS, $0.4 million of foreign income tax benefit incurred on the $1.0 million pre-tax loss~~ of the TRS that owns Frenchman's Reef, and ~~$0.2~~$0.1 million of state franchise taxes.

Frenchman’s Reef is owned by a subsidiary that has elected to be treated as a TRS and is subject to U.S. Virgin Island (USVI) income taxes. We were party to a tax agreement with the USVI that reduced the income tax rate to approximately 7%. The agreement expired on February 14, 2015. The income tax expense related to the TRS that owns Frenchman’s Reef reflects the statutory rate of 37.4% from July 1, 2015 through September 30, 2015. In October 2015, we were granted a 15-year extension of the tax agreement, which is retroactive to the expiration date of the prior agreement.

Comparison of the Nine Months Ended September 30, ~~2016~~2017 to the Nine Months Ended September 30, ~~2015~~2016

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,						Nine Months Ended September 30,
	2016		2015		% Change		2017		2016		% Change
Rooms	$	498.7	$	504.7	(1.2	)%	$	483.3	$	498.7	(3.1	)%
Food and beverage	151.8		155.7		(2.5	)%	140.2		151.8		(7.6	)%
Other	39.4		36.8		7.1	%	39.5		39.4		0.3	%
Total revenues	$	689.9	$	697.2	(1.0	)%	$	663.0	$	689.9	(3.9	)%

Our total revenues decreased ~~$7.3~~$26.9 million from ~~$697.2 million for the nine months ended September 30, 2015 to~~ $689.9 million for the nine months ended September 30, ~~2016.~~2016 to $663.0 million for the nine months ended September 30, 2017. This decrease includes amounts that are not comparable period-over-period as follows:

•$~~1.3 million increase from the Shorebreak Hotel, which was purchased on February 6, 2015.~~

•~~$10.6 million increase from the Sheraton Suites Key West, which was purchased on June 30, 2015.~~

•~~$7.0~~14.1 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.

•$~~15.1~~24.8 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.

•$~~3.6~~6.4 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.

•$14.6 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$5.4 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding these non-comparable amounts our total revenues ~~increased $6.5~~decreased $1.6 million, or ~~1.0%~~0.3%.

The following are key hotel operating statistics for the nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016. The ~~2015~~2016 amounts reflect the period in ~~2015~~2016 comparable to our ownership period in ~~2016~~2017 for ~~our acquisitions of~~ the ~~Shorebreak Hotel~~L'Auberge de Sedona and Orchards Inn Sedona and exclude the ~~Sheraton Suites Key West, and our dispositions of the Orlando Airport Marriott, Hilton Minneapolis, and Hilton Garden Inn Chelsea/New York City.~~hotels sold in 2016.



	Nine Months Ended September 30,
	2017			2016			% Change
Occupancy %	81.5		%	80.9		%	0.6 percentage points
ADR	$	228.67		$	225.55		1.4	%
RevPAR	$	186.46		$	182.51		2.2	%

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Nine Months Ended September 30,
2016 2015 % Change
Occupancy % 80.7 % 81.3 % (0.6) percentage points
ADR $ 217.54
$ 216.25
0.6 %
RevPAR $ 175.58
$ 175.86
(0.2 )%

~~Room~~Excluding non-comparable amounts from our acquisitions and dispositions, the increase in room revenue ~~from contract~~is a result of a 6.2% increase in the business ~~increased 35.6%,~~transient segment and a 1.2% increase in the group segment, partially offset by ~~a 1.7% decrease in group business and a 0.4%~~an 10.9% decrease in the ~~business~~contract segment and a 2.2% decrease in the leisure transient segment.

Food and beverage revenues decreased ~~$3.9~~$11.6 million from the nine months ended September 30, ~~2015,~~2016, which includes amounts that are not comparable period-over-period as follows:

•$~~0.3 million increase from the Shorebreak Hotel, which was purchased on February 6, 2015.~~

•~~$1.1 million increase from the Sheraton Suites Key West, which was purchased on June 30, 2015.~~

•~~$2.3~~4.7 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.

•$~~5.0~~9.1 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.

•$0.1 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.

•$4.6 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$2.5 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding these non-comparable amounts, food and beverage revenues ~~increased $2.1~~decreased $4.8 million, or ~~1.4%.~~3.5%, primarily due to a decrease in banquet and catering revenues.

~~Other~~Excluding non-comparable amounts from our acquisitions and dispositions, other revenues, which primarily represent spa, parking, resort fees and attrition and cancellation fees, ~~increased~~decreased by ~~$2.6~~less than $1.0 million, ~~driven~~ primarily ~~by higher resort fees~~due to a decrease in tenant lease income and ~~attrition and cancellation fees.~~parking revenue.

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


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016		2015		% Change (B)/W		2017		2016		% Change (B)/W
Rooms departmental expenses	$	121.7	$	122.9	(1.0	)%	$	120.4	$	121.7	(1.1	)%
Food and beverage departmental expenses	97.7		103.0		(5.1	)	93.3		97.7		(4.5	)
Other departmental expenses	9.2		12.9		(28.7	)	9.2		9.2		—
General and administrative	58.0		54.9		5.6		56.7		58.0		(2.2	)
Utilities	20.0		20.9		(4.3	)	18.6		20.0		(7.0	)
Repairs and maintenance	27.1		27.4		(1.1	)	26.3		27.1		(3.0	)
Sales and marketing	47.4		48.3		(1.9	)	44.6		47.4		(5.9	)
Franchise fees	16.5		15.9		3.8		17.3		16.5		4.8
Base management fees	17.0		17.3		(1.7	)	13.7		17.0		(19.4	)
Incentive management fees	6.0		5.4		11.1		4.6		6.0		(23.3	)
Property taxes	35.2		35.3		(0.3	)	39.2		35.2		11.4
Other fixed charges	9.2		9.1		1.1		8.5		9.2		(7.6	)
Hotel pre-opening costs	—		1.3		(100.0	)
Ground rent—Contractual	5.9		7.1		(16.9	)	3.1		5.9		(47.5	)
Ground rent—Non-cash	4.2		4.3		(2.3	)	4.6		4.2		9.5
Total hotel operating expenses	$	475.1	$	486.0	(2.2	)%	$	460.1	$	475.1	(3.2	)%

Our hotel operating expenses decreased ~~$10.9~~$15.0 million from ~~$486.0 million for the nine months ended September 30, 2015 to~~ $475.1 million for the nine months ended September 30, ~~2016.~~2016 to $460.1 million for the nine months ended September 30, 2017. The decrease in hotel operating expenses includes amounts that are not comparable ~~quarter-over-quarter~~period-over-period as follows:

•$~~1.0 million increase from the Shorebreak Hotel, which was purchased on February 6, 2015.~~

•~~$5.5 million increase from the Sheraton Suites Key West, which was purchased on June 30, 2015.~~

•~~$5.8~~9.1 million decrease from the Orlando Airport Marriott, which was sold on June 8, 2016.

•$~~10.6~~19.4 million decrease from the Minneapolis Hilton, which was sold on June 30, 2016.

•$~~2.2~~4.8 million decrease from the Hilton Garden Inn Chelsea/New York City, which was sold on July 7, 2016.

•$10.8 million increase from the L'Auberge de Sedona, which was acquired on February 28, 2017.

•$3.6 million increase from the Orchards Inn Sedona, which was acquired on February 28, 2017.

Excluding the non-comparable amounts, hotel operating expenses increased $3.9 million, or 0.9%, from the nine months ended September 30, 2016.

The decrease in contractual ground rent period-over-period is due to the sale of the Hilton Minneapolis, which was sold on June 30, 2016. The increase in property taxes is primarily due to successful appeals for our two Chicago hotels during the nine

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~~Excluding the non-comparable amounts, hotel operating expenses~~months ended September 30, 2016, as well as increased ~~$1.2 million, or 0.3%, from~~assessments at our two Chicago hotels and our three Colorado hotels during the nine months ended September 30, ~~2015.~~2017.

In connection with the change in hotel manager of the Courtyard Manhattan/Midtown East, we recognized $1.9 million of accelerated amortization of key money during the nine months ended September 30, 2017. This amortization reduced base management fees during the nine months ended September 30, 2017.

The decrease in incentive management fees is primarily due to our contribution to the renovation at the Chicago Marriott Downtown. There is no owner's priority; however, our accumulated contribution to the hotel's renovation is treated as a deduction spread over a period of time in calculating net operating income. As our accumulated contribution has increased, the incentive management fees have decreased.

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 increased $1.3 million, or ~~1.7%~~1.8%, from the nine months ended September 30, ~~2015.~~2016.

Impairment losses. ~~During~~We recorded impairment losses totaling $2.4 million for the nine months ended September 30, ~~2015, we recorded impairment losses~~2017. The loss is comprised of ~~$0.8~~$1.8 million onfrom the ~~favorable lease asset related~~write-off of construction in progress that was determined not to ~~a tenant lease at~~be recoverable and $0.6 million from the ~~Lexington Hotel New York~~write-off of property and ~~$9.7 million on the option to acquire a leasehold interest~~equipment damaged during Hurricane Irma in ~~a parcel of land adjacent to the Westin Boston Waterfront Hotel for the development of a new hotel.~~September 2017.

Hotel acquisition costs. We ~~incurred $0.9~~recorded $2.0 million of hotel acquisition ~~costs~~expenses during the nine months ended September 30, ~~2015 associated with~~2017, which is comprised of $2.2 million of costs incurred from the acquisitions of ~~the Shorebreak Hotel~~L'Auberge de Sedona and ~~the Sheraton Suites Key West and additional~~Orchards Inn Sedona, offset by a refund of $0.2 million of transfer taxes ~~on another acquired hotel.~~related to the acquisition of the Hotel Rex.

Corporate expenses. Corporate expenses principally consist of employee-related costs, including base payroll, bonus and restricted stock. Corporate expenses also include corporate operating costs, professional fees and directors’ fees. Our corporate expenses ~~decreased $0.4~~increased $1.8 million, from ~~$17.8 million for the nine months ended September 30, 2015 to~~ $17.4 million for the nine months ended September 30, ~~2016.~~2016 to $19.2 million for the nine months ended September 30, 2017. The ~~decrease includes~~increase is partially due to the fee paid for the recruitment of our new Executive Vice President and Chief Operating Officer in January 2017, the reversal of $0.7 million of previously recognized compensation expense resulting from the forfeiture of equity awards related to the resignation of our former Executive Vice President and Chief Operating Officer ~~primarily offset by higher~~during the three months ended September 30, 2016, and an increase in other ~~employee-related costs.~~employee compensation during the nine months ended September 30, 2017.

Interest expense. Our interest expense was ~~$32.2~~$28.8 million and ~~$39.0~~$32.2 million for the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and comprises the following (in millions):


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2017		2016
Mortgage debt interest	$	28.5	$	36.2	$	22.4	$	28.5
Term loan interest	0.8		—		4.2		0.8
Credit facility interest and unused fees	1.1		0.8		0.7		1.1
Amortization of deferred financing costs and debt premium	1.7		1.5		1.5		1.7
Interest rate cap fair value adjustment	0.1		0.5		—		0.1
	$	32.2	$	39.0	$	28.8	$	32.2

The decrease in mortgage debt interest expense is primarily related to ~~refinancing~~the repayment of the mortgage loans secured by the Chicago Marriott Downtown, the Courtyard Manhattan Fifth Avenue, and the Lexington Hotel. The decrease is also attributed to the sale of the Hilton Minneapolis on June 30, 2016. The decrease in interest expense is partially offset by the increase in interest expense on our two unsecured term loans, entered into in May 2016 and April 2017.

Loss on early extinguishment of debt. We prepaid the $170.4 million mortgage loan previously secured by the Lexington Hotel on April 26, 2017 and recognized a ~~portion~~loss on early extinguishment of ~~our total~~ debt ~~at lower interest rates. The weighted-average interest rate for our debt decreased from 4.50% as~~ of ~~September 30, 2015 to 3.72% as of September 30, 2016.~~approximately $0.3 million.

Income taxes. We recorded income tax expense of $9.0 million for the nine months ended September 30, 2017 and an income tax expense of $11.4 million for the nine months ended September 30, ~~2016 and $8.6 million~~2016. The income tax expense for the nine months ended September 30, ~~2015.~~2017 includes $8.4 million of income tax expense on the $20.7 million pre-tax income of our TRSs, $0.2 million

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of state franchise taxes, and $0.4 million of income tax expense incurred on the $6.3 million pre-tax income of the TRS that owns Frenchman's Reef. The income tax expense for the nine months ended September 30, 2016 includes $10.6 million of income tax expense incurred on the $25.8 million pre-tax income of our ~~taxable REIT subsidiary, or~~ TRS, $0.6 million of foreign income tax expense incurred on the $8.1 million pre-tax income of the TRS that owns Frenchman's Reef, and $0.2 million of state franchise taxes. The income tax expense for the nine months ended September 30, 2015 includes $6.8 million of income tax expense on the $16.7 million pre-tax income of our TRS, $1.5 million of foreign income tax expense incurred on the $6.0 million pre-tax income of the TRS that owns Frenchman's Reef and $0.3 million of state franchise taxes.

Frenchman’s Reef is owned by a subsidiary that has elected to be treated as a TRS and is subject to U.S. Virgin Island (USVI) income taxes. We were party to a tax agreement with the USVI that reduced the income tax rate to approximately 7%. The agreement expired on February 14, 2015. The income tax expense related to the TRS that owns Frenchman’s Reef reflects the statutory rate of 37.4% from February 15, 2015 through September 30, 2015. In October 2015, we were granted a 15-year extension of the tax agreement, which is retroactive to the expiration date of the prior agreement.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to fund distributions to our stockholders to maintain our REIT status as well as to pay for operating expenses and capital expenditures directly associated with our hotels,

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funding of share repurchases under our share repurchase program, debt repayments upon maturity and scheduled debt payments of interest and principal. We currently expect that our available cash flows, which are generally provided through net cash from hotel operations, existing cash balances, equity issuances, proceeds from new financings and refinancings of maturing debt, proceeds from property dispositions, and, if necessary, short-term borrowings under 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 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. ~~During the quarter ended September 30, 2016, the cash trap provision was triggered on the mortgage loan secured by the Lexington Hotel New York.~~

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 and making distributions to our 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 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 us.

Our Financing Strategy

Since our formation in 2004, we have been committed to a conservative capital structure with prudent leverage. The majority of our outstanding debt is fixed interest rate mortgage debt. 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 not prudent to increase the inherent risk of highly cyclical lodging fundamentals through the use of a highly leveraged capital structure.

We prefer a relatively simple but efficient capital structure. We have not invested in joint ventures and have not issued any operating partnership units or preferred stock. We structure our hotel acquisitions to be straightforward and to fit within our capital structure; however, we will consider a more complex transaction 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, ~~2016,~~2017, we had ~~$923.0~~$940.8 million of debt outstanding with a weighted average interest rate of ~~3.72%~~3.8% and a weighted average maturity date of approximately ~~5.7~~5.9 years. We maintain one of the most durable and lowest levered balance sheets among our lodging REIT peers. We maintain balance sheet flexibility with ~~limited~~no near-term debt maturities, ~~capacity~~no borrowings outstanding under our senior unsecured credit facility and 1720 of our 2628 hotels unencumbered by mortgage debt. We remain committed to our core strategy of maintaining a simple capital structure with conservative leverage.

Information about our financing activities is available in Note 8 to the accompanying condensed consolidated financial statements.

Share Repurchase Program

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Our board of directors has approved a $150 million share repurchase program ~~in November 2015~~ authorizing us to repurchase ~~up to $150 million in~~ shares of our common stock. Information about our share repurchase program is found in Note 5 to the accompanying condensed consolidated financial statements. ~~As of~~During the nine months ended September 30, ~~2016,~~2017, we ~~had repurchased 92,600~~did not repurchase any shares of our common stock at an average price of $8.90 per share for a total purchase price of $0.8 million. Subsequent to September 30, 2016 and through November 8, 2016, we repurchased an additional 516,162 shares of our common stock at average price of $8.92 per share for a total purchase price of $4.6 million. We retired all repurchased shares on their respective settlement dates.stock. As of November ~~8, 2016,~~7, 2017, we have ~~$144.6~~$143.5 million of authorized capacity remaining under our share repurchase program.

Short-Term Borrowings

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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

We are party to a $300 million senior unsecured credit facility expiring in May 2020. Information about our senior unsecured credit facility is found in Note 8 to the accompanying condensed consolidated financial statements. As of September 30, ~~2016,~~2017, we had no borrowings outstanding under our senior unsecured credit facility.

~~Senior~~ Unsecured Term ~~Loan~~Loans

We are party to a $100 million ~~senior~~ unsecured term loan expiring in May ~~2021.~~2021 and a $200 million unsecured term loan expiring in April 2022. Information about our ~~senior~~ unsecured term ~~loan~~loans is found in Note 8 to the accompanying condensed consolidated financial statements.

Sources and Uses of Cash

Our principal sources of cash are net cash flow from hotel operations and borrowings under mortgage debt, term loans, our senior unsecured credit facility, proceeds from hotel dispositions, and proceeds from ~~hotel dispositions.~~insurance claims. Our principal uses of cash are acquisitions of hotel properties, debt service, debt maturities, capital expenditures, operating costs, corporate expenses, natural disaster remediation and repair costs, and dividends. As of September 30, ~~2016~~2017, we had $~~236.0~~166.6 million of unrestricted corporate cash and $~~47.7~~42.3 million of restricted cash, as well as full borrowing capacity under our senior unsecured credit facility.

Our net cash provided by operations was $~~152.5~~149.4 million for the nine months ended September 30, ~~2016~~2017. 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~~used in investing activities was $~~107.9~~168.9 million for the nine months ended September 30, ~~2016~~2017, which consisted of ~~$183.5~~$93.8 million paid for the acquisitions of ~~net proceeds from the sale of the Orlando Airport Marriott, Hilton Minneapolis~~L'Auberge de Sedona and ~~Hilton Garden~~Orchards Inn ~~Chelsea/New York City, the net return of $3.1 million from lender reserves, offset by~~Sedona, capital expenditures at our hotels of $~~78.7~~77.5 million., offset by the net return of $2.4 million from property improvement reserves included within restricted cash to fund capital expenditures.

Our net cash used in financing activities was $~~238.1~~57.0 million for the nine months ended September 30, ~~2016~~2017, which consisted of our ~~$249.8~~$170.4 million repayment of the mortgage debt secured by the ~~Chicago Marriott and Courtyard Manhattan Fifth Avenue, $75.6~~Lexington Hotel, $75.5 million of dividend payments, ~~$1.5~~$9.1 million of scheduled mortgage debt principal payments, $0.5 million paid to repurchase shares ~~under our share repurchase program and~~ upon the vesting of restricted stock for the payment of tax withholding obligations, ~~$2.8~~and $1.6 million of financing costs related to our ~~senior~~ unsecured ~~credit facility and~~ term loan, ~~and $8.4 million of scheduled mortgage debt principal payments,~~ partially offset by ~~$100.0~~$200.0 million of proceeds from our ~~senior~~new unsecured term loan.

We currently anticipate our significant ~~source~~sources of cash for the remainder of the year ending December 31, ~~2016~~2017 will be the net cash flow from hotel ~~operations.~~operations and potential insurance proceeds. We expect our ~~estimated~~ uses of cash for the remainder of the year ending December 31, ~~2016~~2017 will be ~~potential share repurchases,~~ regularly scheduled debt service payments, capital expenditures, remediation and repair costs, dividends, corporate expenses, potential hotel acquisitions, and ~~corporate expenses.~~potential share repurchases.

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

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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,

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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.

We have paid the following dividends to holders of our common stock during ~~2016:~~2017:

Payment Date Record Date
Dividend
per Share
January 12, 2016 December 31, 2015 $ 0.125
April 12, 2016 March 31, 2016 $ 0.125
July 12, 2016 June 30, 2016 $ 0.125
October 12, 2016 September 30, 2016 $ 0.125



Payment Date	Record Date	Dividend per Share
January 12, 2017	December 30, 2016	$	0.125
April 12, 2017	March 31, 2017	$	0.125
July 12, 2017	June 30, 2017	$	0.125
October 12, 2017	September 30, 2017	$	0.125

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, ~~2016~~2017, we have set aside ~~$39.8~~$36.5 million for capital projects in property improvement funds, which are included in restricted cash.

We spent approximately ~~$78.7~~$77.5 million on capital improvements during the nine months ~~ending~~ended September 30, ~~2016,~~2017, primarily related to the ~~second~~third phase of the Chicago Marriott Downtown renovation ~~the first phase of the renovation of The Gwen~~ and the guest room renovations at the Gwen Chicago, Worthington Renaissance, ~~guest room renovation.~~Charleston Renaissance, and The Lodge at Sonoma. We expect to spend ~~approximately $130~~between $110 million and $120 million on capital improvements at our hotels in ~~2016.~~2017. Significant projects in ~~2016~~2017 include:

~~The Gwen, a Luxury Collection Hotel:~~ We rebranded the Conrad Chicago to Marriott's Luxury Collection brand on September 1, 2015. The renovation work associated with the brand conversion will be completed in two phases. The first phase, consisting of the lobby, rooftop bar and other public spaces, commenced in January and was completed in May 2016. The second phase of the renovation, consisting of the guest rooms, will be completed during the seasonally slow winter season beginning in late 2016.

Chicago Marriott Downtown: ~~The second and largest~~We completed the third phase of the multi-year renovation, ~~was completed early in the second quarter of 2016. This phase~~which included the upgrade renovation of ~~approximately 460~~340 guest rooms. We expect to commence the final phase of the multi-year renovation, which will include renovating the remaining 258 of 1,200 guest rooms ~~as well as construction of a new state-of-the-art fitness center. The remaining guest rooms are expected to be renovated~~ during ~~the seasonally slow winter months over the next two years.~~late 2017 with completion in early 2018.

The ~~Lodge at Sonoma:~~ Gwen:We ~~expect to renovate~~completed the renovation of the hotel's 311 guest rooms ~~at the hotel during the seasonally slow period during late 2016 and early 2017.~~

~~Charleston Renaissance:~~ ~~We expect to renovate the guest rooms at the hotel during the seasonally slow period from the end of the year through early~~in April 2017.

Worthington Renaissance: We ~~have commenced~~completed the renovation of the hotel's 504 guest ~~room~~rooms in January 2017.

Charleston Renaissance: We completed the renovation of the hotel's 166 guest rooms in February 2017.

The Lodge at Sonoma:We completed the ~~hotel and expect to complete~~renovation of the ~~project at the end of 2016.~~hotel's 182 guest rooms in April 2017.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Non-GAAP Financial Measures

We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, 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, 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

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Our management and Board of Directors use EBITDA, 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

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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 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 GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding 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 and FFO

EBITDA represents net income excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it helps 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) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("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 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 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 EBITDA and FFO

We adjust EBITDA 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, EBITDA and FFO, is beneficial to an investor's complete understanding of our consolidated operating performance. We adjust EBITDA and FFO for the following items:

Non-Cash Ground Rent: We exclude the non-cash expense incurred from the straight line recognition of rent from our ground lease obligations and the non-cash amortization of our favorable lease assets. We exclude these non-cash items because they do not reflect the actual rent amounts due to the respective lessors in the current period and they are of lesser significance in evaluating our actual performance for that period.

Non-Cash Amortization of Favorable and Unfavorable Contracts: We exclude the non-cash amortization of the favorable and unfavorable contracts recorded in conjunction with certain acquisitions because the non-cash amortization is based on historical cost accounting and is of lesser significance in evaluating our actual performance for that period.

Cumulative Effect of a Change in Accounting Principle: Infrequently, the Financial Accounting Standards Board (FASB) promulgates new accounting standards that require 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.

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Severance Costs: We exclude corporate severance costs 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 Costs: We exclude the ~~one-time~~ transition costs associated with a change in hotel manager because we believe these costs do not reflect the ongoing performance of the Company or our hotels. During the nine months ended September 30, 2015, we excluded the transition costs associated with the change of hotel managers in connection with the acquisition of the Westin Fort Lauderdale and the Shorebreak Hotel.

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; bargain purchase gains incurred upon acquisition of a hotel; costs incurred related to natural disasters;

and gains from insurance proceeds.

In addition, to derive Adjusted EBITDA we exclude gains or losses on dispositions and impairment losses because we believe that including them in EBITDA does not reflect the ongoing performance of our hotels. Additionally, the gain or loss on dispositions and impairment losses are based on historical cost accounting and represent either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to debt instruments. We exclude these non-cash amounts because they do not reflect the underlying performance of the Company. Specifically, we exclude the impact of the non-cash amortization of the debt premium recorded in conjunction with the acquisition of the JW Marriott Denver at Cherry Creek and fair market value adjustments to the Company's interest rate cap agreement.

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


	Three Months Ended September 30,							Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015				2016			2015			2017			2016			2017			2016

Net income	$	29,937				$	24,464				$	90,890			$	59,928	$	21,623		$	29,937		$	67,105		$	90,890
Interest expense	9,504			12,907				32,242			38,963			9,692			9,504			28,790			32,242
Income tax expense	4,393			4,171				11,357			8,576			3,375			4,393			9,019			11,357
Real estate related depreciation and amortization	23,605			25,107				73,731			75,018			25,083			23,605			75,031			73,731
EBITDA	67,439			66,649				208,220			182,485			59,773			67,439			179,945			208,220
Non-cash ground rent	1,568			1,467				4,230			4,454			1,591			1,568			4,756			4,230
Non-cash amortization of favorable and unfavorable contracts, net	(478		)	(407		)		(1,434		)	(1,134		)	(478		)	(478		)	(1,434		)	(1,434		)
Hotel acquisition costs (1)														(245		)	—			2,028			—
Natural disaster costs														1,493			—			1,493			—
Impairment losses														2,357			—			2,357			—
Hotel manager transition costs (2)														(1,362		)	—			(1,362		)	—
Loss on early extinguishment of debt														—			—			274			—
Gain on sale of hotel properties	(2,198		)	—				(10,319		)	—			—			(2,198		)	—			(10,319		)
Hotel acquisition costs	—			453				—			945
Hotel manager transition and pre-opening costs (1)	—			754				—			1,287
Impairment losses	—			—				—			10,461
Severance costs (2)	(682		)	428				(563		)	428
Severance costs (3)														—			(682		)	—			(563		)
Adjusted EBITDA	$	65,649		$	69,344			$	200,134		$	198,926		$	63,129		$	65,649		$	188,057		$	200,134

____________________

(1) ~~Classified within other~~During the three months ended September 30, 2017, we recorded a refund of $0.2 million of transfer taxes originally paid to the City and County of San Francisco in connection with our acquisition of the Hotel Rex.

(2) Includes items related to the hotel ~~expenses on~~manager change at the ~~condensed consolidated statements~~Courtyard Manhattan/Midtown East during the the three months ended September 30, 2017, as follows: (a) employee severance costs of ~~operations.~~approximately $0.4 million, (b) transition costs of approximately $0.1 million offset by (c) $1.9 million of accelerated amortization of key money received from Marriott.

~~(2)~~ (3) Classified within corporate ~~expenses~~expense on the condensed consolidated statements of operations. During the three months ended September 30, 2016, we reversed $0.7 million of previously recognized compensation expense for forfeited equity awards related to the resignation of our former Executive Vice President and Chief Operating Officer.

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

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	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,								Nine Months Ended September 30,
	2016			2015			2016			2015			2017				2016				2017				2016

Net income	$	29,937			$	24,464		$	90,890			$	59,928		$	21,623			$	29,937			$	67,105			$	90,890
Real estate related depreciation and amortization	23,605			25,107			73,731			75,018			25,083				23,605				75,031				73,731
Impairment losses	—			—			—			10,461			2,357				—				2,357				—
Gain on sale of hotel properties, net of income tax	(1,877		)	—			(8,887		)	—			—				(1,877		)		—				(8,887		)
FFO	51,665			49,571			155,734			145,407			49,063				51,665				144,493				155,734
Non-cash ground rent	1,568			1,467			4,230			4,454			1,591				1,568				4,756				4,230
Non-cash amortization of favorable and unfavorable contracts, net	(478		)	(407		)	(1,434		)	(1,134		)	(478		)		(478		)		(1,434		)		(1,434		)
Hotel acquisition costs(1)	—			453			—			945			(245		)		—				2,028				—
Hotel manager transition and pre-opening costs (1)	—			754			—			1,287
Severance costs (2)	(682		)	428			(563		)	428
Natural disaster costs													1,493				—				1,493				—
Hotel manager transition costs (2)													(1,362		)		—				(1,362		)		—
Loss on early extinguishment of debt													—				—				274				—
Severance costs (3)													—				(682		)		—				(563		)
Fair value adjustments to debt instruments	—			49			19			115			—				—				—				19
Adjusted FFO	$	52,073		$	52,315		$	157,986		$	151,502		$	50,062			$	52,073			$	150,248			$	157,986

____________________

Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which 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 that 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 from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances. 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, ~~2015.~~2016.

Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.

Seasonality

The operations of hotels historically have been seasonal depending on location, and 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.

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New Accounting Pronouncements Not Yet Implemented

See Note 2 to the accompanying condensed consolidated financial statements for additional information relating to recently issued accounting pronouncements.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business strategies, the primary

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market risk to which we are currently exposed, and, to which we expect to be exposed in the future, is interest rate risk. The face amount of our outstanding debt as of September 30, ~~2016~~2017 was ~~$930.0~~$947.8 million, of which ~~$270.4~~$300 million was variable rate. If market rates of interest on our variable rate debt fluctuate by 25 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by ~~$0.7~~$0.8 million annually.


Item 4.	Controls and Procedures

The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, and has concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to give reasonable assurances that information we disclose in reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during the Company’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION


Item 1.	Legal Proceedings


Item 1A.	Risk Factors

There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2015 and its subsequent Quarterly Reports on Form 10-Q.~~2016, except as updated below.

Recent natural disasters have significantly damaged the communities surrounding certain of our hotels, and the prolonged impact of the natural disasters on those communities may adversely affect our results of operations.

Hurricane Irma, Hurricane Maria and the recent wildfires in California affected certain of our hotels located in the U.S. Virgin Islands, Key West, Florida and Sonoma, California. Although these hotels have re-opened or are currently undergoing repairs, the communities surrounding these hotels sustained significant damage. We cannot know when or how well these communities will be rebuilt and restored. The damage in these communities may lead to a prolonged decline in local tourism, a delay in rebuilding local infrastructure, the flight of available employees to rebuild or service our hotels, and/or an increase in the cost of materials or insurance at our hotels. The occurrence of any of these or other effects could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.


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

Issuer Purchases of Equity Securities

Period
(a)
Total Number of Shares Purchased ⁽¹⁾

(b)
Average Price Paid per Share

(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d)
Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) ^{(2) (3)}
July 1 - July 31, 2016 — $ —
— $ 150,000
August 1 - August 31, 2016 — $ —
— $ 150,000
September 1 - September 30, 2016 92,600 $ 8.90
92,600 $ 149,176



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) ⁽¹⁾
July 1 - July 31, 2017	—	$	—	—	$	143,503
August 1 - August 31, 2017	—	$	—	—	$	143,503
September 1 - September 30, 2017	—	$	—	—	$	143,503

____________________


(1)	~~Reflects shares purchased under the Company's $150 million share repurchase program, which was originally announced on November 5, 2015.~~

~~(2)~~

Represents amounts available under the Company's $150 million share repurchase program. To facilitate repurchases, we make purchases pursuant to a trading plan under Rule 10b5-1 of the Exchange Act, which allows us to repurchase shares during periods when we otherwise may be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. The share repurchase program may be suspended or terminated at any time without prior notice.

~~(3)~~

Since September 30, 2016, we have continued to repurchase shares of our common stock pursuant to our $150 million share repurchase program, which was originally announced on November 5, 2015. Between October 1, 2016 and November 8, 2016, we repurchased an additional 516,162 shares of our common stock at an average price of $8.92 per share for a total purchase price of $4.6 million. We retired all repurchased shares on their respective settlement dates. As of November 8, 2016, we have $144.6 million of authorized capacity remaining under our share repurchase program.


Item 3.	Defaults Upon Senior Securities

Not applicable.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

~~None.~~The following disclosure would have otherwise been filed in a Current Report on Form 8-K under the heading “Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year:”

On November 2, 2017, the Board of Directors of the Company adopted an amendment to the Company’s Fourth Amended and Restated Bylaws (the “Bylaws”) as further described below in connection with its regular review of the Company’s corporate governance structure.

Proxy Access Right

The amendment adopts a proxy access provision to permit a stockholder, or group of no more than 20 stockholders, meeting specified eligibility requirements, to include director nominees in the Company’s proxy materials for annual meetings of its stockholders. In order to be eligible to utilize these proxy access provisions, a stockholder, or group of stockholders, must, among

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other requirements, have owned shares of common stock equal to at least 3% of the aggregate of the issued and outstanding shares of common stock of the Company continuously for at least the prior three years. Additionally, all director nominees submitted through these provisions must be independent and meet specified additional criteria. The maximum number of director nominees that may be submitted pursuant to these provisions may not exceed the greater of two or 20% of the number of directors then in office.

Exclusive Forum

The amendment designates the Circuit Court for Baltimore City, Maryland (or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division) as the sole and exclusive forum for derivative claims brought on behalf of the Company, claims against any director, officer or other employee of the Company alleging a breach of duty owed to the Company or its stockholders, claims against the Company or any director, officer or other employee of the Company arising pursuant to any provision of the Maryland General Corporation Law or the Company’s charter or Bylaws, claims against the Company or any director, officer or other employee of the Company governed by the internal affairs doctrine, and any other claims brought by or on behalf of any stockholder of record or any beneficial owner of the Company’s stock (either on his, her or its own behalf or on behalf of any series or class of shares of stock of the Company or any group of stockholders of the Company) against the Company or any director, officer or other employee of the Company, unless the Company consents to an alternative forum.

The foregoing summary of the amendment to the Bylaws is qualified in its entirety by the full text of the amendment to the Bylaws, a copy of which is filed as Exhibit 3.2.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

The following disclosure would have otherwise been filed in a Current Report on Form 8-K under the heading “Item 8.01. Other Events:”

On November 2, 2017, the Board of Directors of the Company adopted an amendment to its Insider Trading Procedures to prohibit Company directors, officers and employees from pledging any Company securities as collateral for a loan.

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Item 6.	Exhibits


(a)	Exhibits

The following exhibits are filed as part of this Form 10-Q:



Exhibit
~~3.1.1~~	3.1*	~~Articles of Amendment and Restatement of the Articles of Incorporation of DiamondRock Hospitality Company (incorporated by reference to the Registrant’s Registration Statement on Form S-11 filed with the Securities and Exchange Commission (File No. 333-123065)~~)

~~3.1.2~~		First Amendment to ~~the Articles of Amendment and Restatement of the Articles of Incorporation of DiamondRock Hospitality Company (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 10, 2007~~)

~~3.1.3~~		~~Amendment to the Articles of Amendment and Restatement of the Articles of Incorporation of DiamondRock Hospitality Company (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 9, 2012~~)

~~3.1.4~~		~~Articles Supplementary of DiamondRock Hospitality Company (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 26, 2014~~)

~~3.1.5~~		~~Amendment to the Articles of Amendment and Restatement of the Articles of Incorporation of DiamondRock Hospitality Company (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2016~~)

~~3.2.1~~		Fourth Amended and Restated Bylaws of DiamondRock Hospitality Company (~~incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2016~~)

~~4.1~~		~~Form of Certificate for Common Stock for DiamondRock Hospitality Company (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 5, 2010~~)

31.1*		Certification of Chief Executive Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

31.2*		Certification of Chief Financial Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

32.1*		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Attached as Exhibit 101 to this report are the following materials from DiamondRock Hospitality Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2016~~2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the related notes to these condensed consolidated financial statements.
* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DiamondRock Hospitality Company

November ~~9, 2016~~7, 2017

/s/ Sean M. Mahoney

Sean M. Mahoney

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

/s/ Briony R. Quinn

Briony R. Quinn

Chief Accounting Officer and Corporate Controller

(Principal Accounting Officer)

- ~~33-~~35-



Period	(a) Total Number of Shares Purchased ⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) ^{(2) (3)}
July 1 - July 31, 2016	—	$	—	—	$	150,000
August 1 - August 31, 2016	—	$	—	—	$	150,000
September 1 - September 30, 2016	92,600	$	8.90	92,600	$	149,176

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Emerging growth company o

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