NOTE 10 — EQUITY-BASED COMPENSATION

Our currently outstanding equity-based awards were issued under our Equity Plan, which was amended and restated on June 15, 2015 and 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 non-qualified 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.

Stock Options Granted Under Our Equity Plan

Concurrent with the completion of our IPO and pursuant to our Equity Plan, 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 Equity Plan for 2015 and 2014:

	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, 2013	893,000		$	9.75
Granted	—		—
Exercised	(47,000	)	9.75
Forfeited	—		—

Outstanding at December 31, 2014	846,000			9.75
Granted	—		—
Exercised	(376,000	)	9.75
Forfeited	—		—

Outstanding at December 31, 2015	470,000		$	9.75	5.2	$	1,034
Exercisable at December 31, 2015	376,000		$	9.75	5.2	$	827

All stock options outstanding at December 31, 2015 are vested or became vested on February 13, 2016. During the years ended December 31, 2015, 2014, and 2013, the total fair value of stock options that vested was $0.9 million, $0.7 million and $0.6 million, respectively.

The intrinsic value of outstanding options and exercisable options at December 31, 2015 was $1.0 million and $0.8 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 Made Pursuant to Our Equity Plan

On March 3, 2015, we granted time-based restricted stock awards for 149,410 shares of common stock to our executive officers and management. Of the total awards issued, 37,230 vest based on continued service on March 9, 2018, or upon a change in control. The remaining awards vest over a three year period based on continued service (25% on March 9, 2016 and 2017 and 50% on March 9, 2018), or upon a change in control.

On April 24, 2015, we granted a time-based restricted stock award for 16,930 shares of common stock to one of our executive officers. The award vests ratably over a three year period based on continued service on the first, second and third anniversaries of the grant date.

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.

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 Equity Plan for 2015 and 2014:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)
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
Granted	166,340		13.53
Vested	(97,445	)	10.46

Non-vested December 31, 2015	250,011		$	12.03	$	2,988

During the years ended December 31, 2015, 2014, and 2013, the total fair value of time-based restricted stock awards that vested was $1.0 million, $0.8 million and $0.2 million, respectively.

Performance-Based Restricted Stock Awards Made Pursuant to Our Equity Plan

On March 3, 2015, we granted performance-based restricted stock awards for 154,505 shares of common stock to certain of our executive officers. Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. The fair value of the performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model.

These awards generally vest based on the Company’s percentile ranking within the SNL U.S. REIT Hotel Index at the end of the period beginning on January 1, 2015 and ending on the earlier of December 31, 2017, or upon a change in control. The awards require continued service during the measurement period and are subject to the other conditions described in the Equity Plan or award document.

The number of shares the executive officers may earn under these awards range from zero shares to twice the number of shares granted based on the Company’s percentile ranking within the index at the end of the measurement period. The holders of these grants have the right to vote the granted shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards. Further, if additional shares are earned based on the Company’s percentile ranking within the index, dividend payments will be issued as if the additional shares had been held throughout the measurement period.

On May 28, 2014 and March 1, 2013 we awarded performance-based restricted stock awards for 161,935 and 185,572 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 2014 and 2013 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 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.

The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model and the following assumptions:

	2015		2014
Expected dividend yield	3.42%		4.48%
Expected stock price volatility	22.2%		27.9%
Risk-free interest rate	1.02%		0.06 - 0.60%
Monte Carlo iterations	100,000		100,000
Weighted average estimated fair value of performance-based restricted stock awards	$	18.78	$	7.12

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.

On January 1, 2015, 128,185 performance-based restricted shares previously granted to management vested based on the achievement of certain performance targets. The remaining 46,030 unvested performance-based restricted shares granted in 2012 were forfeited. Other than the accelerated vesting upon Mr. Becker’s resignation, no performance-based restricted stock awards vested during 2014 or 2013 because performance goals were not met.

The following table summarizes performance-based restricted stock activity under our Equity Plan for 2015 and 2014:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)
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
Granted	154,505		18.78
Vested	(184,666	)	6.86
Forfeited	(46,030	)	5.10

Non-vested December 31, 2015	308,367		$	12.95	$	3,685

Director Stock Awards Made Pursuant to Our Equity Plan

In 2015 and 2014, we granted 30,440 and 32,317 shares of common stock, respectively, to our non-employee directors as a part of our director compensation program. These grants were made pursuant to our Equity 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 2015 and 2014, we issued 6,246 and 7,539 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 2015, 2014, and 2013 was (in thousands):

	2015		2014		2013
Stock options	$	633	$	675	$	622
Time-based restricted stock	1,691		960		611
Performance-based restricted stock	1,957		1,483		548
Director stock	472		406		343

	$	4,753	$	3,524	$	2,124

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 pursuant to our Equity Plan was $4.1 million at December 31, 2015 as follows (in thousands):

	Total		2016		2017		2018
Stock options	$	55	$	55	$	—	$	—
Time-based restricted stock	1,919		1,008		799		112
Performance-based restricted stock	2,157		1,133		1,024		—

	$	4,131	$	2,196	$	1,823	$	112