NOTE 16 - EQUITY-BASED COMPENSATION

Our equity-based awards were issued under our 2011 Equity Incentive Plan, which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based awards or incentive awards. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our existing equity-based awards are classified as equity awards.

At December 31, 2013 and 2012, the Company had reserved 10,485,951 and 7,544,665 shares of common stock, respectively, for the issuance of common stock (i) upon the exercise of stock options, issuance of time-based restricted stock awards, issuance of performance-based restricted stock awards, grants of director stock awards, or other awards issued pursuant to the Company’s 2011 Equity Incentive Plan, (ii) upon redemption of Common Units, or (iii) under the ATM offering.

Stock Options

Concurrent with the completion of our IPO, we granted options to our executive officers to purchase 940,000 shares of common stock, 47,000 of which were forfeited in 2012. These options have an exercise price of $9.75 per share, the market value of the common stock on the date of grant, and vest ratably over five years based on continued service, or upon a change in control.

The fair value of stock options granted was estimated using a Black-Scholes valuation model and the following assumptions:

	2011

Expected dividend yield	5.09		%
Expected stock price volatility	56.6		%
Risk-free interest rate	2.57		%
Expected life of options (in years)	6.5

Weighted average estimated fair value of options at grant date per share	$	3.48

The expected dividend yield was calculated based on our annual expected dividend payments at the time the options were granted. The expected volatility was based on historical price changes of a peer group of comparable entities based on the expected life of the options at the date of grant. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding.

The following table summarizes stock option activity under our 2011 Equity Incentive Plan for 2013, 2012 and 2011:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms	Aggregate Intrinsic Value (Current Value Less Exercise Price)
			(Per share)		(In years)	(In thousands)
Outstanding at December 31, 2010	—		$	—
Granted	940,000		9.75
Exercised	—		—
Forfeited	—		—

Outstanding at December 31, 2011	940,000		9.75
Granted	—		—
Exercised	—		—
Forfeited	(47,000	)	9.75

Outstanding at December 31, 2012	893,000		9.75
Granted	—		—
Exercised	—		—
Forfeited	—		—

Outstanding at December 31, 2013	893,000		$	9.75	7.2	$	—

Exercisable at December 31, 2013	357,200		$	9.75	7.2	$	—

All stock options outstanding at December 31, 2013 are vested or expected to vest. During the years ended December 31, 2013, 2012 and 2011, the total fair value of stock options that vested was $1.2 million, $1.2 million and $0, respectively.

At December 31, 2013, the exercise price of our outstanding options exceeds the market price of our common stock.

Time-Based Restricted Stock Awards

On March 1, 2013, we awarded time-based restricted stock awards for 106,518 shares of common stock to our executive officers. These awards vest over a three year period based on continued service (25% on February 28, 2014 and 2015 and 50% on February 28, 2016), or upon a change in control.

On April, 25, 2012, we awarded time-based restricted stock awards for 110,137 shares of common stock to our executive officers. These awards vest over a three year period based on continued service (25% at December 31, 2012 and 2013 and 50% at December 31, 2014), or upon a change in control.

The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.

The fair value of time-based restricted stock awards granted is calculated based on the market value on the date of grant.

The following table summarizes time-based restricted stock activity under our 2011 Equity Incentive Plan for 2013 and 2012:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(Per share)		(In thousands)
Non-vested December 31, 2011	—		$	—
Granted	110,137		7.78
Vested	(27,534	)	7.78
Forfeited	—		—

Non-vested December 31, 2012	82,603		7.78
Granted	106,518		9.78
Vested	(27,534	)	7.78
Forfeited	—		—

Non-vested December 31, 2013	161,587		$	9.10	$	1,454

During the years ended December 31, 2013, 2012 and 2011, the total fair value of time-based restricted stock awards that vested was $0.2 million, $0.2 million and $0, respectively.

Performance-Based Restricted Stock Awards

On March 1, 2013, we awarded performance-based restricted stock awards for 185,572 shares of common stock to our executive officers. These awards vest ratably over three years (2013, 2014 and 2015) subject to the attainment of certain performance goals and continued service, or upon a change in control.

On April, 25, 2012, we awarded performance-based restricted stock awards for 82,602 shares of common stock to our executive officers. These awards vest ratably over three years (2012, 2013 and 2014) subject to the attainment of certain performance goals and continued service, or upon a change in control.

No performance-based restricted stock awards vested during 2013 or 2012 because performance goals were not met. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.

Our performance-based restricted stock awards are market-based awards and are accounted for based on the grant date fair value of our common stock. These awards vest based on a performance measurement that requires the Company’s total shareholder return (“TSR”) to exceed the TSR for the SNL U.S. Lodging REIT Index for a designated one, two or three year performance period. The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model and the following assumptions:

	2013			2012

Expected dividend yield	4.52		%	5.58		%
Expected stock price volatility	38.5		%	44.7		%
Risk-free interest rate	0.147 - 0.513		%	0.146 - 0.428		%
Monte Carlo iterations	100,000			100,000

Weighted average estimated fair value of performance-based restricted stock awards	$	7.09		$	5.10

The expected dividend yield was calculated based on our annual expected dividend payments at the time of grant. The expected volatility was based on historical price changes of our common stock for a period comparable to the performance period. The risk-free interest rates were interpolated from the Federal Reserve Bond Equivalent Yield rates for “on-the-run” U.S. Treasury securities.

The following table summarizes performance-based restricted stock activity under our 2011 Equity Incentive Plan for 2013 and 2012:

	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Current Value
		(Per share)		(In thousands)
Non-vested December 31, 2011	—	$	—
Granted	82,602	$	7.78
Vested	—	$	—
Forfeited	—	$	—

Non-vested December 31, 2012	82,602	$	7.78
Granted	185,572	$	7.09
Vested	—	$	—
Forfeited	—	$	—

Non-vested December 31, 2013	268,174	$	7.30	$	2,414

Director Stock Awards

In 2013, 2012 and 2011, we granted 29,228, 15,288 and 4,000 shares of common stock, respectively, to our non-employee directors as a part of our director compensation program. These grants were made under our 2011 Equity Incentive Plan and were vested upon grant.

Our non-employee directors have the option to receive shares of our common stock in lieu of cash for their director fees. In 2013, we issued 6,488 shares of common stock for director fees.

Equity-Based Compensation Expense

Equity-based compensation expense for 2013, 2012 and 2011 was (in thousands):

	2013		2012		2011

Included in corporate general and administrative salaries and other compensation in the consolidated statements of operations
Stock options	$	622	$	700	$	441
Time-based restricted stock	611		214		—
Performance-based restricted stock	548		171		—

	1,781		1,085		441
Included in corporate general and administrative other in the consolidated statements of operations
Director stock	343		120		39

	$	2,124	$	1,205	$	480

We recognize equity-based compensation expense ratably over the vesting terms. The amount of expense may be subject to adjustment in future periods due to a change in the forfeiture assumptions.

Unrecognized equity-based compensation expense for all non-vested awards was $3.4 million at December 31, 2013. We expect to recognize this cost over a remaining weighted-average period of 1.5 years.