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, 2014 and 2013, the Company had reserved 9,669,896 and 10,485,951 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. 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 2014 and 2013:

	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, 2012	893,000		9.75
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding at December 31, 2013	893,000		9.75
Granted	—		—
Exercised	(47,000	)	9.75
Forfeited	—		—
Outstanding at December 31, 2014	846,000		$	9.75	6.2	$	2,276
Exercisable at December 31, 2014	507,600		$	9.75	6.2	$	1,365

All stock options outstanding at December 31, 2014 are vested or expected to vest. During the years ended December 31, 2014, 2013, and 2012, the total fair value of stock options that vested was $0.7 million, $0.6 million and $0.6 million, respectively.

The intrinsic value of outstanding options and exercisable options at December 31, 2014 was $2.3 million and $1.4 million, respectively. At December 31, 2013, the exercise price of our outstanding options exceeded the market price of our common stock, resulting in no intrinsic value.

Time-Based Restricted Stock Awards

On May 28, 2014, we awarded time-based restricted stock awards for 116,981 shares of common stock to our executive officers and management. These awards vest over a three year period based on continued service (25% on May 27, 2015 and 2016 and 50% on May 27, 2017), or upon a change in control.

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 2014 and 2013:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)
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
Granted	116,981		9.82
Vested	(95,696	)	8.63
Forfeited	(1,756	)	9.82
Non-vested December 31, 2014	181,116		$	9.81	$	2,253

The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 23,035 common shares granted under time-based restricted stock awards.

During the years ended December 31, 2014, 2013, and 2012, the total fair value of time-based restricted stock awards that vested was $0.8 million, $0.2 million and $0.2 million, respectively.

Performance-Based Restricted Stock Awards

On May 28, 2014, March 1, 2013 and April 25, 2012 we awarded performance-based restricted stock awards for 161,935, 185,572 and 82,602 shares, respectively, of common stock to our executive officers. These awards vest ratably on January 1 in each year of the three-year period following the grant date subject to the attainment of certain performance goals and continued service, or upon a change in control.

The severance and release agreement between the Company and Stuart J. Becker described above, provided for accelerated vesting of all restricted shares of common stock previously granted to Mr. Becker. On the effective date of the severance and release agreement, the restrictions lapsed on 45,551 common shares granted under performance-based restricted stock awards.

Other than the accelerated vesting detailed in the previous paragraph, no performance-based restricted stock awards vested during 2014 or 2013 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 stockholder 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:

	2014		2013

Expected dividend yield	4.48%		4.52%
Expected stock price volatility	27.9%		38.5%
Risk-free interest rate	0.06 - 0.60%		0.147 - 0.513%
Monte Carlo iterations	100,000		100,000
Weighted average estimated fair value of performance-based restricted stock awards	$	7.12	$	7.09

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 2014 and 2013:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)

Non-vested December 31, 2012	82,602		$	7.78
Granted	185,572		7.09
Vested	—		—
Forfeited	—		—
Non-vested December 31, 2013	268,174		6.48
Granted	161,935		7.12
Vested	(45,551	)	6.50
Forfeited	—		—
Non-vested December 31, 2014	384,558		$	6.75	$	4,784

Director Stock Awards

In 2014 and 2013, we granted 32,317 and 29,228 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 2014 and 2013, we issued 7,539 and 6,488 shares of common stock, respectively, for director fees.

Equity-Based Compensation Expense

Equity-based compensation expense included in corporate general and administrative in the Consolidated Statements of Operations for 2014, 2013, and 2012 was (in thousands):

	2014		2013		2012

Stock options	$	675	$	622	$	700
Time-based restricted stock	960		611		214
Performance-based restricted stock	1,483		548		171
Director stock	406		343		120
	$	3,524	$	2,124	$	1,205

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 $2.8 million at December 31, 2014. We expect to recognize this cost over a remaining weighted-average period of 0.9 years with $2.0 million, $0.7 million and $0.1 million being recognized in 2015, 2016 and 2017, respectively.