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DIAMONDROCK HOSPITALITY CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and includes this statement for purposes of complying with these
safe harbor provisions. These forward-looking statements are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions, whether in the negative or
affirmative. Forward-looking statements are based on management's current
expectations and assumptions and are not guarantees of future performance.
Factors that may cause actual results to differ materially from current
expectations include, but are not limited to, the risks discussed herein and the
risk factors discussed from time to time in our periodic filings with the
Securities and Exchange Commission, including in Part I, Item 1A "Risk Factors"
of our Annual Report on Form 10-K for the year ended December 31, 2021 as
updated by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Accordingly, there is no assurance that the Company's expectations will be
realized. Except as otherwise required by the federal securities laws, the
Company disclaims any obligations or undertaking to publicly release any updates
or revisions to any forward-looking statement contained in this report to
reflect events, circumstances or changes in expectations after the date of this
report.

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

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

Overview

DiamondRock Hospitality Company is an establishment focused on lodging Maryland corporation acting as a real estate investment trust (“REIT”). From March 31, 2022we had a portfolio of 33 premium hotels and resorts containing 9,454 rooms located in 23 different markets in North America.

As an owner, rather than an operator, of lodging properties, we receive all of
the operating profits or losses generated by our hotels after the payment of
fees due to hotel managers and hotel brands, which are calculated based on the
revenues and profitability of each hotel.
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Our strategy is to apply aggressive asset management, prudent financial
strategy, and disciplined capital allocation to high quality lodging properties
in North American urban and resort markets with superior growth prospects and
high barriers-to-entry. Our goal is to deliver long-term stockholder returns
that exceed those generated by our peers through a combination of dividends and
enduring capital appreciation.

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

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

Key financial position and operational performance indicators

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

•Percentage of occupancy;

•Average daily rate (or ADR);

• Income by Room available (or RevPAR);

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

•Funds From Operations (or FFO) and Adjusted FFO.

Occupancy, ADR and RevPAR are commonly used measures within the hotel industry
to evaluate operating performance. RevPAR, which is calculated as the product of
ADR and occupancy percentage, is an important statistic for monitoring operating
performance at the individual hotel level and across our business as a whole. We
evaluate individual hotel RevPAR performance on an absolute basis with
comparisons to budget and prior periods, as well as on a company-wide and
regional basis. ADR and RevPAR include only room revenue. Room revenue comprised
approximately 67% of our total revenues for the three months ended March 31,
2022 and is dictated by demand, as measured by occupancy percentage, pricing, as
measured by ADR, and our available supply of hotel rooms.

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

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

Covid-19 pandemic

The novel coronavirus (COVID-19) has had and continues to have a significant
effect on our industry in general and our business in particular. The demand for
lodging materially decreased beginning in March 2020 and remains at historically
low
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levels. Three of our hotels suspended operations for a period of time during the
three months ended March 31, 2021. All of our hotels were open during the three
months ended March 31, 2022. The comparability of our results of operations for
the three months ended March 31, 2022 to the three months ended March 31, 2021
has been impacted by the effects of the pandemic.

COVID-19 case counts increased early in the first quarter of 2022 following the
emergence of the Omicron variant, but quickly decreased during the latter half
of the quarter. Demand at our leisure-focused hotels improved in 2021 and 2022
to date. Demand at our other hotels remains at historically low levels. The
COVID-19 pandemic has had a significant negative impact on our operations and
financial results and is expected to continue to have a negative impact on our
results of operations, financial position and cash flows for the remainder of
2022. Our portfolio's operating results have improved during the three months
ended March 31, 2022 relative to the three months ended March 31, 2021.

As the recovery continues, we expect that the pace will vary from market to
market and may be uneven in nature. Although there are signs of a a robust
recovery in business travel in 2022 to date relative to 2021, there remains
significant uncertainty regarding the future pace of recovery and whether and
when business travel and larger group meetings will return to pre-pandemic
levels. The emergence of new variant strains of COVID-19 has the potential to
slow or reverse positive trends expected in 2022 and beyond.

Our hotels

The following tables present certain operating information for the three months ended March 31, 2022 for each of our hotels held during the period.

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                                                                                                                                                                         % Change
                                                                                  Number of                                                                              from 2021
Property                                              Location                      Rooms             Occupancy (%)             ADR ($)            RevPAR ($)            RevPAR(1)
Chicago Marriott Downtown
Magnificent Mile (2)                       Chicago, Illinois                      1,200                         27.4  %       $  168.57          $     46.13                      N/A
Westin Boston Seaport District             Boston, Massachusetts                    793                         53.7  %          194.05               104.27                 482.3  %
Salt Lake City Marriott Downtown at
City Creek                                 Salt Lake City, Utah                     510                         49.0  %          176.07                86.21                 161.2  %
Worthington Renaissance Fort Worth
Hotel                                      Fort Worth, Texas                        504                         64.3  %          194.19               124.90                 162.7  %
Westin San Diego Bayview                   San Diego, California                    436                         53.0  %          175.00                92.81                 198.8  %

Westin Fort Lauderdale Beach Resort Fort Lauderdale, Florida

        433                         87.7  %          336.96               295.38                 106.9  %
Westin Washington, D.C. City Center        Washington, D.C.                         410                         35.2  %          175.98                62.02                 368.8  %
Hilton Boston Downtown/Faneuil Hall        Boston, Massachusetts                    403                         63.0  %          174.41               109.95                 386.4  %
The Hythe Vail                             Vail, Colorado                           344                         67.0  %          663.43               444.73                  61.9  %
Courtyard New York Manhattan/Midtown
East                                       New York, New York                       321                         63.6  %          199.77               127.03                  50.3  %
Atlanta Marriott Alpharetta                Atlanta, Georgia                         318                         41.6  %          141.87                59.03                 173.1  %
The Gwen Hotel                             Chicago, Illinois                        311                         58.2  %          213.18               124.11                 176.8  %
Hilton Garden Inn New York/Times
Square Central (2)                         New York, New York                       282                         77.8  %          162.46               126.40                      N/A
Embassy Suites by Hilton Bethesda          Bethesda, Maryland                       272                         26.4  %          113.40                29.97                  53.8  %
Hilton Burlington Lake Champlain           Burlington, Vermont                      258                         58.6  %          157.63                92.30                 145.3  %
Hotel Palomar Phoenix                      Phoenix, Arizona                         242                         76.8  %          247.83               190.39                 158.6  %
Bourbon Orleans Hotel                      New Orleans, Louisiana                   220                         49.6  %          244.94               121.61                      N/A
Henderson Beach Resort                     Destin, Florida                          216                         44.3  %          411.26               182.13                  22.1  %
Hotel Clio                                 Denver, Colorado                         199                         62.4  %          258.96               161.68                 104.3  %
Courtyard New York Manhattan/Fifth
Avenue (2)                                 New York, New York                       189                         82.9  %          161.28               133.69                      N/A
Margaritaville Beach House Key West        Key West, Florida                        186                         92.0  %          579.43               532.94                  84.5  %
The Lodge at Sonoma Resort                 Sonoma, California                       182                         48.0  %          367.07               176.30                 194.7  %
Courtyard Denver Downtown                  Denver, Colorado                         177                         60.0  %          151.12                90.65                 169.8  %
Renaissance Charleston Historic
District Hotel                             Charleston, South Carolina               167                         80.3  %          311.69               250.35                 105.0  %
Kimpton Shorebreak Resort                  Huntington Beach, California             157                         71.8  %          297.03               213.36                 114.0  %
Cavallo Point, The Lodge at the
Golden Gate                                Sausalito, California                    142                         44.6  %          683.10               304.93                 188.2  %
Havana Cabana Key West                     Key West, Florida                        106                         93.8  %          411.65               386.07                  62.6  %
Tranquility Bay Beachfront Resort          Marathon, Florida                        103                         83.3  %          947.75               789.49                  29.4  %
Hotel Emblem San Francisco                 San Francisco, California                 96                         53.4  %          189.44               101.10                 418.1  %
L'Auberge de Sedona                        Sedona, Arizona                           88                         68.5  %        1,046.12               716.30                  23.8  %

The Landing Lake Tahoe Resort & Spa South Lake Tahoe, California

         82                         46.5  %          408.90               189.99                  13.5  %
Orchards Inn Sedona                        Sedona, Arizona                           70                         63.7  %          309.21               196.91                  24.9  %
Henderson Park Inn                         Destin, Florida                           37                         60.6  %          511.93               310.39                  38.4  %
TOTAL/WEIGHTED AVERAGE                                                            9,454                         55.8  %       $  278.57          $    155.43                 122.4  %


____________________
(1)The percentage change from 2021 RevPAR reflects the comparable period in 2021
to our 2022 ownership period for our 2022 and 2021 acquisitions.
(2)The hotel was closed for all or a portion of the three months ended March 31,
2021.

Results of Operations

Our results of operations for the three months ended March 31, 2022 improved
relative to the three months ended March 31, 2021 as all of our hotels were open
for the entire quarter, government mandates eased, vaccines were distributed,
and travel demand increased.

Comparison of the three months ended March 31, 2022 at the end of three months
March 31, 2021

In response to the COVID-19 pandemic, operations were suspended at three of our
hotels for all or a portion of the three months ended March 31, 2021. All of our
hotels were open during the three months ended March 31, 2022.

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

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                                     Three Months Ended March 31,
                                           2022                     2021       % Change
        Rooms                $          132.2                     $ 50.4        162.3  %
        Food and beverage                45.7                       13.9        228.8  %
        Other                            18.9                        8.6        119.8  %
        Total revenues       $          196.8                     $ 72.9        170.0  %


Our total revenues have increased $123.9 million from $72.9 million for the three months ended March 31, 2021 for $196.8 million for the three months ended
March 31, 2022.

The following are key hotel operating statistics for the three months ended
March 31, 2022 and 2021. The 2021 operating statistics reflect the period in
2021 comparable to our ownership period in 2022 for hotels acquired in 2021 and
2022.

                                   Three Months Ended March 31,
                                  2022                        2021         % Change
             Occupancy %             55.8   %                  29.6  %       26.2  %
             ADR            $      278.57                  $ 236.10          18.0  %
             RevPAR         $      155.43                  $  69.88         122.4  %



Rooms revenues increased by $81.8 million from the three months ended March 31,
2021 to the three months ended March 31, 2022 primarily due to increases in
occupancy and ADR as our hotels continued to recover from the COVID-19 pandemic.
Additionally, the acquisitions of the Bourbon Orleans Hotel and Henderson Park
Inn in July 2021, Henderson Beach Resort in December 2021 and Tranquility Bay
Beachfront Resort in January 2022 (collectively, our "2021/2022 acquisitions")
contributed to the increase in rooms revenue by $13.9 million.

Food and beverage revenues increased $31.8 million from the three months ended
March 31, 2021 to the three months ended March 31, 2022 primarily due to
increases in occupancy as our hotels continued to recover from the COVID-19
pandemic. Additionally, our 2021/2022 acquisitions contributed to the increase
in food and beverage revenues by $3.5 million.

Other revenues, which primarily represent spa, parking, resort fees and
attrition and cancellation fees, increased by $10.3 million from the three
months ended March 31, 2021 to the three months ended March 31, 2022 primarily
due to increases in occupancy as our hotels continued to recover from the
COVID-19 pandemic, as well as increases in attrition and cancellation fees.
Additionally, our 2021/2022 acquisitions contributed to the increase in other
revenues by $2.0 million.

Hotel running costs. Operating expenses were broken down as follows (in millions of dollars):

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                                                        Three Months Ended March 31,
                                                          2022                   2021                 % Change
Rooms departmental expenses                        $           33.8          $     13.8                     144.9  %
Food and beverage departmental expenses                        33.2                11.6                     186.2
Other departmental expenses                                     4.8                 2.0                     140.0
General and administrative                                     16.8                 9.9                      69.7
Utilities                                                       5.6                 4.1                      36.6
Repairs and maintenance                                         8.8                 5.8                      51.7
Sales and marketing                                            12.4                 5.8                     113.8
Franchise fees                                                  5.8                 2.4                     141.7
Base management fees                                            3.6                 1.1                     227.3
Incentive management fees                                       0.4                   -                     100.0
Property taxes                                                 10.8                14.1                     (23.4)
Other fixed charges                                             8.9                 3.8                     134.2
Severance costs                                                (0.5)                0.1                    (600.0)
Professional fees and pre-opening costs related to
Frenchman's Reef                                                  -                 0.6                    (100.0)
Lease expense                                                   3.0                 2.8                       7.1

Total hotel operating expenses                     $          147.4          $     77.9                      89.2  %



Our hotel operating expenses increased $69.5 million from the three months ended
March 31, 2021 to the three months ended March 31, 2022 primarily due to
increases in occupancy as our hotels continued to recover from the COVID-19
pandemic and other related operating costs stemming from the timing and extent
of the COVID-19 pandemic. Additionally, our 2021/2022 acquisitions contributed
to the increase in hotel operating expenses by $15.0 million. The increase in
hotel operating expenses was partially offset by a $3.3 million decrease due to
our dispositions of Frenchman's Reef & Morning Star Marriott Beach Resort in
April 2021 and The Lexington Hotel in June 2021.

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 $0.3 million, or 1.1%, from the three months
ended March 31, 2021 primarily due to the sale of The Lexington Hotel in June
2021.

Impairment losses. During the three months ended March 31, 2022, we recorded an
impairment loss of $2.8 million on the right-to-manage intangible asset related
to the rental management agreements at Tranquility Bay Beachfront Resort upon
entering into purchase agreements during the three months ended March 31, 2022
to acquire four third-party owned units. During the three months ended March 31,
2021, we recorded impairment losses of $122.6 million related to the
dispositions of The Lexington Hotel and Frenchman's Reef & Morning Star Marriott
Beach Resort.

Corporate expenses. Corporate expenses principally consist of employee-related
costs, including base payroll, bonus, restricted stock and severance. Corporate
expenses also include corporate operating costs, professional fees and
directors' fees. Our corporate expenses decreased $1.2 million, or 15.7%, from
$7.2 million for the three months ended March 31, 2021 to $6.0 million for the
three months ended March 31, 2022 primarily due to the reversal of compensation
expense during the three months ended March 31, 2022 resulting from the
forfeiture of long-term incentive awards related to the resignation of our
former Executive Vice President and Chief Operating Officer.

Business interruption insurance income. During the three months ended March 31,
2022, we recognized $0.5 million of business interruption insurance income
related to the impact of the Caldor wildfire at The Landing Lake Tahoe Resort &
Spa, which caused the hotel to be closed for 21 days in 2021. We did not
recognize any business interruption insurance income during the three months
ended March 31, 2021.

Interest expense. Our interest expense was $4.1 million and $8.5 million for the
three months ended March 31, 2022 and 2021, respectively, and was comprised of
the following (in millions):
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                                                         Three Months Ended March 31,
                                                               2022                  2021
Mortgage debt interest                             $           6.0                  $ 6.3
Unsecured term loan interest                                   3.6                    3.6
Credit facility interest and unused fees                       1.3          

0.7

Amortization of debt issuance costs and debt
premium                                                        0.7          

0.6

Interest rate swap mark-to-market and net
settlements                                                   (7.5)                  (2.7)
                                                   $           4.1                  $ 8.5


The decrease in interest expense is primarily related to the mark-to-market of our interest rate swaps.

Cash and capital resources

Our short-term liquidity requirements consist primarily of funds necessary to
pay our scheduled debt service and operating expenses, ground lease payments
(see Note 4 to the accompanying consolidated financial statements), capital
expenditures directly associated with our hotels and distributions to our
preferred stockholders, as well as the maturities of four mortgage loans in the
next 12 months. We have suspended our quarterly common stock dividend. We
currently expect that our existing cash balances and available capacity on our
senior unsecured credit facility will be sufficient to meet our short-term
liquidity requirements.

Our mortgage debt agreements contain "cash trap" provisions that are triggered
when the hotel's operating results fall below a certain debt service coverage
ratio. When these cash trap provisions are triggered, all of the excess cash
flow generated by the hotel is deposited directly into cash management accounts
for the benefit of our lenders until a specified debt service coverage ratio is
reached and maintained for a certain period of time. Such provisions do not
allow the lender the right to accelerate repayment of the underlying debt. As of
March 31, 2022, the debt service coverage ratios or debt yields for all of our
mortgage loans, except for the mortgage loan secured by the Salt Lake City
Marriott Downtown at City Creek, were below the minimum thresholds such that the
cash trap provision of each respective loan was triggered. We do not expect that
such cash traps will affect our ability to satisfy our short-term liquidity
requirements.

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

Our funding strategy

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

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

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We believe that we maintain a reasonable amount of debt. As of March 31, 2022,
we had $1.2 billion of debt outstanding with a weighted average interest rate of
3.78% and a weighted average maturity date of approximately 2.2 years. We have
four mortgage debt maturities within 12 months of May 6, 2022, and 25 of our 33
hotels unencumbered by mortgage debt. We remain committed to our core strategy
of prudent leverage.

Information on our financing activities is available in note 8 of the accompanying consolidated financial statements.

ATM program

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

Short-term loans

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

Senior unsecured credit facility and unsecured term loans

We are party to a $400 million senior unsecured credit facility expiring in July
2023, a $350 million unsecured term loan maturing in July 2024 and a $50 million
unsecured term loan maturing in October 2023. The maturity date for the senior
unsecured credit facility may be extended for an additional year upon the
payment of applicable fees and the satisfaction of certain customary conditions.
As of March 31, 2022, we had $200.0 million of borrowings outstanding under our
senior unsecured credit facility. On each of June 9, 2020, August 14, 2020,
January 20, 2021 and February 4, 2022, we executed amendments to the credit
agreements for our corporate credit facility and term loans. These amendments
provided for a waiver of the quarterly tested financial covenants beginning with
the second quarter of 2020 through the first quarter of 2022 and allow for
certain other modifications to the covenants thereafter through the second
quarter of 2023. As of March 31, 2022, we were in compliance with all of the
original financial covenants under the credit agreements. We expect to exit the
covenant waiver restrictions as of the second quarter of 2022.

Additional information about the credit agreements, including a summary of material covenants, a description of the restrictions imposed by the amendments and their impacts on our liquidity, our sources of capital and our ability to incur additional debt, can be found at note 8 of the attached annex. consolidated financial statements.

Sources and uses of species

We expect that our principal sources of cash will include one or more of the
following: net cash flow from hotel operations, sales of our equity and debt
securities, debt financings and proceeds from hotel dispositions. Our principal
uses of cash are for potential acquisitions of hotel properties, debt service
and maturities, share repurchases, capital expenditures, operating costs, ground
lease payments, corporate expenses, and any distributions to holders of common
stock, common units and preferred stock. As of March 31, 2022, we had $41.6
million of unrestricted cash, $38.9 million of restricted cash and
$200.0 million of outstanding borrowings on our senior unsecured credit
facility.

Our net cash used in operations was $13.2 million for the three months ended
March 31, 2022. 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 used in investing activities was $110.9 million for the three
months ended March 31, 2022, which consisted of $11.6 million of capital
expenditures at our operating hotels, $64.1 million paid for the acquisition of
Tranquility Bay Beachfront Resort and the subsequent purchase of two third-party
owned units at the resort, and $36.2 million paid in purchase deposits for the
acquisition of the Kimpton Fort Lauderdale Beach Resort, which closed on April
1, 2022, offset by $1.0 million of deferred key money received for the Henderson
Beach Resort.

Our net cash provided by financing activities was $102.7 million for the three
months ended March 31, 2022, which consisted of draws of $110.0 million on our
senior unsecured credit facility, offset by $2.5 million of distributions paid
to holders of preferred stock, $3.9 million of scheduled mortgage debt principal
payments, $0.1 million paid for financing costs for the credit agreements, and
$0.8 million paid to repurchase shares for the payment of tax withholding
obligations and for accrued dividends upon the vesting of restricted stock.
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We currently anticipate our significant sources of cash for the remainder of the
year ending December 31, 2022 will be the net cash flow from hotel operations as
the lodging disruptions from COVID-19 continue to subside and draws on our
senior unsecured credit facility. We expect our estimated uses of cash for the
remainder of the year ending December 31, 2022 will be scheduled debt service
payments, payments of outstanding borrowings on our unsecured credit facility,
capital expenditures, potential funding of hotel working capital requirements,
distributions to preferred stockholders, corporate expenses and potential hotel
acquisitions. Additionally, we expect uses of cash in 2023 will include our
scheduled debt maturities.

Dividend policy

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

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

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

Our board of directors suspended our quarterly common dividend commencing with
the first quarter dividend that would have been paid in April 2020. The payment
of future dividends is determined by our board of directors after considering
our projected taxable income, obligations under our financing agreements,
expected capital requirements, and risks affecting our business. We currently
expect to recommence the quarterly common dividend beginning in the third
quarter of 2022.

We paid the following dividends per share to holders of our Series A Preferred Shares in 2022 and up to the date of this report:

                                                               Dividend
                     Payment Date          Record Date        per Share
                     March 31, 2022       March 18, 2022     $ 0.515625


Capital expenditure

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 March 31, 2022, we have set
aside $26.0 million for capital projects in property improvement funds, which
are included in restricted cash.

In 2022, we expect to spend approximately $100 million on necessary capital improvements and a few selected transformation projects with attractive returns on investment. Important projects in 2022 include the following:

•JW Marriott Denver Cherry Creek: We completed renovations in March 2022 to
rebrand the hotel as Hotel Clio, a Luxury Collection Hotel.
•Kimpton Hotel Palomar Phoenix: We plan to complete a comprehensive rebranding
and repositioning this year of the rooftop bar and pool at the hotel. The new
rooftop will be named The Eden and offer an extraordinary food and beverage
experience.
•Hilton Boston Downtown/Faneuil Hall: We expect to commence a comprehensive
renovation in the fourth quarter of 2022 to reposition the hotel as an
experiential lifestyle property to be completed in mid-2023.
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•Orchards Inn Sedona: We expect to commence the first phase of an upgrade
renovation of the resort in late-2022. The two phase renovation, which is
expected to be completed in 2023, will reposition the hotel as The Cliffs at
L'Auberge.
•Hilton Burlington Lake Champlain: We are working with Hilton Worldwide to
potentially rebrand the hotel as a Curio Collection. The repositioning is
expected to be completed in early 2023 and include a new restaurant concept by a
local renowned chef.

We have invested approx. $11.6 million capital improvements in our hotels during the three months ended March 31, 2022.

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, EBITDAre,
Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered
in isolation or as a substitute for measures of performance in accordance with
U.S. GAAP. EBITDA, EBITDAre, Adjusted EBITDA, FFO and Adjusted FFO, as
calculated by us, may not be comparable to other companies that do not define
such terms exactly as the Company.

Use and Limitations of Non-GAAP Financial Measures

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

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

EBITDA, EBITDAre and FFO

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

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

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

EBITDAre and FFO adjustments

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

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

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

The following table is a reconciliation of our WE GAAP net income on EBITDA, EBITDAre and adjusted EBITDA (in thousands):

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                                                                  Three Months Ended March 31,

                                                                    2022                  2021
Net income (loss)                                             $      10,060          $  (171,567)
Interest expense                                                      4,119                8,484
Income tax (benefit) expense                                            (54)               1,613
Real estate related depreciation and amortization                    26,655               26,962
EBITDA                                                               40,780             (134,508)
Impairment losses                                                     2,843              122,552

EBITDAre                                                             43,623              (11,956)
Non-cash lease expense and other amortization                         1,568                1,672

Professional fees and pre-opening costs related to Frenchman’s Reef (1)

                                                      -                  575
Hotel manager transition items                                          249                  128
Severance costs (2)                                                    (532)                  10

Adjusted EBITDA                                               $      44,908          $    (9,571)


____________________

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

Frenchman’s Reef, as well as legal and other fees incurred at Frenchman’s Reef

following Hurricane Irma that were not covered by insurance.

(2) Includes severance pay incurred following the elimination of positions at our

hotels, which are classified under other hotel expenses on the

state of operations.



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

                                                                  Three Months Ended March 31,

                                                                    2022                  2021
Net income (loss)                                             $      10,060          $  (171,567)
Real estate related depreciation and amortization                    26,655               26,962
Impairment losses                                                     2,843              122,552

FFO                                                                  39,558              (22,053)
Distributions to preferred stockholders                              (2,454)              (2,454)
FFO available to common stock and unit holders                       37,104              (24,507)
Non-cash lease expense and other amortization                         1,568                1,672

Professional fees and pre-opening costs related to Frenchman’s Reef (1)

                                                      -                  575
Hotel manager transition items                                          249                  128

Severance costs (2)                                                    (532)                  10

Fair value adjustments to interest rate swaps                        (7,502)              (2,731)

Adjusted FFO available to common stock and unitholders $30,887

         $   (24,853)


____________________

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

Frenchman’s Reef, as well as legal and other fees incurred at Frenchman’s Reef

following Hurricane Irma that were not covered by insurance.

(2) Includes severance pay incurred following the elimination of positions at our

hotels, which are classified under other hotel expenses on the

state of operations.

Critical accounting estimates and policies

Our unaudited consolidated financial statements include the accounts of
DiamondRock Hospitality Company and all consolidated subsidiaries. The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of our financial statements and the reported
amounts of revenues and expenses during the reporting period. While we do not
believe the reported amounts would be materially different, application of these
policies involves the exercise of judgment and the use of assumptions as to
future
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uncertainties and, as a result, actual results could differ materially from
these estimates. We evaluate our estimates and judgments, including those
related to the impairment of long-lived assets, on an ongoing basis. We base our
estimates on experience and on various assumptions that are believed to be
reasonable under the circumstances. All of our significant accounting policies
are disclosed in the notes to our consolidated financial statements. All of our
significant accounting policies, including certain critical accounting policies,
are disclosed in our Annual Report on Form 10-K for the year ended December 31,
2021. The following represent certain critical accounting policies that require
us to exercise our business judgment or make significant estimates:

Investment in Hotels
Investment purchases of hotel properties, land, land improvements, building and
furniture, fixtures and equipment, lease assets and liabilities, and
identifiable intangible assets that are not businesses are accounted for as
asset acquisitions and recorded at relative fair value based upon total
accumulated cost of the acquisition. Property and equipment purchased after the
hotel acquisition date is recorded at cost.

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

We review our investments in hotels for impairment whenever events or changes in
circumstances indicate that the carrying amount of the hotel properties may not
be recoverable. Events or circumstances that may cause us to perform a review
include, but are not limited to, adverse changes in the demand for lodging at
our properties, current or projected losses from operations, and an expectation
that the property is more likely than not to be sold significantly before the
end of its previously estimated useful life. If such events or circumstances are
identified, management performs an analysis to compare the estimated
undiscounted future cash flows from operations and the net proceeds from the
ultimate disposition of a hotel to the carrying amount of the asset. If the
estimated undiscounted future cash flows are less than the carrying amount of
the asset, an adjustment to reduce the carrying amount to the related hotels'
estimated fair value is recorded and an impairment loss is recognized. The fair
value is determined through various valuation techniques, including discounted
cash flow models with estimated discount and terminal capitalization rates,
comparable market transactions, third-party appraisals, the net sales proceeds
from pending offers, or from transactions that closed subsequent to the end of
the reporting period.

Inflation

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

Seasonality

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

New accounting statements not yet implemented

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

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